By Chris Dupin
Rayonier exports about 50,000 TEUs of cargo annually from ports in the Southeast, and it’s regularly listed as being one of the 25 largest exporters of containerized cargo from the United States.
About a third of its performance fibers are sold in the United States, but increasingly the company’s customers are located overseas.
While Rayonier considers itself to be a technical and market leader, the Jacksonville, Fla.-based company faces competition from about a half dozen producers of cellulose specialties based in Europe, South Africa, Canada, Brazil, and Asia.
Transport costs represent a substantial percentage of the landed cost of Rayonier’s products, said Terry Bunch, director of logistics and customer service at the company.
“Particularly when you look at the combined inbound-outbound transportation costs. It’s a notable number, double digits, for sure,” he said.
Controlling those costs, while assuring Rayonier’s ability to procure raw materials and get its finished product to market, are prime challenges for Bunch, who also serves as chairman for the National Industrial Transportation League, the nation’s largest shipper advocacy group.
Exports to China, Japan, and other Asian countries accounted for 42 percent of Rayonier’s performance fibers in sales in 2010. Another 14 percent of sales were to European firms, with smaller amounts sold to customers in Latin America, Africa, the Middle East, and Canada. Major customers include Eastman Chemical and Celanese.
To look at the specialty cellulose fiber that Rayonier makes at its mills in Georgia and Florida from several feet away, you’d be hard pressed to tell that it was any different than a roll of paper.
But appearances can be deceiving, for Rayonier makes over 25 grades of highly purified cellulose, mostly for dissolving chemical applications to produce cellulose acetate and ethers that are ingredients in a cornucopia of products including tires, computer screens, cigarette filters, plastic tool handles, salad dressing, sausage casing, binders for pharmaceuticals, toothpaste, shampoo, lipstick, paint and printing ink.
And the company is pursuing a strategy of manufacturing only the most sophisticated cellulose specialties and relying less on commodity type products.
The company has two mills, one in Jesup, Ga., and the other in Fernandina Beach, Fla. Today one of the production lines at the Jesup mill makes absorbent material used in products such as diapers. But the company plans to convert that line by 2013 so both the Jesup and Fernandina Beach factories will exclusively make higher value cellulose specialties.
Tree To Mill. Rayonier is a forest products company with three major businesses — forest resources, real estate, and performance fibers.
The company owns, leases, or manages 2.7 million acres of forest land, 70 percent of which is located in Florida, Georgia, Mississippi, Alabama, Louisiana, Arkansas, Texas and Oklahoma. It also has land in Washington and New York, and a 27 percent interest in a joint venture in New Zealand.
The company uses its extensive forest holdings to produce logs and structural lumber, as well as pulpwood.
(It continually acquires and sells land to maximize the value of its real estate. A development arm, for example, seeks to get the “highest and best use” from its prime properties. If you’re ever in an airplane flying between Savannah, Ga., and Daytona Beach, Fla., you’ll see a lot of Rayonier land out the window — it owns 200,000 acres along the Atlantic coast between the two cities.)
The company has three wood chipping facilities in Georgia and one in Virginia, and also produces wood chips at three lumber mills in Georgia.
While many of the wood chips are consumed by Rayonier’s two pulp mills, the company sells its products to other companies, just as Rayonier buys chips from other companies to use in its own pulp mills.
Bunch explained that proximity to the Jesup and Fernandina Beach mills and transportation costs are important factors in determining where wood chips are sourced, but that the company may obtain wood from as far away as Virginia if the product it’s making in its mills requires a certain type of wood.
The company moves about 20,000 railcars and 125,000 truckloads annually. Rail is used for wood chips coming from longer distances as well as chemicals used in its mills, some of which must be transported by rail instead of truck for safety reasons. The Fernandina Beach mill can receive some chemical products by barge, but Jesup is not on a navigable waterway.
The company’s mill is jointly served by Norfolk Southern and CSX in Jesup and they have an onsite third-party switching service. In Fernandina, the mill is served by short line First Coast Railway which connects to CSX.
On rail reform, Bunch said “I think competition makes industries healthier and I think the rail industry and its customers would benefit from greater competition.”
The company also receives chips, logs, and some chemicals by truck.
While the majority of chemicals that Rayonier buys are purchased on a delivered basis, in contrast the majority of wood the company buys is purchased at timber stands and Rayonier arranges the transportation to chipping facilities and the pulp mills.
Bunch works on procuring transportation with employees who arrange the movement of logs and lumber, but he said execution of that function is decentralized.
Bunch said the company’s decision to phase out production of absorbent material at Jesup will result in some changes in logistics as Rayonier will change the mix of wood it purchases and draw raw material from a broader geographic area. While the mix of export customers may change somewhat, Bunch expects the company will continue to export about two thirds of its finished products.
Big Ship Economics. Because so many of its customers are located in the Far East, Rayonier has a keen interest in further economies of scale in the shipping industry. Bunch said his company should benefit from the completion of the new locks of the Panama Canal and entry of bigger ships into the East Coast-Asia trade.
But he noted for Rayonier to fully benefit from bigger ships, deeper channels will have to be dredged at ports in the Southeast.
“Deeper ports and bigger ships are key to us from a long-term competitive standpoint. A key point that a lot of people do not realize is that there is a significant difference in the average weights of exports and imports,” he said.
The Westbound Transpacific Stabilization Agreement, a discussion agreement of major liner carriers, has said the average weight of westbound containers is 12.5 metric tons per TEU compared to 9.8 metric tons per TEU for eastbound containers.
“We need deeper water to be competitive,” Bunch said, adding there is a need for deeper channels in Savannah, Charleston, and Jacksonville if the United States is going to increase exports.
Shorter term, Bunch is focused on a number of issues.
One is the deteriorating financial condition of container shipping companies in the last half of 2011. The London-based shipping consultancy Drewry estimated the industry lost $5.1 billion in the 2011.
Bunch said his fear is not so much that carriers might go bankrupt and cargo would be stranded, though he said that could be a risk for some segments of the industry.
Rather, his concern is that because of the losses, carriers might be forced to withdraw ships, therefore constraining capacity and forcing rates up.
U.S. exports have been strong and the Journal of Commerce research service PIERS forecast in December that container volumes were up 5.8 percent in 2011 and would rise 3.8 percent this year.
But Bunch noted ships are often deployed according to headhaul demand and trends for import volumes do not necessarily coincide with what is happening to exports.
There is also the possibility that carriers may overcorrect, reducing capacity so sharply that shortages may persist after the market rebounds.
“How close will we come to mirroring what happened a couple of years ago? I don’t think it will be at that level,” he said, referencing the capacity crunch that many shippers faced in 2009 and early 2010.
He said Rayonier had relatively few problems during that period, highlighting the company is valued by carriers because it is consistently shipping export containers.
“We stress to carriers that in volatile economic times we are here month in and month out and will be here when the cycle changes,” Bunch said. In 2009, “I wouldn’t say we didn’t have any problems but it was not as severe as for some.”
Rating Carriers. Rayonier spreads its business among 11 container carriers —most of the 10 largest liner companies are included, in addition to a breakbulk carrier.
Bunch said Rayonier selects carriers not only according to rates, but performance, using a scorecard system to reward high-performing companies and penalizing those which are not.
It produces monthly scorecards that look at a wide variety of metrics, then shares those results with the carriers to try to improve service. Rayonier looks at several areas including:
- Bookings — How quickly carriers confirm booking requests, the rebooking process, accuracy of information in bookings, ease of verifying when a vessel sails (Bunch explained the company books a sale for export when the vessel actually sails for a foreign destination), and how carriers manage space and customer service.
- Documentation — Accuracy, timeliness, customer service and effectiveness of a carrier’s Internet bill of lading process.
- On-time delivery — Rayonier rates both carriers and itself on on-time delivery.
- Rates — How quickly carriers respond to requests for rates, whether they are in the form requested and the billing is accurate.
- Sales and marketing — How frequently carriers contact Rayonier and whether they are effective advocates for the shipper in their own organizations.
“The longest we’ve done in the container market has been 18 months, but we are open to doing longer term and looking at some form of indexing,” he said. “But right now there is not a good index that an exporter can use. Most of the indexes that I’m aware of are import-oriented and there isn’t necessarily a direct correlation to the exports.”
Bunch said another big focus of his attention this year has to do with chassis and trucking.
While many container carriers have stated their desire to no longer routinely provide chassis to customers moving containers to and from the docks, Bunch said “there are still many unresolved issues and we don’t know how that is going to shake out, particularly given the challenging time frame that some carriers have announced” when the shipping industry appears to be entering a downturn.
Rayonier employs the Maersk affiliate Damco to dray containers from its mills to its outbound ports. About 80 percent of its exports move through Savannah, 10 percent through Jacksonville, and 5 percent through Charleston. Another 5 percent moves through Brunswick via breakbulk ships to North Europe buyers. Because of the proximity of its mills to these ports, draymen can normally make two or three roundtrips per day to the terminals.
Breakbulk shipping, Bunch noted, requires additional handling and is not appropriate for some of the specialty cellulose it sells because of the need for purity.
In some cases, the rolls or bales of cellulose must be packaged, but in any case, the company has a procedure for making sure the containers it uses are clean, physically inspecting them once when they are picked up at the port and then twice at its mills before loading.
More generally, Bunch said he is concerned about adequate trucking capacity, noting regulatory activity such as weight limits and hours of service constraints and how these changes may exacerbate the shortage of truck drivers that many are predicting.
Rayonier can fully load containers for export using standard chassis, but Bunch said the company would benefit if truckers bringing logs or chips had the option to move heavier loads with special equipment. He said this is often seen as a “rail vs. truck issue, but that’s not the case, at least from Rayonier’s perspective. It’s a matter of getting the most efficient use out of the truck capacity that is there.”
He said many countries, including Scandinavia, Brazil, South Africa, Mexico, China, the European Union, Canada and Russia, allow heavier trucks to operate. Permitting heavier trucks in the U.S. market could help mitigate congestion, and help with the driver shortage, Bunch said.
