The U.S. farm sector is on the cusp of an explosion in exports, and the liner shipping industry will be a major beneficiary.
Prospects for a free trade agreement with South Korea, development of a key rail infrastructure project in Southern California and a growing market in Asia for U.S. farm products point to a bonanza of containerized agricultural exports in the westbound trans-Pacific ocean trade.
The U.S. Department of Agriculture projects record agricultural exports of $135.5 billion this year, $20.6 billion more than 2008’s record, Agriculture Secretary Tom Vilsack said during a visit to Long Beach this month.
Vilsack was in Long Beach to encourage support for the U.S.-South Korea Free Trade Agreement, which, if approved by Congress, would have a greater economic impact than the previous nine free trade agreements combined.
Vilsack’s remarks were tailored for his California audience. The state, after all, is the largest exporter of farm products, by far. Its $12.5 billion in fiscal 2009 exports rank the state fifth among all exporting countries.
The message also resonated with the liner shipping industry because South Korea’s tariffs would be eliminated immediately, or phased out in ensuing years, on products such as cherries, raisins, table grapes, almonds, pistachio nuts, shelled walnuts, carrots, lettuce and wine, all of which are shipped in containers.
To highlight the effectiveness of a free trade agreement, the USDA cited the case of Chile, whose share of South Korea’s wine market jumped to 23 percent from 2 percent after it signed an FTA in 2003.
Globally, prospects for U.S. agricultural exports couldn’t be better. U.S. cotton and grain growers are filling the void created last year by reduced exports from some competing countries that experienced floods or droughts. The weak dollar makes the price of U.S. commodities more competitive overseas, and freight rates are declining despite the growing volumes.
Industry veteran Ed Zaninelli, vice president of trans-Pacific westbound at Orient Overseas Container Line, told this month’s Journal of Commerce Trans-Pacific Maritime Conference the westbound market today is the most confusing he’s seen. U.S. exports to Asia are booming, yet freight rates continue to fall.
The growth is good news for the Obama administration’s National Export Initiative, which aims to double U.S. exports in the five years through 2014, aided by the USDA Foreign Agricultural Service’s push to get small and midsize farmers more involved in exporting.
While these developments are positive for the container shipping sector, the most significant development may be unfolding in the rail industry. Union Pacific Railroad plans to open a grain transfer facility in Yermo, Calif., about 100 miles northeast of Los Angeles, by midsummer (Story, page 61.)
UP will address perhaps the most troubling problem agricultural exporters face: how to get empty containers from surplus locations on the coast to farm exporters in container-starved regions in the interior. Draying empties from surplus locations, or moving them long distances by rail, increases the delivered cost of a product to the level where it can be priced out of the export market.
UP’s solution is to bring grain products to the containers. UP each week will move a unit train of covered hopper cars carrying distillers dry grain from the Midwest to Yermo. UP also will move 300 empty containers from its near-dock railyard in the harbor area to Yermo. The grain will be transferred from hopper cars to the empty containers, and a UP unit train will deliver the containers to on-dock railyards at the ports.
This closed-loop operation may be the solution agricultural exporters in the interior U.S. have been looking for. “This has been on the verge of happening for years,” said Peter Friedmann, executive director of the Agriculture Transportation Coalition in Washington, D.C.
UP will open its Yermo transfer facility with DDG, which is one of the hottest export commodities today. Annual exports of DDG, a byproduct of ethanol production used in animal feed, grew from almost nothing five years ago to $1.5 billion last year, with $500 million of that moving to China, according to the USDA.
UP can expand its facility to handle other grain products, and the potential for growth is huge. Doug Grennan, senior manager of international container trade at Scoular Co., told the TPM conference that about 96 percent of U.S. grain exports move in bulk vessels. The potential to ship more grain in containers increases as the cost of repositioning empty containers falls.
Agricultural exporters also are begging the ports of Los Angeles and Long Beach for greater transload capacity in the harbor area, but space is a problem. “Numerous parties are expressing interest,” said Don Snyder, director of trade relations in Long Beach. The port wants to help exporters, he said, but very little land is available in the harbor.
The Los Angeles Harbor Grain Terminal transfers grain from railcars to empty marine containers that are drayed to the facility. The Port of Los Angeles also provides the terminal with street space to handle overflow shipments that are loaded into containers with a portable machine, said Mike DiBernardo, the port’s director of business development.
To accommodate additional transfer facilities, ports must find property with access to long tracks capable of handling unit trains of hopper cars. Howard Wallace, president of Los Angeles Harbor Grain Terminal, wants the port to release one of three tracks that loop around the site of a defunct coal terminal, but DiBernardo said the tracks are being used for intermodal rail operations.
The dearth of vacant land in the harbor area has agricultural exporters excited about the UP project in Yermo. If successful, the venture could spawn development of other rail-oriented grain transfer facilities east of Los Angeles where land is plentiful.
“If the railroads are willing,” Friedmann said, “it will happen.”
Contact Bill Mongelluzzo at email@example.com.