American grain increasingly fills containers that otherwise leave the country empty.
By Eric Kulisch
Switching product from one form of transportation to another is seen by many as a solution to the equipment shortage in parts of the country that hamstrings exporters of livestock feed and agricultural products. Moving hopper cars of bulk grain close to ports and transferring the contents to empty containers waiting to be returned overseas is more efficient for shippers than rerouting empties to distant grain elevators for loading at the source, freight industry professionals say.
U.S. exports, helped by the weak dollar, are on the rise as the growing middle classes in China and other emerging markets seek quality products to improve their standard of living.
Grain traditionally has been shipped overseas in the holds of bulk vessels, but containerization has grown in popularity in the past decade as demand for specialty grains rises. Foreign customers want those grains separated to preserve their identity, which can’t be done when they’re dumped together in bulk vessels. Containers also make it simpler to buy and finance smaller lots, and are easier to handle in countries without grain handling infrastructure at ports.
Meanwhile, manufacturers and agricultural producers, typically located in rural areas away from population centers, have had difficulty in recent years obtaining containers to meet export demand as ocean carriers, faced with extreme rate volatility that erased profit margins, eliminated inbound door-to-door intermodal service outside the most dense rail corridors and encouraged shippers to return empty international boxes as soon as possible to be used for more lucrative import cargo. The downturn in trade during the recession also meant there were fewer containers being shipped to U.S. destinations. Trucking and rail costs for bringing empty containers to potential customers off the beaten path are prohibitive.
The recent trend of ocean carriers divesting their chassis equipment and passing the responsibility for providing the container cradle to motor carriers has also contributed to the difficulty of getting a container to the agricultural source, experts say.
Containerized transloading competes with the predominant form of grain shipment — barge down the Mississippi River to the Port of New Orleans.
Containerized grain exports hit a record high in 2011 and continued to grow in the first quarter of 2012 to 140,000 TEUs.
For the first nine months of 2012, U.S. waterborne exports of grain totaled 70.1 million metric tons, with containerized shipments representing 8 percent of the total, which was equivalent to 398,506 TEUs, according to the Port Import Export Reporting Service (PIERS). Container shipments were on track to exceed 500,000 TEUs for the full year. In 2007, the containerized share of grain exports was 5 percent of grain exports and it climbed to 7 percent in 2011. About 96 percent of containerized grain exports — wheat, beans, corn, rice and dried distillers grains with solubles (DDGS, a byproduct of ethanol production used as animal feed) — go to Asia.
DDGS accounted for about a third of the growth in containerized grains.
Grain transloading facilities require frequent rail service, heavy-weight zones for trucks, close proximity to the port and a large supply of marine containers, logistics professionals say.
A recent study by transportation planning consultant Cambridge Systematics, commissioned by the twin ports of Los Angeles and Long Beach, suggests that more businesses could move bulk shipments by rail to match up with empties if new policies are implemented. Generally, transloading is used for less than 5 percent of non-refrigerated shipments because the added cost could prompt foreign buyers to purchase soybeans or other products from another country.
Temperature-controlled meats are usually transloaded into refrigerated containers at near-port facilities because ocean carriers usually don’t allow their expensive reefer equipment to travel inland.
Grain transloading is common in logistics hubs near farmland, such as Chicago and Kansas City, where ocean carriers deliver large volumes of import containers and don’t need to reposition the equipment to crop areas.
Import transloading, ironically, actually exacerbates the dearth of 40-foot containers in the hinterlands, contributing to a counter reaction for exports, Jim Newsome, executive director of the South Carolina Ports Authority, said during a Containerization and Intermodal Institute (CII) seminar in Chicago last summer.
Many agricultural products are shipped by rail to the ports of Norfolk, Va., and Savannah, Ga., because they are closer to the Midwest load points and incur less rail expense. Cotton, paper and pulp products increasingly are coming in boxcars to facilities in and around the ports of Charleston, S.C.; Savannah; and Jacksonville, Fla., where they are transferred to containers.
Several new transload facilities have popped up in the vicinity of the Port of Charleston. In 2010, the South Carolina Ports Authority launched a joint marketing program with 14 rail-served warehouses able to transload bulk commodities into containers for export. The facilities are served by Norfolk Southern Railway, CSX Transportation, or both. Commodities targeted for the initiative include cotton, lumber, wood pulp and food products.
Two years ago the Scoular Co. established a grain-handling facility at the Wando Welch Terminal that can export more than 25 million pounds of product via container per year. JIMCO Group opened a transload operation for bulk agriculture products adjacent to the North Charleston Terminal.
Norfolk Southern serves 14 transload operations on the East Coast and three interior ones.
Southern California desperately needs a major transload facility that can transfer agricultural products from more efficient unit trains with 100-plus hopper cars into international containers, which often are transported back to Asia empty, Ed Zaninelli, vice president of transpacific westbound trade for Hong Kong-based ocean carrier OOCL, said at the CII event.
Several transloaders for agricultural products are located in Seattle, but most of the available equipment is in the Los Angeles-Long Beach area. Bringing products such as grain or cotton near the port to take advantage of available containers would help the United States achieve its goal of increasing exports and the struggling ocean carrier industry cover the cost of repositioning boxes overseas with less harm to its bottom line, he said.
Only about a quarter of all inbound containers end up in locations where they can easily be matched with outbound loads, Zaninelli said.
A Southern California transfer facility that could accommodate 125-car trains might make it economical to transload cotton, which normally moves intact to the port in international ocean boxes, a cotton exporter told Cambridge Systematics.
Los Angeles Harbor Grain Terminal facilitates the transport to Asia of animal feed, bulk liquids, identity-preserved soybeans, hay and cotton in containers from a rail-served facility near the ports of Los Angeles and Long Beach. The facility can accept 75-car trains. Grain pours through railcar hatches into an underground, screw-conveyor belt that carries it to a grain elevator, which then pours it directly into an ocean container already loaded on a waiting truck. The process takes 20 minutes and the company can process 2,000 tons of grain per day.
The company also has a custom-built machine that uses a hydraulic lift to pick up and tilt truck trailers full of hay cubes from Utah into ocean containers. Howard Wallace, president of family-owned L.A. Harbor Grain Terminal, explained in a video produced by the Port of Long Beach that the company developed the machine so it could migrate from rail to truck transport, which is faster and cheaper because of low backhaul truck rates from the Southwest.
L.A. Harbor Grain Terminal is the only agricultural transload provider in Southern California located within a highway corridor that allows overweight trucks to operate. Other companies transload agricultural products in the region, but they have to put more trucks on the highway to move the same amount of grain and stay within the 44,000-pound container limit, the Cambridge Systematics report said.
The heavy-weight corridor accepts 57,000-pound containers.
L.A. Harbor Grain Terminal and California Cartage, a large merchandise logistics provider, sit on port property and will be forced to relocate if the BNSF Railway receives approval to build an intermodal container-truck transfer facility within four miles of the twin ports. Once that happens, the company will have to run 13 containers by truck for every 10 it currently utilizes, and do so over a longer distance, if it is outside a heavy-weight corridor.
“Transloading within a heavy-weight corridor is the only option for price-sensitive agricultural products,” the report said.
In an interview, Wallace said business is down from the halcyon days prior to the recession when he ran three shifts instead of one. Since then business has been flat.
The high price of corn and low bulk-ship rates have put a damper on containerized grain exports the past 14 months, he said. The 2011-2012 drought has shrunk corn supplies. Domestic consumers are willing to pay higher prices, but foreign buyers are turning to places like Brazil and Argentina for corn and soybeans, and Russia for wheat.
It might take an exporter four months to sell 30,000 tons of corn that a year ago sold in one month. And corn dictates prices for other types of grain. The price of dried ethanol grains, for example, is about $400 per ton compared to about $250 a ton in late 2011, Wallace said.
Meanwhile, bulk carrier rates have nosedived from about $85 to $100 a ton two years ago to about $25 per ton because of overcapacity from too many new ships ordered when rates were high — making bulk transport cheaper than by container.
In early 2011, the Union Pacific Railroad started a transloading service at its idle Yermo, Calif., facility in which hopper-car unit trains of DDGS, soybeans and other bulk grains are transferred to ocean containers and then moved 160 miles by double-stack train to docks at the ports of Los Angeles and Long Beach. The empty containers are delivered to Yermo from areas where there are surplus containers, such as Dallas, Memphis, and sometimes UP’s Intermodal Container Transfer Facility in Long Beach, Matt Bosch, a senior marketing manager for agricultural products at the railroad, said during a Jan. 16 panel discussion at the Transportation Research Board’s annual convention in Washington. UP has an auction system for agricultural exporters to bid for use of the transfer terminal, which is sized to handle one unit train for up to 300 containers per week.
UP developed the plant-to-port service after noticing large numbers of manifest grain shipments (grain cars mixed in with other types of commodity cars) being directly delivered to Los Angeles in 2009, Bosch said.
The new grain transfer facility is not an option for Cargill, Scoular and other grain exporters due to the high rail rates from the Midwest, the high cost to reposition empty hopper cars back to the Midwest and the extra handling involved to ship empty containers 160 miles inland and then put them onto railcars for shipment to L.A.-Long Beach, Cambridge Systematics said.
Freight industry officials privately say nobody is using the Yermo facility because the distances and economics don’t make sense.
Bosch acknowledged UP “has not been able to move as much as we would have liked,” but attributed the lack of business to the drought in the Midwest and uncertainty in various world markets.
“Both the ocean carrier community and the grain marketplace are still very excited about the idea and once we can get back normalized crop production it will be an extremely valuable asset,” he said.
Another factor in Yermo’s favor is that grain distributors are moving away from owning proprietary facilities and toward using third-party terminals to protect themselves from swift market changes, he added.
Later in 2011, Total Terminals International proposed building a special 10-acre facility within its 385-acre terminal at Pier T in Long Beach to handle exports of grain and related products. The transload facility is expected to have capacity for 750,000 to 1.5 million tons of grain, or about 56,000 to 112,000 TEUs a year, using existing rail and container shipping facilities. The proposed grain transloading facility is designed to serve up to four 11,000-ton unit trains per week. It would be within the heavy-weight zone.
Empty containers on chassis at the TTI container yard would be pre-staged at the grain facility in container stalls, according to the plan. After inspection and cleaning, the 40-foot containers would be transported via yard tractors to the loading building. A cardboard bulkhead would be placed at the end of each container and an automatic conveyor would fill the box with about 26 tons of grain or DDGS. Once placed onto chassis, the containers would either be transported to the on-site grain facility storage yard for later retrieval or transported directly to the TTI container yard.
Shippers surveyed by Cambridge Systematics liked the TTI option, but wondered if labor rates would be competitive enough to make it economical and whether ocean carriers not calling Pier T could use it.
Cambridge Systematics recommended the ports of Los Angeles and Long Beach increase their marketing efforts, in partnership with the BNSF and UP, to attract more agricultural exports. It warned that Southern California could lose those types of exports to East Coast ports with the opening in 2015 of the expanded Panama Canal, which will be wide enough for much larger container and bulk vessels. The Port of Long Beach should help Hanjin Shipping promote its proposed grain transfer facility at Pier T, because shippers lack sufficient information about its potential operational and economic benefits, it said.
And the port authorities should explore the possibility of creating a near-dock transload facility for rail boxcars carrying cotton for transloading into marine containers, the consultant added.