Where did the boxes go?
August 01, 2008
by World Grain Staff
The drop of the U.S. dollar against the Euro and the Chinese Renminbi has created a sea change in trade patterns, and not all of it is beneficial to those U.S. farmers who have come to rely on a seemingly endless supply of cheap, empty shipping containers to move grain and other agricultural commodities to Asia as a backhaul.
One of the reasons for the shortage is the fact that the lower U.S. dollar has made American goods more competitive on world markets and, while this may be good news for U.S. manufacturers, the result has been an accelerated demand for export containers.
Add to this the sluggish U.S. economy and a drop in consumer purchasing, and not only has the number of import containers being delivered to North America dropped, but shipping companies are now tending to move their ships to more lucrative markets elsewhere.
However, while Peter Friedmann, executive director of the Washington-based Agriculture Transportation Coalition, agrees that the dollar and the slumping economy are tightening the supply of empty boxes for ag products, he’s also convinced that the shipping lines have not done a good job of understanding their customers.
"The demand for agricultural exports from North America began ticking up well before the dollar began its most precipi\tous decline," Friedmann told World Grain.
"The dollar may have been an accelerator, but, certainly, it has not been the cause of the increase," he said.
In fact, it’s Friedmann’s opinion that with the global shift in buying power, even if the U.S. dollar goes up in value, the demand for North American agricultural products will continue to grow.
"It’s not a temporary blip," he said. "It’s a long-term fact."
As the volume of grain exports to Asia and India grows, the volume of containers used to move that grain will grow because of their increased efficiency and flexibility when compared to moving grain in bulk.
Friedmann’s main concern is the fact that, for at least two decades, shipping lines have focused exclusively on containers destined to U.S. markets.
"They’ve never really cared if there’s a balance," he said. "They’ve never really cared if there was enough export volume. There were always plenty of containers because the real deal was to get it (the container) back and fill it with the higher value consumer product."
While a few steamship lines are closer to their customers than most and have begun to recognize that exporters will pay well to receive a container that’s in good shape and that they can depend upon, Friedmann said it would be a "revolutionary concept" for most shipping lines to find that they could make good money moving export containers, and perhaps more money than concentrating exclusively on import containers.
Most shipping lines spend too much time talking to each other and not enough time talking to their customers, he said.
"The carriers have complete immunity from the antitrust laws," he said.
Friedmann said he’s been in conversations where shippers of high value agricultural commodities have asked for a commitment from a shipper, offering to pay for space on a vessel whether they choose to use that space or not.
The response from the carrier, he said, was that he would have to take the suggestion back to the rate-setting consortium, the Westbound Transpacific Stabilization Agreement, for a decision.
"In other words," Friedmann said, "he was going to have to take this back to his competitors and collectively they were going to decide whether this carrier could actually enter into such a thing. I think the carriers are leaving millions of dollars on the table."
He said the carriers are thinking this is just due to the dollar and they are not capable of maximizing their revenues because they are operating in a cartel environment where they are speaking more to their competitors than to their customer.
However, Vincent Sullivan, Midwest Sales Manager for the Port of Tacoma’s Department of Commercial Strategy, doesn’t agree entirely with Friedmann’s analysis as to why the agricultural industry is suddenly facing a shortage of empty containers destined for Asia and India.
"In Chicago, I know that ocean carriers who are putting their vessels into the Port of Tacoma are well aware of this and are pretty active with the farmers out of Minnesota and North Dakota," Sullivan said. "But their hands are tied, either by their home office or the people who are doing their yield management calculations."
Sullivan, who covers the territory from Alberta and Saskatchewan south to Alabama, Mississippi and Louisiana, said the lack of containers for agricultural products has been an issue among farmers in his area for the past three years.
For the past 12 to 15 months, the situation has been made worse by the fact that the majority of inbound containers move from the West Coast to metropolitan areas with manufactured goods. On the other hand, the need for outbound containers, primarily for agricultural products, is in a rural area several hundred miles away.
"The ocean carriers over the past two years have become less amenable to repositioning a container to do an outbound load at the ocean carrier’s expense," Sullivan said. "That expense now has shifted to the exporter, and the cargo simply won’t bear that dollar amount."
Also, over the past two years several U.S. railroads have renegotiated their contracts with ocean carriers, and in many cases the rail rate has increased by as much as 40%. "That’s another added fixed cost for the ocean carriers," he said.
At North America’s largest port, the Port of Los Angeles, Marcel van Dijk, marketing manager, said the lower U.S. dollar has resulted in a 22% increase in export containers compared to last year, and import container handlings have slowed by nearly 9% because of the economic slump.
One solution, van Dijk said, would be to bring agricultural commodities to the port in box cars or hopper cars and load the product into containers at the port. Unfortunately, there are very few trans-load facilities at the Port of Los Angeles with rail access.
"I don’t see any big changes in the near future for the availability of empty containers if we stay in a downturn of the market like we are now," he said.
North of the border, at the Port of Vancouver, a shortage of containers has also resulted from the downturn in the U.S. economy. Chris Badger, chief operating officer, said there’s increasing competition for westbound containers in Canada. For the first quarter of this year, the number of loaded export containers moving through the port was up by 15%.
The increased demand by Asia for products was one of the reasons, but another was the fact that a number of breakbulk carriers, used to moving products such as lumber and steel, have left the Pacific for more lucrative markets elsewhere, which has forced products that did not previously move into containers into boxes.
"Clearly, there’s greater competition (for containers)" Badger said. "Generally speaking, one doesn’t think of grain and wood and other products competing, but in the case of finding containers, they certainly are."
He said anyone, including farmers, wanting a container will have more success if the container is located near salt water.
"That’s where the shipping lines want their containers to be," Badger 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 Quigley@dccnet.com.
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