Bill Mongelluzzo | Nov 15, 2010 5:00AM GMT
The Journal of Commerce Magazine – News Story
U.S. exports are on a near-record pace, but capacity and equipment shortages could stunt the growth.
U.S. containerized exports to Asia are accelerating and could approach record levels this winter, but vessel space and equipment shortages could keep them from reaching their full potential.
For now, several factors are working in exporters’ favor. The dollar remains weak, making U.S. goods more competitive, and freight rates are favorable after carriers wobbled in their bid to implement a Nov. 1 general rate increase.
Demand is surging for U.S. agricultural products, especially cotton and grain, because of weather-related crop damage in countries that compete with U.S. exporters. Severe flooding eroded Pakistan’s cotton exports, for example, and Russia suspended grain exports after severe heat seared that crop.
But in what has become a painful thorn for U.S. exporters and an impediment to the Obama administration’s National Export Initiative goal of doubling exports in five years diminishing vessel capacity during the winter and shortages of marine containers and trucking capacity at inland locations may prevent U.S. containerized exports to Asia from reaching anticipated levels.
Exports at West Coast ports, which handle about 70 percent of U.S. exports to Asia, were up 7 percent through September compared to the same period last year, according to the Pacific Maritime Association. If monthly exports maintain momentum, 2010 will be the second-busiest year on record, falling about 6 percent short of 2008.
Cotton exports, however, are moving much earlier this fall than in past years, meaning the next three months will see a significant increase in exports.
Cotton exports are building in November. December will be strong, and January will be strong, said Ed Zaninelli, vice president of trans-Pacific westbound at Hong Kong-based Orient Overseas Container Line.
The dynamics of U.S. commodity exports this year are more favorable than in 2008, according to economics forecasting firm IHS Global Insight. In 2008, a spike in commodity prices and ocean freight rates capped soaring U.S. exports. Then the global recession hit, and overall exports declined 18 percent in 2009, to $1.3 trillion, according to seasonally adjusted Commerce Department figures.
Commodity prices have increased this year, but the weak dollar has kept U.S. prices competitive. Exchange rates make U.S. exports more attractive,” said Brandon Kliethermes, an IHS Global Insight economist. There also is sufficient ocean vessel capacity this year compared to 2008, and that has kept liner rates in check, he said.
In 2008, a shortage of bulk vessels the overwhelming mode of choice for grain exports sent bulk freight rates sky high, so some grains migrated to containers. That forced container freight rates in the westbound Pacific higher. This fall, there is sufficient capacity in the bulk sector, and container rates in the westbound Pacific have been stable.
Carriers announced a westbound general rate increase of $300 per 40-foot container effective Nov. 1, but most lines failed to get the full rate increase, said Bob Weiss, independent administrator of the Food Shippers Association of North America. Rate increases ranged from $150 to $240, with some lines dropping their GRI, he said.
The U.S. exports a number of agricultural commodities, from corn, soybeans, cotton, barley and sorghum, to sunflower seeds, peanuts and rice, in addition to chilled fruits and frozen meats and seafood. Some commodities move mostly in containers, while others fluctuate between containers and bulk vessels depending upon capacity and freight rates.
Generally, U.S. agricultural exports are increasing, a trend that should continue over the long term as the middle class in Asia, especially China, increases rapidly. According to the U.S. Grains Council, exports of farm commodities to China totaled $10 billion in 2009, up 300 percent from eight years ago. And 2010 could be a record year for exports of corn and byproducts such as distillers dry grain, which is used for animal feed, said Kevin Latner, the grain council’s director in China.
As shippers learned in 2008, booming exports can result in shortages of vessel space and equipment. Cotton shippers in west Texas already are experiencing a shortage of equipment and truck capacity, said Don Lake, vice president of international operations at Centrix Logistics in Memphis.
Cotton typically moves from the field to mills and then to storage, with exports occurring from January until summer, Lake said. Demand in Asia is strong, though, so the peak will be from November to late March. A spike in cotton exports could overwhelm the transportation infrastructure. Stricter safety requirements and hours-of-service limitations for truckers would restrict capacity even more, he said.
Today’s trucking shortages could become severe in the coming months, and Lake said he fears there will be a shortage of empty marine containers in Dallas. A portion of the west Texas export crop is stuffed into empties in Dallas, and a container shortage there would exacerbate an already difficult situation.
West Texas cotton also moves by rail from Lubbock. Rail capacity shouldn’t be an issue because BNSF Railway has sufficient locomotive and railcar capacity in Lubbock, spokeswoman Krista York-Woolley said. BNSF is likewise hearing that this will be a record crop.
If demand continues to increase, additional intermodal loading capacity will be added in that area, she said.
Securing empty marine containers, however, is a perennial problem for many agricultural exporters. Zaninelli said the situation would be no different this winter.
The U.S. midsection from the Gulf to Chicago will be tight, as will the Pacific Northwest. There are always plenty of empty containers and sufficient vessel capacity in Los Angeles-Long Beach, if shippers can get their products there. There should be sufficient equipment at East Coast ports, although vessel space will be tight, he said.
Weiss said vessel capacity could be a problem this winter, as it was last winter, if carriers pull too much capacity out of the trade for the traditional slack season drop in eastbound shipments. But there are more niche carriers in trans-Pacific trade, and these smaller lines don’t cut capacity because most operate only one string of vessels in the Pacific.