by Eric J. BROOKS

While grain prices and grain supplies get most of the publicity, an equally large change is underway in the world of grain shipping logistics. Singular ships filled to the brim  with nothing but grain have been carrying grain between nations since the days of Rome and Imperial China.

 

Now however, this millennium-old way of shipping feed grains is finally changing in a big way. According  to Peter Kerr-Dineen, Joint Chairman of ship brokerage and charging agency Howe Robinson & Company Limited, "Although the relationship between grains and shipping goes back thousands of years, we are again on the verge of a major change."

 

A coincidence of trends in ocean shipping costs, maritime infrastructure and ship design are chipping away at the traditional bulk carrier's centuries-old monopoly over the ocean transport of feed crops. The first steps towards transporting grain in container vessels rather than bulk carriers occurred in Australian and off the US west coast roughly one to two decades ago.

 

With China exporting far more bulky, manufactured goods to America and Australia than it imported from them, money was lost on the need to 'back haul' ocean vessels full of empty, 20-foot shipping containers back to China. Off both the US and Australian coasts, grain exporters were offered an opportunity to use shipping containers for free - in some cases, the shipping line even paid them to fill up the containers with corn, soy or other feed crops on their return voyages back to Asia, as this greatly reduced their once-empty containers' back haul losses.

 

Initially, smaller cargoes of wheat from Australia and DDGS from the United States were profitably shipped in such container vessels, often at cheaper rates than that offered by traditional dry bulk grain shipping. The difference between bulk ocean freight rates and cargo container freight rates has been a driving force in the demand for containerized grain.

 

At one point prior to the late 2000s shipping industry crash, transporting feed grain by bulk freight cost over US$100/tonne versus approximately US$65/tonne to US$75/tonne for transporting the same grain via containerized ships. In general, the unit cost of shipping feed grain via containers can be up to 25% lower than that for traditional dry bulk shipping –and the for North American grain exporters, this cost difference may soon widen.

 

What does this translate into for feed and livestock stakeholders? Depending on relative shipping rates and market conditions, US an Australian farmers and DDGS exporters have enjoyed anywhere from US$0.13/bushel to US$0.22/bushel higher net profit margins by using container ship feed material such as corn, soy, wheat and DDGS.

 

With China exporting far more goods to Central Asia than it imports, Black Sea farmers and traders soon caught on to the idea of filling empty shipping containers with wheat and corn on their voyage back to the Far East. At a recent GlobalGrains conference in Singapore, Ozan Ozturk, managing director of Dubai-based Agrozen Commodities DMCC explained that, "Containers offer flexible loading and unloading, product differentiation, less product loss, better price and risk management, and provides direct market access in smaller quantities to more traders at lower unit costs.All this works to maximize the returns on grain traders working capital."

 

Ozturk made it clear that such containers are Central Asia traders' the preferred means of shipping Black Sea grain to Asia. From Russian and Ukrainian ports on the Black Sea coast, they can traverse first the Mediterranean Sea, the enter the Indian Ocean via the Suez Canal. From there, they transport Central Asian corn, soy, barley and other feed material to countless Chinese, Japanese, Korean or Southeast Asian customers scattered along the western Pacific Ocean.

 

Indeed, one of container shipping's greatest advantages is its unprecedented flexibility: It is now becomes possible to profitably export grain regardless of how large or small the size of a buyer's order is: Unlike dry bulk carriers that hold tens of thousands of tonnes, each standard, 20-foot shipping container holds approximately 23 to 24 tonnes of corn, 21 to 22 tonnes of soy or other oil seeds, 24 to 26 tonnes of feed wheat, or barley 18 tonnes of barley.

 

Ozturk concluded that, "With container vessel capacity rising, opportunities for putting small grain shipments of several different grains on to just one ship, destined to a variety of different sized customers is increasing. This is a big change from the traditional, single grain, single port shipping of traditional dry bulk carriers."

 

But even greater change is coming: Today, by going through the Panama Canal, one Panamax size ship can carry the US Gulf Coast to East Asia up to 4,700 containers or 90,000 to 113,000 tonnes of feed materials (depending on the feed grain or oil seed in question). After the Panama Canal is widened in 2014, it will become possible to for ships holding up to 14,000 containers to ship up to 336,000 tonnes of US Midwestern grains and oil seeds –in just about any feed crop combination or quantity– all  the way from New Orleans to East Asia.

 

After the Panama Canal is widened, the gigantic container ships capable of passing through it promise to turn the logistics of shipping grain upside down. Unlike dry bulk carriers, instead of making just one port of call and unloading one load of grain at one port, one such vessel could drop off 80,000 tonnes of corn in Vietnam, 50,000 tonnes of DDGS in Korea and another 100,000 tonnes of rapeseed to the Philippines before unloading 200,000 tonnes of soya beans in southern China.

 

The Panama Canal's upcoming ability to carry three times more feed grain in container ships than before is expected to do more than offer new shipping routes or make grain transport much more flexible and fluid than it is today. The shipping industry consensus is that it could greatly increase competition between America's Gulf and west coast ports.