U.S. dairy export growth is something for these shippers to smile about.
Dairy exports have increased rapidly in the past two decades, growing from $982 million in 1995 to $6.7 billion last year, according to the U.S. Dairy Export Council (USDEC).
“As population grows, as GDP grows, as the middle class expands worldwide, they start consuming more dairy products,” said Alan Levitt, vice president of communications for USDEC.
Traditional suppliers from Europe, New Zealand and Australia have not been able to keep up with the growth in demand, so the United States has been able to step in and fill some of that gap, he added.
The development of cold chains and expansion of fast food around the world has also led to more cheese consumption.
Dairy amounts to about 4 percent of worldwide refrigerated cargo volume, but Bill Duggan, head of North American refrigerated services for Maersk Line, said “dairy is a standout, along with meat” during a presentation at the Agriculture Transportation Coalition’s annual conference this summer. He said statistics indicate in 2013 the United States has become the No. 1 cheese exporter in the world.
“In 2000, milk powder here in the U.S. was the most expensive; now it is the cheapest in the world. Our export engine is really growing and we’re all excited about it,” Duggan said.
Levitt said there’s a growing awareness of “the nutritional benefits of dairy, so populations that traditionally didn’t consume dairy now understand that it can help in child cognitive development and physical development. So you have a lot more infants being fed dairy-based infant formula from the very start and then they grow into lifetime dairy consumers.”
At the other end of the age spectrum, dairy is used in nutritional supplements for the elderly, because they can help stave off conditions such as osteoporosis, or sarcopenia, the loss of muscle mass that sometimes accompanies aging.
Dairy trade has benefited from changes in trade policy, Levitt said. He explained the dairy industry has traditionally been protected, but as countries have opened their markets, trade has increased, with the United States now well positioned to take advantage of these opportunities.
Technology is another driver of dairy export growth.
“We are always finding new ways to split milk into its component parts—the technology to separate and fractionate proteins—that is always developing,” he said.
“We’re the world’s largest single country cow’s milk producer and the largest cheese producer and milk powder producer, so our supply is there and it has just been a matter of getting our suppliers attuned to serving the needs of the overseas market, and that has been a process” Levitt said.
The most heavily exported products last year were milk powder at 593,897 metric tons; whey, 544,487 metric tons; and lactose, 341,747 metric tons. These are dry products that can be shipped in regular dry shipping containers.
Other products must move in refrigerated containers or trailers, such as cheese, which weighed in at 316,558 metric tons, and butter/milk fat in 2013.
Levitt said American cheese, mozzarella and gouda cheese are the most exported cheeses.
Gouda cheese is not especially popular in the United States, he said, but is a big export to Mexico, and a lot of American cheese and mozzarella is used in fast food or chain restaurants.
He said Mexico is the No. 1 market for U.S. dairy products overall, while Canada is a smaller market, both because of regulations and Canada is a substantial dairy exporter in its own right.
About 90 percent of fluid milk is sold in Mexico and Canada, but Levitt said the United States is beginning to ramp up production of ultra-high temperature, or UHT, milk, which is shelf stable. While not popular in the United States, it’s quite popular in Mexico and China, both large U.S. markets.
China and Southeast Asia are good markets for dairy products that are used as ingredients, and he said China is a strong market for all dairy products and is growing rapidly.
China was rocked by a major scandal over infant formula and milk products adulterated with melamine in 2008 and the country has become a good market for shippers of ingredients such as milk powder from the United States, New Zealand and Europe.
Another fast-growing market for dairy products is the Middle East and North Africa, Levitt said. He emphasized those markets for dairy products are anything but homogenous—in the Middle East, for example, one country may import mostly milk powder, while its neighbor will buy mostly cheese, and another will purchase butter.
One might think the U.S. dominance in the fast food industry would mean U.S. dairy exporters have a leg up on overseas suppliers, but Levitt said that’s not the case.
He said companies may change the texture or mouth feel of products from market to market for products such as pizza to fit the preferences of customers. And he said by giving the proper specifications to suppliers, companies can source from Australia instead of the United States, for example, and get the type of product they want.
“They do want consistent quality, but it is more defined by the specs. It’s not just making what we would make in the U.S.,” he said.
Food companies are “interested in supply chain diversity. They don’t want to be beholden to any one supplier, so they try to keep things spread out a little bit just to make sure if a drought hits New Zealand they are not in as much trouble if they have some other places they can buy from,” Levitt added.
Duggan noted a major challenge that container carriers face when moving reefer cargo is balancing equipment: 56 percent of U.S. reefer exports move westbound on the transpacific, while 18 percent of reefer imports arrive on eastbound transpacific ships. About 46 percent of U.S. reefer imports originate in Central America and the Caribbean, while only 13 percent of U.S. reefer exports are headed in that direction.
Shippers may see a tightening supply of refrigerated containers. Last year, London-based industry consultancy Drewry said there were 1.85 million TEUs of reefer containers, with 450,000 owned or leased by Maersk.
But with poor rates, Duggan said Maersk made the decision not to build reefer boxes in 2013 or this year, where it would normally spend $500 million to order 40,000-45,000 units annually.
Overall, Maersk believes containerized reefer demand will grow at an annual rate of about 5.2 percent per year, but Duggan said reefer rates have not kept up with inflation or rising bunker prices.
While capacity on ships is being increased for reefer containers, supply of the actual reefer containers is lagging
There’s a bright future, however, for increased movements of reefer cargo, especially to developing countries, for both shippers and carriers, Duggan said, but he added there needs to be a recognition both types of businesses must make money and he called for more long-term strategic contracting in the industry (for example, he recently concluded a 10-year deal with one customer) and less transactional contracting.