Containerization - going the other route

by Suzi Fraser Dominy
Share This:

Technical advances in production and processing, the use of the Internet as a platform for speedier and more direct grain trading and the shift from central buying agencies to individual smaller buyers — many of whom have limited storage capacity and who increasingly demand specific quality characteristics and services such as just-in-time delivery and risk management assistance — are all factors that are forcing changes in the storage, handling and distribution of grain.

In particular, demand for smaller, identity preserved grain shipments is growing as a more discerning and sophisticated market is leading processors to seek product differentiation through specialty and value-added grain offerings and assured quality. This trend is set to continue as technology makes available an ever-growing array of new cultivars for specific end uses, such as high-protein corn, wheat with specific characteristics for baking or white noodles, low-saturated-fat soybeans, soybeans for tofu making, as well as organic and GMO-free varieties. In addition to requiring an identity preserved (IP) supply chain and smaller and speedier shipment options, these higher-value products need to be handled well, protected from breakage and shrinkage during transportation.

GAINING GROUND

Containerized shipping has come a long way since its introduction in the mid-1960s. As intermodal transportation systems improve and the cost differential between bulk and container shrinks, containerization is becoming increasingly attractive as a solution to the changing market environment. However, by comparison with traditional bulk shipping, movement of grain by container is still small. In Canada for example, containerized grain shipping is estimated to be only 3% to 5% of all grain exported. But industry experts predict that this number could increase to 10% or 15%, with some analysts suggesting as much as 25%, in the next year or two.

The flexibility and wide application of container shipping is evident in viewing the distribution of containerized grain and grain products.

Of the ports receiving an average of at least 20 TEUs of U.S. export grain for 1999 and 2000, the U.S. Department of Agriculture identified 320 ports as destinations for U.S. shipments of grain and grain products. (Twenty-foot Equivalent Units, known as TEUs, hold approximately 20 tonnes of grain — a volume equivalent to that occupied by one ISO 20-foot container.)

Thirty-one ports received at least 1,000 TEUs from U.S. port origins for those same years. These 31 largest volume port recipients handled 62% of the total containerized U.S. grain and grain product shipments for 1999 and 2000. The port tallying the most imports of U.S. containerized grain is in Tokyo,

Japan. It imported 10,963 TEUs or 8% of containerized grain and grain products exported from U.S. ports. San Juan in Puerto Rico, and another Japanese port, Yokohama, are the second and third largest volume receivers, handling 6% and 5%, respectively. The distribution of the grain and grain product container shipments among other foreign ports is presented in Table 1. Table 2 lists the top 10 destinations for container shipments by volume.

Over 52% by value and 15% by weight of all U.S. agricultural trade was shipped via container in 2002 — an increase of 9% since 1992. Soybean shipments rose from 0.4% in 1992 to 1.8% in 2002, animal feed from 2.6% to 6.7% and pulses from 66% to 70%.

Australia has seen a huge increase in containerized grain shipments to Asia since the Asian economic crisis of the mid-1990s. As regular services have increased, containerized loads accumulate more quickly, improving efficiency.

In Vietnam in particular, where small flourmills with limited storage and processing capacities have started to emerge, the containers often serve double-duty as storage. In fact the container can act as storage anywhere along the transport route: the farm, intermodal station or ports with inadequate storage facilities. Container leasing companies have quoted prices as low as U.S.$0.33 per day for leasing a container for storage.

Many developing nations are unable to handle, transport or store bulk shipments of grain, making containerized shipments an effective way of moving grain into these countries, regardless of whether it is sold or sent under a food aid program.

Containerization of specialty grains helps prevent poor handling that results from bulk transport systems. Where bulk systems require handling the grain directly three or four times, if not more, during the transportation process, grain loaded into a container is not handled until unloading at its final destination.

Containers can be loaded and unloaded anywhere that has truck or rail access, such as the farm, a country grain elevator, or intermodal station, and remain sealed until reaching the destination. Not only does this protect the grain from damage in handling, but also from rodent, bird or other pests and contaminants and, quite literally, contains infestation or mold problems. Damage and theft problems are also minimized, saving as much as 20% of a bulk cargo in some situations.

JUST-IN-TIME

Speed is another major consideration — and one that has huge potential implications for the bulk sector. A shipment of grain can be harvested in Canada, for example, and stored in a container, shipped immediately upon purchase, and arrive at the destination in as little as 21 days; the bulk system would take approximately 97 days to make the same journey.

Once the container is loaded for export, the time it takes to get to the customer is based only on transit times for inland and ocean transportation. Container ships have regular service to overseas ports, thus minimizing the time waiting for a vessel.

The reduced time in transit not only provides just-in-time delivery for customers, it offers a means of marketing for the grain producer that bulk systems cannot provide and also helps buyers to reduce costs, such as inventory holds, and increases

reliability.

Not only does this offer new potential to elevators willing to invest in container services, but as the Internet and other new communication technologies are realized, marketing grain directly from the farm to overseas destinations becomes more realistic. Containerization will make these direct shipments possible and timely: producers may want to consider containerized grain movements of specialty grains as a way to diversify markets and increase profits.

Table 1: Destinations for U.S. Grain and Grain

Product Container Exports 1999-2000

PORT

COUNTRY

TEUs

Tokyo

Japan

10,963

8%

San Juan

Puerto Rico

7,210

6%

Yokohama

Japan

6,108

5%

Kobe

Japan

5,034

4%

Busan

Korean Republic

4,162

3%

Kaohsiung

Taiwan

3,810

3%

Nagoya

Japan

3,765

3%

Osaka

Japan

3,153

2%

Taichung

Taiwan

2,736

2%

Bangkok

Thailand

2,434

2%

Port Kelang

Malaysia

2,154

2%

Hakata

Japan

2,139

2%

Nassau

Bahamas

2,101

2%

Haina

Dominican Republic

2,035

2%

Hong Kong

China

1,965

2%

Yamato

Japan

1,800

1%

Manila

Philippines

1,797

1%

Buenos Aires

Argentina

1,686

1%

Santos

Brazil

1,489

1%

Puerto Cabello

Venezuela

1,406

1%

Callao

Peru

1,335

1%

Rotterdam

Netherlands

1,329

1%

Felixstowe

United Kingdom

1,260

1%

Valenci

Spain

1,203

1%

Bremerhaven

Germany

1,196

1%

Antwerp

Belgium

1,182

1%

Tomakomai

Japan

1,165

1%

Guatemala City

Guatemala

1,143

1%

Bar

Yugoslavia

1,112

1%

Thessaloniki

Greece

1,106

1%

Keelung

Taiwan

1,088

1%

Source: USDA MPC Report #03-151

 

A MATTER OF COST

Ultimately the growth in the container supply chain will largely be dependent on cost. Heidi Reichert of the USDA and Kimberly Vachal of Upper Great Plains Transportation Institute, North Dakota State University, authors of a 2000 report for the USDA, "Identity Preserved Grain — Logistical Overview" say that although the bulk system of moving grain has historically been a cheaper way than containerization, because of economies of scale and an unregulated, competitive market, this is changing.

"Due to the Ocean Shipping Reform Act of 1998, (OSRA), and vessels with increasing container capacities, container shipping is becoming a more cost-effective option for grain shipments unable to fill a bulk vessel or needing special handling. Vessels are now being constructed to carry as many as 6,000 TEUs in the upcoming year — that equates to the number of containers in 15 double stack container trains. As shipping lines continue to work together to create consortiums where vessel space is shared, the number of available slots for a given trade lane on a given day also increases.

"OSRA has allowed carriers to agree on service contracts with more confidentiality than in the past. This not only helps the shipper to find lower freight rates, but it also helps reduce the shipper’s costs by permitting the shipper to contract specialized and guaranteed services, unavailable to products shipped under a public tariff. Although service contracts were legal before OSRA, the improved confidentiality has made them more prevalent. In November 1999, 15,000 service contracts had been filed with the U.S. Federal Maritime Commission (FMC) since OSRA passed on May 1, 1999.

"Even before the new regulations were passed, ocean shippers had been seeing the lowest rates ever for U.S. exports to Asia and other markets over the past year; containers with lower valued cargo were moving to some markets overseas for as low U.S.$300 each.

"For animal feed moving in containers to Japan-based ports from the U.S. West Coast, in 1995 the public rates ranged from $750 to $2,000, and in 2000, the same rates ranged from $500 to $1,850."

LOGISTIC CHOICES

"More than just concentrating on transportation prices, however, the shipper needs to also consider all the costs of moving the product from the field to the final destination: the logistics chain offers such a means of reducing costs," Reichert and Vachal say.

"One way of reducing costs is to out-source the logistical management to a freight forwarder — the choice of almost 90% of U.S. agricultural exporters. A freight forwarder is familiar with foreign import requirements, export documentation, various shipping methods and finding the lowest rates for an export shipment.

"Also referred to as ‘transport architects,’ freight forwarders help agricultural shippers determine the best means of moving their cargo and help decide the best route, as well as the best days for shipping. Freight forwarders coordinate storage arrangements and in-land transportation requirements, as well as assemble the necessary export documentation for the shipment, book space, and arrange for insurance.

"Many freight forwarders also offer Non-Vessel Operating Common Carrier services. NVOCC’s are most useful to shippers in that they book large amounts of space with ocean carriers at a discount and then pass these savings onto their customers. Therefore, small shippers who cannot achieve economies of scale directly with the ocean carrier can work through an NVOCC to receive discounted rates. Although not working directly with a steamship line, shippers should evaluate the NVOCC and its services as they would an ocean carrier.

"Another way to reduce costs is by pooling cargo in the form of a shippers’ association.

"Cooperative shipping provides the smaller shipper a means of achieving the same efficiencies as large shippers. Shippers’ associations are considered as a "shipper," which means that they are granted the same rights as shippers and cannot be discriminated against by ocean carriers.

"Shippers’ associations may also provide marine insurance and other services aside from rate negotiation, but generally do not handle any other export transportation services, such as documentation and import regulation guidance. Therefore, although shippers’ associations often work directly with ocean carriers to negotiate service contracts, individual members may also work through freight forwarders and NVOCC’s to arrange the shipping of their exports."

Table 2: Top 10 Volume Foreign Port Destinations

for U.S. Container Shipments

Port

1999 (TEUs)

2000 (TEUs)

Average (TEUs)

% U.S. Grain Container Exports

Yokohama

3,060

3,406

3,233

15%

Tokyo

3,075

3,232

3,154

15%

Kobe

1,669

2,235

1,952

9%

Nagoya

1,242

2,038

1,640

8%

Busan

1,572

1,191

1,382

7%

Tomakomai

417

897

657

3%

Osaka

648

664

656

3%

Calcutta

831

431

631

3%

Hong Kong

537

649

593

3%

Kaohsiung

390

626

508

2%

Source: USDA MPC Report #03-151

 

NOT ALL PLAIN SAILING

There is still some way to go before containerized shipping achieves its full potential. Transportation, handling, and logistical infrastructure need to evolve further. There are numerous gaps and bottlenecks in the supply chain: container grain loading facilities are not universally available; container designs are not standardized, causing problems in attaching liners and bulkheads; incompatibilities exist between road weight limits and equipment; there is a gap between demand and supply volume, causing build up of containers at the customer end and shortages on the supply end, necessitating the movement of empty containers and a discrepancy between the availability of 40-foot containers and the demand for 20-foot containers. Perhaps the most significant challenge is guaranteeing consistency of product from one small load to the next.

Despite the challenges, containerization is rapidly becoming a mainstream option for grain shipping and its impact will affect everyone in the supply chain.

Partners