February 26, 2010

Fewer shipping containers a concern to Illinois grain exporters

With the decrease in empty shipping containers, Illinois soy producers may lose their competitive edge in exporting grains to Asia.

Chinese goods, such as branded shoes and MP3 players are transported to the US in 20- and 40-foot steel containers. Once emptied, they pile up and agriculture exporters have seized on them to ship grain products at a reduced cost. However, the quantity of containers coming in to regions like Chicago has subsided because of the recession.

Now agriculture businesses must decide between going back to the traditional but less-favoured bulk grain shipments, and doling out more money for containerised shipping in order to remain competitive globally.

"Right now you've got a South American crop that's pretty good coming out, and if we're not able to get containers and product to market, the big concern is that South Americans will get into some of the markets that we're currently involved in," said Bob Reinecke, president of North Star Container LLC, a freight forwarding company.

"The issue is that the container rate is going to go up," said Mike Steenhoek, executive director of the Soy Transportation Coalition based in Ankeny, Iowa. "People who like to receive things in containers are going to be bidding higher for that available capacity."

Steenhoek explained that this is problematic because some farmers grow higher quality crops with the intention of selling them for a containerised shipping price. As there is less foreign matter in containerised grains, than when they are shipped in bulk, they fetch a higher price on the market.

But if containers are not available, the logistics contractor may not be able to fill orders from other countries, most likely China.

"The buyers in Asia like to buy containers because you can buy eight or 10 containers at a time, versus having to buy a whole ship or a big piece of it," Reinecke said. "It allows them to manage their money better, and it allows for better inventory management."

Just 10 years ago, in 2000, the US exported US$16 billion worth of goods to China, while importing US$100 billion of Chinese merchandise. By 2008, the imbalance quadrupled. So containers were easy to come by.

But just as it was reaching its peak, containerised grain shipping took a dive with the rest of the economy.

Melik, who described the trend as once being "sexy," said now it is more a matter of routine. "It's really changed a lot," he said. "There was a surge a few years ago to do it--it worked everywhere. There were margins in it, but now the margins have gone down."

According to the USDA, during the first nine months of 2009, grain exporters moved 54% fewer containers than the 2008 record level of 363,000 TEUs.

TEU, or twenty-foot equivalent unit, is the measurement used to describe a ship's cargo-carrying capacity. A 40-foot container is equivalent to two TEUs.

When US consumers cut back on spending, importation from China shrank, which meant fewer containers available. Chinese imports declined 12% in 2009 to US$296 billion from US$338 billion the year before.

"If there's not a front haul, we don't have much opportunity to take advantage of the back haul," Steenhoek said.