Pressure grows for ocean rate increases on ag exports, WTSA chief says

Pressure grows for ocean rate increases on ag exports, WTSA chief says    Westbound ocean freight volumes are expected to grow 6 to 7 percent this year on the strength in Asian demand for U.S. wastepaper, metal, plastic scrap, cotton, building materials and specialty agricultural commodities, said Albert Pierce, executive director of the Westbound Transpacific Stabilization Agreement.
   Pierce gave his assessment of the export market during his annual visit to the Agricultural Ocean Transportation Coalition conference in San Francisco July 10.
   Pork exports to Asia are quickly rising, but not enough to offset the losses due to beef and poultry bans in the region, which have hurt ocean carriers as well as U.S. exporters, Pierce said. Taiwan’s recent opening of its market to U.S. beef could serve to instigate other countries to do the same, he said.
   Another agricultural commodity that is experiencing large export growth is cotton. China, Indonesia, Vietnam and Cambodia are the hot markets for U.S. cotton. Growth in cotton sales could slow a bit depending on how many categories of Chinese textile and apparel products the U.S. government re-establishes quotas on to protect domestic producers, Pierce cautioned.
   Other agricultural products expected to do well this year include dry nonfat milk, softwood lumber, tree fruits and nuts, he said.
   Pierce emphasized that price and service on westbound containerized trade is subject more to external factors such as port congestion and carriers’ need to quickly reposition equipment to serve the more lucrative and higher-volume inbound cargo traffic. One carrier has recently estimated the total cost of repositioning empty containers in the 2005 transpacific market at $1.3 billion, Pierce said. Shippers should expect carriers to take rate increases to cover the cost of eastbound transport, he said, adding that it often makes more sense for a carrier to ship back an empty container than accept a low-price backhaul load.
   “A load of hay or hides may well offset the empty reposition cost westbound. But the likely Asian destination of that shipment is almost certainly going to be in an outlying area, far from the manufacturing centers where the container is needed for eastbound loading,” Pierce explained. “Assume two to five days for consignee notification, pickup arrangements and in some cases agricultural or customs inspections, plus the truck trip. Once unloaded at destination, a container carrying hay or hides must be cleaned, inspected and repaired as needed. That work incurs cost against the equipment, and requires an added dray. By contract, an empty container has been cleaned and maintained at origin. It arrives ready for immediate release and dispatch to the eastbound customer’s facility. No cost, no delays, no handoff of carrier control inland prior to delivery of the equipment.”
   Pierce said the carriers in his discussion agreement are willing to haul hides and hay, but shippers will have to pay more to more despite the glut of containers.
   Shippers and carriers should cooperate in areas such as matching return loads on an ongoing basis, taking advantage of comparative seasonality in both directions, creative routing and scheduling, transload and other cross-dock options, he recommended.
   Shippers will also have to pay more to attract back much of the refrigerated containers that have migrated in the past year to markets that have better trade balances, Pierce added. Refrigerated meat and poultry shipments to Asia fell 53 percent from 95,000 FEU (forty-foot equivalent units) in 2003 to less than 45,000 FEU in 2004. Carriers have moved more equipment to intra-Asia, Australia, Latin America and other trade lanes where two-way trade is better. Rates will have to go up to cover the cost of moving empty reefers back to the United States, where there is a four to one ratio of outbound vs. inbound loaded containers, he said.