18 July, 2008 - Agricultural exporters at this year's Agricultural Transportation Coalition (AgTC) Annual Transportation Conference in June reported that in a year of soaring demand for their products, ocean transportation constraints and container shortage are preventing exporters from selling as much as they could.
Exporters emphasized their expectation that strong demand for U.S. agricultural exports is likely to continue.
The growth of the global middle class is expected to increase to 1.2 billion by 2030, triple the 2005 level. U.S. exporters believe this growth in wealth over the next 12 years will provide continued strong demand for high-valued agricultural products from the United States such as meat, fruits, nuts, and vegetables.
Strong Exports Face Transportation Challenges
In 2007—and so far in 2008—agricultural exports have reached record levels. The weak U.S. dollar and growing Asian economies have increased demand for high-valued U.S. agricultural products that are moved in containers. Containerized grain exports to Asia continue to reach new records with April 2008 volumes (the latest data available) reaching nearly 40,000 twenty-foot equivalent units, the highest volume ever recorded during the month of April.
Total U.S. waterborne containerized agricultural exports increased 26 percent in the first 4 months of 2008, compared with the same period last year.
However, the demand for grain and other products moved in containers is greater than is currently being met by U.S. agricultural producers due to the limited supply and availability of containers, and reductions in vessel calls.
Shipping lines make equipment allocation decisions in the Trans-Pacific trade lane based on import cargo from Asia to the United States.
U.S. exports grew 21 percent in the first 4 months of the year compared to the same period last year, while imports declined by 10 percent in the first quarter.
When imports slowed significantly due to the U.S. economic slowdown, carriers began to reallocate equipment to more profitable trade lanes. They were not expecting the surge in exports and therefore did not prepare sufficient equipment or service for these shippers.
Ocean carriers claim that the profitability of the import movements have kept rates for U.S. export movements low for years. Shippers report that rates have been rising incrementally since last summer, in addition to insufficient service.
Most exporters are willing to pay the increased rate to secure container availability and vessel capacity, but the carriers are unwilling to guarantee this service. Many of the ocean carriers see the export boom as a short-term situation and feel that when the value of the dollar goes back up, exports will decline.
Shippers see the fundamentals differently and expect exports will continue to rise. Carriers claim that their costs for moving export products are constantly changing; they are pushed up by fuel cost increases, costly environmental improvements, and rising inland transportation costs.
Railroads have begun charging ocean carriers the same amount to move empty containers as full containers; the carriers are passing these costs through to the exporter. Carriers also indicate that the recent environmental improvements being made at the ports of Los Angeles and Long Beach to improve truck and vessel emissions are cutting into their profits.
Rising fuel costs present themselves in the ever-rising Bunker Adjustment Factor surcharges. As these carrier costs continue to increase, so will the cost for exporters to move their products.
Strategies for Coping with the Transportation Constraints
Conference speakers and participants suggested several alternatives which include:
• Opportunities for shippers to lease their own containers and move cargo via a Shipper-Owned Container Contract with the carriers. Container leasing companies reportedly have plenty of containers and provide an alternative to the ocean carrier for container supplies.
• Matchback, or street turns, a process by which an exporter works with an importer to gain access to the importer’s container to use for an export movement. Some internet-based systems provide matchback opportunities for exporters.
• Shippers need to engage in earlier bookings and keep them. The practice of making multiple bookings for the same shipment causes disruptions to service and prevents an exporter who needs the booking from getting it.
• Shippers should avoid loading containers beyond their weight limits.
Heavier containers sometimes force carriers to rearrange container placement on the vessel and, in some cases, causes bookings to be bumped to a later vessel because the vessel has taken on more weight than it originally planned.
Labor Negotiations Could Cause Additional Strain on Container Availability
Adding to the confusion of unreliable container transportation is the uncertainty surrounding the West Coast’s new labor contract. The International Longshore and Warehouse Union (ILWU) and the employer organization the Pacific Maritime Association (PMA) have been negotiating a new contract since March 17.
The Union refused to extend the contract past the July 1 expiration date, forcing the two organizations to work with no contract in place. As negotiations continue, there have been talks of work slowdowns at ports all along the west coast.
One shift, at the Port of Tacoma, walked off the job for 4 hours to protest a local negotiation dispute.
With no contract in place, some shippers are nervous and, in some cases, have sought East Coast and Gulf Coast alternatives where available.
In a market in which containers are in tight supply, and when both shippers and carriers report available containers at West Coast ports—particularly the Ports of Los Angeles and Long Beach—disruptions from a breakdown in negotiations could put additional strain on equipment availability.