The changing face of grain transportation

by Meyer Sosland
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A growing number of grain producers in North America are choosing containerized grain transportation over the traditional bulk shipping method

by Leo Quigley

Amajor shift is occurring in global transportation patterns that may soon change the way North American farmers move grain to export terminals.

The first major change has been the adoption of standardsized boxes to move goods between the fast-growing industrial centers of Asia and the Northwest coast of the U.S. This shift towards modulization — using 20- and 40-foot marine containers — has been dramatic. 

In 2005, the four ports in the U.S. Pacific Northwest and Western Canada handled more than 6 million boxes. Seattle, Washington, U.S. handled 2,087,929 20-foot equivalent units (TEUs); Tacoma, Washington, U.S. moved 2,066,447; Portland, Oregon, U.S. handled 160,479; and Vancouver, Canada moved 1,767,379.

Compared to 2003, this represents an additional 979,072 TEUs in three years arriving at these West Coast ports, The second major change has to do with the evolving geopolitical situation in which large state grain purchases have collapsed in favor of worldwide commerce with countries such as China and India. Bilateral and multinational free trade agreements of all types are now being hammered out on an almost daily basis. Tariff walls are slowly coming down, and most importantly, buyers and sellers are coming together worldwide. Through the efforts of the World Trade Organization (WTO), Asia-Pacific Economic Cooperation (APEC) and other international organizations, global trade is beginning to blossom, bringing new customers into the marketplace. Some of these are large multinationals capable of receiving and financing traditional bulk grain shipments. But many are smaller buyers with specialized needs and limited financial resources, for which containerized grain, oilseeds, grain products and specialty crops present the ideal package.

Customers requiring specific quality attributes such as high-protein wheat, guaranteed oil content in canola, an organic label on their lentils, a GMO-free guarantee for their oats, or a myriad of other specialized requirements, prefer a sealed, identity-preserved, traceable container that delivers a manageable quantity.

As grain producers and specialty crops growers start to borrow marketing concepts from other agricultural producers, such as the beef industry, branded products that list variety, geographical location or specific agronomic regimen will add impetus to the need for identity preservation.

Containerized grain also offers growers the advantage of having their products transported on the North American rail system as priority freight as opposed to bulk grain. Some railroads operate their container trains on a scheduled basis, providing growers with the assurance they need when signing a contract with a penalty clause for late delivery.

With the diversification of grain, feed grain, oilseed and specialty crop varieties and the expansion of the global marketplace, containers offer many growers the flexibility, convenience, on-time delivery, identity preservation, protection from the elements and security that bulk grain hoppers or box cars cannot provide.

Fortunately — for the agriculture industry, at least — the majority of the roughly 6 million containers arriving at Pacific Northwest and Western Canadian container ports each year return to Asia empty.

For North American growers, today’s transportation environment represents the "perfect storm," which includes a growing need for boxes on the farm coupled with a growing supply of empty containers traveling east to west across the continent and seamlessly to markets in Asia and India. The key to unlocking this potential may be to put the two together and to offer railways and shipping lines "backhaul" opportunities that can attract an affordable rate.

While some are skeptical, people like Barry Prentice, professor of supply chain management at the I.H. Asper School of Business and former head of the University of Manitoba’s Transport Institute, think this can be accomplished.

"A few years ago nobody in Western Canada would believe that grain would move in containers," Prentice told World Grain. "Now I can hardly believe we’re not moving all grain in containers, because the economics have changed so dramatically."

Moving crops in containers is not entirely new to Prairie farmers or to the Port of Vancouver, Prentice said. Western Canadian producers regularly move specialty crops such as peas, beans, lentils, malting barley and mustard seed in containers through the Port of Vancouver, and this trade has now reached over 1 million tonnes annually.

But Prentice points out that there are also significant advantages to moving wheat, feed grains and oilseeds in containers. Among these are identity preservation and traceability. "This is becoming of much more concern to people," Prentice said. "It started out as the notion of GMOs, but it’s now important for simple security reasons and the ability to trace back where things came from." From the grain producer’s perspective, marine containers offer several advantages. One of these, Prentice said, is the ability to market and get a higher value for a product that is of higher value.

"You actually give the customer what they want," he said. "And for smaller receivers, being able to get exactly what you paid for is an advantage."

Prentice said crop diversity is the "soft underbelly of the bulk handling system."

"You need a bin for every different grade of product in an elevator. Whether you’ve got one tonne of product or 5,000 tonnes you still need the same one bin. The more grades you have and the more divisions, the more difficult the bulk handling system becomes," he said.

Prentice said the opening of a container-loading facility for high value grain near Edmonton, Alberta, Canada, is an indication of the interest Ca- nadian railways are paying to containerized grain traffic.

"The railways have taken a very aggressive stance of organizing freight forwarders overseas. They’re looking at offering a service where they can contract with a farmer and with a single deal deliver grain to almost any country in the world."

Interest in building facilities for loading grain into containers and loading containers onto trains has sprung up throughout the grain-growing areas on both sides of the U.S.-Canadian border. The most recent is a trans-load facility that was opened in late 2006 by Canadian National (CN) Railway near Edmonton, Alberta, Canada, and others are being considered in locations across the Canadian Prairies and northern-tier states.

In Canada, Saskatchewan Agrivision Corporation is actively pursuing a plan to construct a facility near Saskatoon, Saskatchewan, Canada. Agrivision President C.M. "Red" Williams and John Vickerman, principal of TranSystems, Norfolk, Virginia, U.S., are convinced that Saskatchewan needs more than one such container-loading facility.

At a recent meeting in Vancouver, Canada, Agrivision enlisted 10 Canadian companies as advisors and is now in the process of developing a business plan for an "inland port" in Saskatchewan and developing an "intelligent transportation corridor" between Halifax and Vancouver.

It is Vickerman’s opinion that with the growing congestion at U.S. West Coast ports and on U.S. highways, Canada’s comparatively open transcontinental railways offer seamless rail connections between the Atlantic and Pacific oceans, with connections to Chicago, Illinois, U.S. and Memphis, Tennessee, U.S. He envisions a Canadian rail system with a Pacific Gateway and a Northeast (Atlantic) Gateway, forming a land bridge with loading sites such as the CN container loading center for high-value grains in between.

Two factors are encouraging producers to look at containers more seriously for moving grain. The first, Williams said, is the "logic of using empty boxes going back to the coast." The second is the fact that Canadian railways are now charging box owners for moving empty containers back to the West Coast.

However, Williams points out that some industry participants still have to be convinced as to the merits of moving grain as a backhaul in containers. "There are some negatives on the part of the owners," he said. According to Williams, at a recent meeting with stakeholders one participant told the group: "I don’t want to even touch those boxes. I want to get those back to China just as fast as I can. And, if you start shipping cheap product in them, it’s not worth my while, because I will lose the box if you fill it with timothy hay or lentils and it goes off to the Philippines or Timbuktu when I want it in China."

Three trans-load centers are either up and running in North Dakota, under construction or in the planning stages. According to Lance Gaebe, senior policy advisor to North Dakota Governor John Hoeven, the development of facilities to load empty containers with grain and grain products for export through the West Coast has the support of the majority of producers and shipping lines.

The container-handling facilities either under consideration or operational are:

• a small-scale operating facility in Dilworth, Minnesota, U.S., across the river from Fargo, North Dakota, U.S.;

• the Northern Plains Commerce Center in Bismarck, North Dakota, which is under construction;

• a loading facility in Minot, North Dakota that is in the planning stages.

"There are thousands of containers that pass through these locations empty on their way to the Pacific Northwest," Gaebe said, who added that the goal is to coordinate container pick-ups and drop-offs to justify dropping off a train. "North Dakota leads the country in having 13 different crops, so the interest is beyond wheat and corn," he said. "There’s lots of interest in figuring out how to get top value from the acres of flax, lentils and navy beans."

The Australians were early adopters of containerized grain and have been very successful in using containers advantageously.

Peter Clancy, senior commodities trader with Australia’s GrainCorp Ltd., said containers offer comparatively cheap freight costs and the availability of boxes makes it possible to ship product in volume using "lots of small regular parcels to meet the buyers’ line of credit availability, as well as their ability to store large volumes of grain."

"GrainCorp is very comfortable with its container business," he said. "It allows us to develop diverse markets with relatively low risk using small parcels of grain under letter-of-credit payment."

Clancy said this means large amounts of money are not involved, as is the case with bulk shipments. "The container business allows us to develop wheat markets and customers that we currently cannot access through bulk shipments, with the longer term view that it will be expanded into bulk opportunities when deregulation (changes to the Australian Wheat Board monopoly) occurs." ON THE RISE IN ARGENTINA

Argentina is at a disadvantage when it comes to transporting agricultural products to market. While major investments are being made to upgrade the road, rail, barge and port infrastructure, analysts say much more needs to be done.

They estimate that the country’s inadequate transportation system results in 10% to 20% higher costs than in the U.S. Truck transport is the preferred method of moving grains and oilseeds to processing plants and elevators. However, rail and barge transportation are also available.

Leslie Quinn, vice-president with Bloomingdale-based CBC International, which handles large amounts of organic product, said Argentina’s lowtech approach toward loading grain into containers has some advantages since shovels and augers are less likely to result in cross-contamination than conveyor belts. For this reason, a container filled with grain, oilseed or specialty crop from Argentina is felt to have more integrity.

"We have discovered that Argentina tends to be the best pathway, or supply, in the world," he said.

The containerized grain, oilseed and specialty crop trade, both import and export, is increasing in Argentina, Quinn said. One of the factors shaping the industry is security issues. Traceability has also become a major issue.

From a marketing perspective, containers give buyers an opportunity to better manage their risk. "If a container gets contaminated versus a barge, I’m looking at a smaller loss," Quinn said. "There are also some cash flow issues. I can better control my inventory and production using containers."

In addition, containers allow CBC International to bypass the U.S. barge system that, according to Quinn, is increasingly controlled by fewer companies and, consequently, becoming more expensive.

Typically, Quinn said, containers are moved by barge from Argentinean farms to the Port of Buenos Aires, which has very shallow draft and is unable to berth a large container ship, then to nearby Port of Montevideo, Uruguay, to be loaded onto a container ship for export. "There’s literally millions of dollars that have to be spent on infrastructure at the port (of Buenos Aires)," he said.

Based in Vancouver, British Columbia, Canada, Leo Quigley writes for a variety of national and international publications specializing in agriculture and transportation. He can be reached at