October was the best month ever for exports at Los Angeles Grain Terminal, and it looks like the good times will last for a while.
“I cross my fingers thinking this is too good to be true, but it looks like it’s going to be a long run,” said Howard Wallace, president. The run of grain exports began in June 2009, and could easily last another two years, Wallace said.
That means terminal operators will handle more export containers, which pay higher rates than the loading of empty boxes on ships, and ocean carriers in the trans-Pacific will earn more revenue westbound, helping bring better balance to the often-imbalanced economics of the round trip.
A weak dollar, which makes U.S. exports more competitive overseas, and a growing middle class and industrial expansion in Asia are creating strong demand across the board for U.S. exports.
Although there is plenty of skepticism in the U.S. trade community that the country can reach the White House goal, in its National Export Initiative, of doubling exports in the next five years, reports from a range of exporters suggest business is picking up, especially in the agriculture trade that fuels much of the U.S. export business in the lean winter shipping months.
Figures from PIERS, a sister company of The Journal of Commerce, show U.S. containerized exports grew 11.6 percent in the first half of 2010 over the same period a year earlier, but the growth slowed to 3.7 percent in the third quarter.
Some agriculture commodities were showing signs of strong growth. The U.S. Commerce Department said exports of coarse grains, including corn, were up 6.2 percent in the first 10 months of 2010, and reports from the U.S. Grains Council showed exports to big markets such as Japan were growing more rapidly. Wheat exports already had surpassed the 2009 total by the end of October, according to figures from the Commerce Department’s Foreign Agricultural Service.
Industry observers expect U.S. export growth will accelerate over the next few months. Traditional exports such as scrap paper, metal and plastic — the feed stocks for manufacturing plants in Asia — already are filling ships in the westbound Pacific.
Asia’s growing middle class wants more meat and dairy products, so exports of animal feed and distiller’s dry grain, which move in containers as opposed to bulk vessels, are booming as Asia builds up its herds. Citrus fruit from California is beginning to move as well.
Exports of manufactured products were up about 21 percent in the first nine months of 2010, according to the National Association of Manufacturers. If Congress approves the recently negotiated U.S.-South Korea free trade agreement, U.S. products will be much more competitive in one of Asia’s biggest markets.
Manufactured goods comprise about 70 percent of the new exports to Korea. Exports are projected to increase because 95 percent of the Korean tariffs, which now stand at about 8 percent, would be eliminated in three years. South Korea imports about $250 billion worth of manufactured goods a year, but only 11 percent of those products come from the U.S., according to NAM.
Meat exporters likewise hope the free trade pact, if approved, would result in increased exports of beef and pork to South Korea, according to Jim Herlihy, a spokesman for the U.S. Meat Export Federation. Negotiations with China on reducing barriers to U.S. beef also appear to be positive, but it takes awhile for agreements such as this to produce a significant increase in exports, he said.
The export boom also will benefit the U.S. agricultural sector in a big way. Cotton exports began building in November and should reach a crescendo this month. “Only about 10 percent of the cotton has moved. It should be really big in mid- to late January,” said Ed Zaninelli, vice president of trans-Pacific westbound at Orient Overseas Container Line.
Calcot, a large cooperative of cotton exporters in California and Arizona, said the 2010-11 marketing season would draw on a good crop in the West and in the cotton-growing regions of the South and Texas. According to the U.S. Department of Agriculture, the 2010-11 crop will total 15 million bales. That compares with 12 million bales in the 2009-10 season and 13 million bales in 2008-09, Calcot spokesman Mark Bagby said.
Calcot already has sold quite a bit of cotton for January and February shipment, and the ensuing months also should be busy. “It looks like six to eight months of fairly steady exports,” Bagby said. Crop issues in China and Pakistan have helped to increase demand for U.S. cotton.
Forest products exports also are doing well. According to PIERS, lumber exports through all ports were up 38.7 percent in the first 10 months of 2010.
Exports from the Pacific Northwest are up about 20 to 25 percent, said Hayden Swofford, independent administrator of the Pacific Northwest Asia Shippers Association. U.S. exporters earlier in 2010 saw a surge in business because Chile’s lumber exports dropped dramatically following last February’s devastating earthquake, Swofford said.
Hovering over all the reports of growth in various export commodities is President Obama’s ambitious goal set last March to double U.S. exports over the next five years. Businesses from farms to factories have said the administration must come up with more export-friendly regulations to remove barriers to exports, and strike new trade agreements, to provide any hope of such a boost.
Exports since World War II doubled about every 10 years, so the initiative appeared at the time to be a stretch. But with exports through the first 10 months of the year up about 18 percent, exports are on track to reach the goal, Obama said in a Dec. 9 speech to the President’s Export Council.
The across-the-board optimism of U.S. exporters is based on recent statistics released by some of the larger ports. With a 14.2 percent year-over-year gain, November was Los Angeles’s busiest month of the year for exports. October was the busiest month of the year for exports in Long Beach, and November’s total was off only slightly from October. Through the first 11 months of the year, November was also the busiest month of 2010 in Oakland.
On the East Coast, Savannah’s containerized exports grew 14 percent over November 2009, and year-to-date exports were up 14.8 percent over the previous year.
It appears U.S. exports won’t be hampered by high freight rates, and certainly not in the trans-Pacific. Despite the booming exports and bullish projections, pricing in the westbound Pacific has declined in recent months. This is especially true for exports from Los Angeles and Long Beach, where vessel capacity is plentiful.
Carriers report the rate for wastepaper, a leading commodity westbound, had dropped to $250 per 40-foot container by mid-December. The rate for shipping a container from Southern California to South China in April was $900 per FEU. Cotton was moving to China for about $650 per FEU, and the rate for hay was about $750 in December.
Carriers normally attempt to raise their westbound rates in the winter months, the peak export season in the trans-Pacific. Carriers announced rate increases of $300 to $400 per FEU to take effect on Nov. 1, but those increases quickly eroded, and carriers got about half of what they asked for, if that. Capacity is not as plentiful in the Pacific Northwest, and exporters there usually struggle to get enough empty containers, so freight rates from Seattle and Tacoma have been firmer.
Trans-Pacific carriers in February will reduce their vessel capacity as Asia celebrates the Lunar New Year. With factories closing for a week or two, U.S. imports from Asia will plunge, and carriers will take the opportunity to service vessels for the coming year. The drop in capacity based on the slack season in eastbound trade will come when westbound shipments are building toward their peak.
As a result, carriers may attempt to increase westbound rates on Feb. 1. The Westbound Transpacific Stabilization Agreement, a discussion agreement of 10 carriers in the westbound trade, said member lines have discussed raising rates on those commodities that didn’t take an increase in 2010, but “no specific action is pending at the moment,” spokesman Niels Erich said.
Vessel capacity is abundant in California and is likely to remain so through January. Some vessels will be removed from service during the Chinese New Year celebrations in February, but five smaller niche operators began new services in 2010, and all have operated on trade lanes to Southern California. They are unlikely to reduce capacity in February.
Westbound trade this year has seen the contradictory phenomenon of booming export volumes and declining freight rates. This is a reversal from what happened in early 2010. According to Paris-based research analyst Alphaliner, carriers in the trans-Pacific reduced capacity 21 percent from August 2008 to December 2009. In early 2010, capacity was at a premium, and freight rates soared.
Carriers increased capacity steadily in 2010, ending the year with capacity growth of 26 percent. Carriers are assessing prospects for this year, and the WTSA hasn’t released an official projection for exports in 2011. The initial conservative consensus of member lines is 5 to 7 percent growth in exports, coming off the strong 2010. The projection could rise if favorable weather results in good agricultural crops in 2011.
It looks now like there will be plenty of empty containers to accommodate exporters in Southern California, although the supply of empties will be tight in the Pacific Northwest and in inland locations from the Gulf of Mexico to the Midwest.
Contact Bill Mongelluzzo at firstname.lastname@example.org.