By Eric Kulisch
Several dozen freight industry professionals involved in container shipping met in Chicago last summer to discuss ways to increase exports by ocean container. A big part of the discussion revolved around opportunities and challenges associated with exporting agricultural products.
Analysts, such as Moffatt & Nichol Chief Economist Walter Kemmsies, have identified agriculture as a potential area for export growth that could help reduce the U.S. trade deficit. The United States has advantages in capital markets to finance equipment and irrigation systems necessary to conduct farming on an industrial scale, vast amounts of arable land, relatively abundant supplies of water and the technology to produce genetically-modified seeds that are resistant to pests and harsh weather.
In 2011, U.S. agricultural exports were valued at $136.4 billion and 2012 was running slightly ahead of that pace through November, despite weak grain exports caused by drought conditions, Agriculture Department spokesman Oliver Flake said. Corn and soybeans have been most affected by the lack of rain, while wheat production has remained strong. Exports of horticultural products — fruit, nuts and vegetables — hit a record $25.9 billion and livestock, poultry and dairy were also strong with $29.8 billion in overseas sales.
Agricultural products almost overtook waste paper and scrap metal in 2011 as the largest export commodity on the West Coast by TEUs, and held the top spot if food is included, according to trade database PIERS.
“I have never seen that in my over 30 years here in the business. I think we’re at a critical juncture right now in this export business,” Christopher Lytle, executive director of the Port of Long Beach, said at the Containerization and Intermodal Institute event.
But industry officials note that many logistical and trade challenges need to be resolved before the United States can fully capitalize on its ability to feed the world.
Since the middle of the last decade, shippers of all stripes have lamented the chronic underinvestment in transportation infrastructure by the United States, with some of the loudest complaints coming from exporters who face extra costs getting their products to market. That’s because U.S. export specialties, such as machinery and grain, are three- to four-times heavier than import cargo and require greater water depths in ports to enable vessels to fully utilize available capacity. Port authorities are struggling to get Congress to approve federal funding to deepen their channels, forcing many vessels to light load to safely depart the harbor.
Highway congestion and road connections to ports are also issues that need to be addressed by policymakers, freight advocates say. And they want local cities to move faster approving terminal expansions and more on-dock rail to accommodate growing trade volumes.
Ag shippers, and others, are also lobbying the United States to lift its weight limits for truck traffic, which are some of the most restrictive in the industrialized world and make transportation less efficient.
Moving export containers to Asia is more difficult for ocean carriers in the United States than in many other nations because of the complicated market that has evolved, Ed Zaninelli, vice president for transpacific westbound trade at Hong Kong-based liner OOCL, said in Chicago. Shippers often book cargo from many cities for departure from West Coast ports such as Seattle, Oakland, Los Angeles and Long Beach, whereas in places such as Rotterdam or Shanghai most of the cargo is collected locally, he said.
Another problem is that boxes cost about $3,200 each to purchase, double what carriers paid for them in 2009, the ocean carrier executive said. With shipping lines getting about six moves, or less, out of each container per year the ability to achieve a return on investment is diminished. And they need much more equipment because vessels are becoming a lot larger, are being operated at much slower speeds to conserve fuel, and have longer turn times in port.
But container lines have also been their own worst enemy. They have engaged in a devastating price war in recent years, chasing market share at a time when bunker fuel and other costs have risen dramatically. And they hurt themselves by adding large amounts of capacity through new ship orders as cargo growth slowed after the recession, putting many lines in financial peril.
Last year, westbound vessels were less than half full, especially out of the Los Angeles-Long Beach harbor complex, Zaninelli said.
Carriers don’t need to make money on export loads, but at least have to recover their full costs to maintain financial health, he stressed. Some carriers last summer slashed rates on backhaul cargo to $200 per box.
“We’re a non-profit organization right now. We didn’t plan it that way, but unfortunately that’s where the lines are today,” Zaninelli said.
The $200-to-$275 rate applied to waste paper is low, but upgrading to an agricultural commodity mix can maximize revenue for carriers, Lytle said. Carriers last year charged about $900 per load for dried fruit and nuts, while a load of citrus commanded $3,600.
“I predict (in 2013) agricultural products will be at the top. It’s very significant because then you’ll start to get products that aren’t basically done at a loss,” he said.
West Coast ports are making infrastructure plans to grow their export volumes.
At the Port of Long Beach, Total Terminals International wants to build in the next couple years an on-dock facility for railcar-to-container transloading that can handle full unit trains.
Officials in Central California and business groups are trying to develop an overweight truck corridor that extends into the San Joaquin Valley to bring truckloads of produce to the Port of Oakland.
Bunge North America recently partnered with two other agribusinesses to build and operate a bulk export grain facility at the Port of Longview on the Columbia River in Washington. It is the first export terminal for grain, oilseeds and protein meal built in the United States in more than two decades and features a rail loop track unloading system capable of holding four 110-car unit trains at any given time. The facility, which opened last February, includes a shuttle-train unloading system as well as the capability to unload barges from the Columbia River. When fully operational, the facility will be able to handle more than 8 million metric tons annually.
The joint venture also built three high-capacity shuttle-train loaders in Montana to ship wheat to the Longview terminal.
In a shortened year, the Bunge facility exported 4.7 million metric tons of grain, or about three-quarters of the port’s total export tonnage. There were 225 ship calls at the Port of Longview in 2012 compared to 134 in all of 2011, spokeswoman Ashley Helenberg said.
In the short term, export growth for grain products in containers will be driven by several factors, not the least of which is rain, Matt Bosch, a senior marketing manager for agricultural products at the Union Pacific Railroad, said at a major transportation conference in Washington early this year.
Drought conditions have plagued the Midwest, from Texas to Illinois, at various times over two years, reducing crop yields and feed for cattle ranchers, who prematurely slaughtered calves to minimize losses.
U.S. renewable fuel standards and the mandate to produce 15 billion gallons of corn-based ethanol by 2015 will result in more dried distillers grains with solubles (DDGS), the protein, fiber and oil residue from ethanol production that is used to make livestock feed and is growing in popularity in overseas markets.
Containers are the optimal mode for shipping DDGS to foreign markets because the product is sticky and sets up in railcars and vessel holds rather than flowing to fill available space, making it difficult to ship in bulk, Bosch said.
Consolidation of livestock farming in the interior of China is also spurring demand for food and feed in containers because it eliminates the need to transload from bulk vessels into containers at Chinese ports for the inland journey, the railroad salesman said.
Greater certainty of market access would also benefit U.S. exports, Bosch said, pointing to an 18-month Chinese anti-dumping investigation of DDGS (which was terminated last summer without imposition of duties).