Export-Led Recovery?

Nick Halper, director of export at Paper Tigers, is a happy U.S. exporter right now. Wastepaper shipments to Asia are fairly strong. When overall trade is strong, ocean carriers tend to give short shrift to shippers of this low-rated commodity, but in today’s trade-challenged environment, Halper has all the equipment and vessel space he needs.

“Carriers are interested in our business,” he said.

By contrast, Hayden Swofford, independent administrator of the Pacific Northwest Asia Shippers Association, is incredulous. Demand for U.S. forest products is strong, and that commodity commands a higher freight rate than wastepaper, but Swofford’s members are having trouble securing empty containers for their exports. When they get the equipment, they find vessels leaving Pacific Northwest ports are overbooked.

“We can’t export our way out of the economic doldrums if we can’t get on a ship,” Swofford said.

Despite such anomalies, most U.S. exporters can expect business opportunities to grow in the coming months as the weak dollar spurs demand for U.S. commodities. At the same time, carriers are reducing their trans-Pacific fleets as the larger and more lucrative inbound trade from Asia enters the slack season. With demand increasing and capacity decreasing, carriers are raising rates.

“The September GRI (general rate increase) worked, so they’ll try it again,” said Bob Weiss, independent administrator of the Food Shippers Association of North America.

Weiss was referring to proposed guidelines earlier this year issued by the Westbound Transpacific Stabilization Agreement for dry cargo. The carrier discussion group recommended an increase of $150 per FEU for shipments from the West Coast to Asia, and a $200-per-FEU increase for shipments moving by intermodal rail or on all-water services from the East and Gulf coasts to Asia.

The WTSA, which has 10 member lines, also recommended increases of $25 per FEU for refrigerated cargo from the West Coast and $300 per FEU on all-water and intermodal shipments.

Those increases, though voluntary, generally stuck, Weiss said, so the WTSA quickly called for an additional round of increases of $100 to $150 on dry cargo effective Jan. 1, and $250 to $300 per FEU for reefer cargo effective Jan. 15. Weiss won’t be surprised if those GRIs hold.

The U.S. is embarking on a period of steady export growth, fueled by increasing manufacturing in Asia that needs raw materials and a weak dollar that makes U.S. prices attractive to overseas buyers.

In terms of output, U.S. producers will have no problem meeting overseas demand. Agricultural exports, generally a strong mover in the westbound Pacific, may lead the way.

“The agricultural crop this year is super,” said Ed Zaninelli, vice president of trans-Pacific westbound at Orient Overseas Container Line.

Los Angeles Harbor Grain Terminal can vouch for that. “The weak dollar is a factor, probably the determining factor,” President Howard Wallace said. He noted the big push hasn’t even started because heavy Midwest rains caused a late harvest.

That should keep exports strong into January, Zaninelli said, helping the trade because January is usually the slowest month of the year for exports.

Container carriers should get an additional boost from traditional grains such as wheat and soybeans. Some grain shipments migrated from bulk vessels to containers in 2007 when a shortage of bulk vessels sent freight rates soaring. Bulk vessel rates are back to normal, but some shippers decided to stick with containers.

Container shipping works especially well in Southeast Asia and other developing regions lacking sophisticated port, storage and logistics systems to handle bulk shipments, Wallace said. Buyers also can purchase smaller quantities to fit their needs and ensure quality of product, something not always possible on large bulk vessels.

Container lines control less than 10 percent of the grain trade, so there is plenty of room to grow, Zaninelli said.

Exports of higher-value agricultural products also are doing well. While traditional exports such as hay, wood products and wastepaper moving through Portland have been flat, higher-end food products such as french fries, cheese, stone fruit, berries and processed foods have been growing for some time, said Greg Borossay, the port’s senior manager of trade and liner development.

Wood products exports also are increasing. The U.S. housing slump hammered the lumber industry, and producers looked overseas, said Josh Adams, business and economic analyst at the Port of Tacoma. The weak dollar helped exporters all the more.

Exports this year have been up and down. Tacoma, for example, experienced an oddity that Adams said is difficult to explain when exports in April, May and June exceeded imports. At most West Coast ports, imports are much higher than exports.

Although total U.S. containerized exports year-to-date through September are less than in 2008, exports late last year plummeted, so the 2009 numbers should be strong by comparison through the rest of the year.

This is reflected in bookings, especially from the Pacific Northwest. “Ships are closed through December. Cargo is being rolled (missing voyages) every week,” Swofford said.

While carriers are seizing the opportunity to raise rates, prices are still well below last year. One shipper reported dry cargo rates this month from the West Coast to Hong Kong at about $1,100 per FEU, including bunker surcharges, compared with an average of $1,620 last fall.

Frozen cargo from the West Coast to Tokyo is moving at about $2,025 to $2,500 per FEU, compared with about $3,500 last October. Chilled cargoes such as apples are moving to Taiwan for about $3,070 per FEU, compared with $3,945 last fall.

Reefer equipment is getting tougher to secure because carriers have had to reduce capital expenditures during the recession, said M.K. Wong, OOCL’s director of reefer trade. Older equipment is being retired, but carriers are not replacing every unit scrapped.

For most exporters, another rate increase would be acceptable if carriers would accompany it with assurances of equipment and vessel space. Just the opposite is likely to happen. Capacity will grow more scarce during the slack winter months in the eastbound Pacific because most every carrier is likely to take at least one string of vessels out of service, Zaninelli said.

Exporters wonder why carriers continue to base their capacity on the eastbound trade when all forecasts indicate the U.S. is on the cusp of an export surge.

“Carriers should be talking to us now,” Swofford said. “They need revenue. We need to plan. Carriers should be taking a balanced approach.”

Contact Bill Mongelluzzo at bmongelluzzo@joc.com.