Exports of refrigerated goods from the U.S. last year increased 16 percent to 15.5 million metric tons, and economists forecast reefer exports will rise again this year.
Exports of livestock, poultry and dairy products to global markets are expected to reach a record $29.2 billion in 2012, according to the latest outlook report released by the U.S. Department of Agriculture. And while the USDA says exports of bulk commodities such as grain will drop slightly this year, it also forecasts record exports for horticultural products at $28 billion, $2.1 billion above 2011. Exports of high-value goods such as fruit and vegetables are expected to more than offset decreases in grain and cotton.
“There are great opportunities looming,” said Peter Friedmann, executive director of the Agriculture Transportation Coalition.
“We see great growth in demand from Korea as import duties are eliminated or reduced,” Friedmann said during a Webcast sponsored by The Journal of Commerce. “Incomes are rising in China, and people there are buying more protein.” He pointed to ongoing trade talks as a potential catalyst for sales of U.S. farm goods, noting that the proposed Trans-Pacific Partnership would reduce duties in a number of nations.
“Vietnam and Malaysia are key participants of the TPP, and they are huge protein markets for us,” Friedmann said.
The Obama administration is frequently showcasing the increases in agricultural exports, the strongest part of its drive to double U.S. exports within five years. Some companies, such as non-vessel-operating common carrier OWL, also are targeting a doubling in reefer exports.
The company regularly holds online seminars to help would-be exporters. “We are building on an already vigorous reefer business,” OWL President Dan Gardner said.
Journal of Commerce/PIERS Economist Mario Moreno sees a few key factors other than trade agreements whose effects are rippling through the supply chain and fostering growth in the reefer trades.
“Reefer exports grew at a compound annual growth rate of 7.3 percent over the last decade,” Moreno said. “We have had a favorable exchange rate for the past several years, income levels are rising in key markets, and population continues to increase in developing countries.
“Reefer cargo will continue to grow because it’s the natural order of things,” said Ulises Carrillo, vice president of global logistics at Dole Foods. “Developing countries buy more food. People in developed economies want better nutrition, so they are eating more fresh fruit and vegetables year-round.”
Carrillo, speaking at the Cool Cargoes track of the Trans-Pacific Maritime Conference last month, said the situation can be reduced to a simple equation: “Agricultural realities, plus population growth, plus rising incomes equal increased reefer trade globally.”
Although people around the world continue to upgrade their diets, Moreno said there are clearly some markets that will increase faster than others. “Northeast Asia is the top regional market for U.S. goods,” he said. “Last year, exports to this region jumped 20 percent in volume over 2010.” Rising incomes are the main reason the volume of U.S. reefer goods shipped to Northeast Asia has grown at average of 5 percent over the past 10 years.
Vegetables became the largest reefer export by volume last year, following a sharp increase of 30 percent over 2010, he said. “Japan is by far the largest market for U.S. ocean exports of vegetables, with a market share of 65 percent,” Moreno said. “Last year, vegetables exports to Japan totaled 3.4 million metric tons, up 36 percent.” Over the past decade, vegetable shipments to Japan grew at a “remarkable” annual average of 18 percent.
Poultry is one commodity where trade agreements and trade disputes show a significant impact on shipment levels, Moreno said.
“Poultry exports to Hong Kong suddenly jumped by double-digit growth rates in 2010 and in 2011,” Moreno said. “In contrast, exports to mainland China dropped in those same years on countervailing duties imposed on U.S. poultry. So, if I am reading the data correctly, some poultry shipments to China may have been diverted to Hong Kong in 2010 and in 2011 in order to be later re-exported to mainland China and escape the high duties.”
Russia’s demand for U.S. poultry also has been affected by government action. “Russia used to be the largest market not too long ago, but due to import limitations and the country building toward self-sufficiency in its meat sector, Russia lost market share significantly from a 40 percent share in 2001 down to 11 percent in 2011,” Moreno said.
The USDA said global poultry exports are expected to increase based on higher demand in Asia and higher sales prices.
“This is a good year for reefer exports,” said Teresa Pittillo, president of Poseidon Forwarding, which specializes in refrigerated exports. “There is a fair amount of space out there and a fair amount of equipment.”
Poseidon has handled food exports for 30 years, she said. “Up until 10 years ago, the cargo was just commodities. Now we are starting to see a broader number of items. Instead of just chicken paws and tips, we’re seeing breaded items, branded items, pizza dough and even ice cream being exported, Pittillo said.”
Ocean freight rates have remained steady, she said. “The steamship lines have tried to take the rates up three or four times, but it doesn’t stick,” she said. “The GRIs seem to fall apart at the last minute.”
Pittillo said the carriers want bookings made two or three weeks in advance, but equipment and slot space are usually available on a few days notice. “I try to book two or three weeks out, otherwise it gets too close for my personal comfort,” she said.
Capacity is tightening a little, she said, but “it’s nothing like it was three years ago. There was just no space and no equipment.”
One reason for increased capacity pressure on container carriers, Carrillo said, is the sector’s increased market share. “Thirty years ago, conventional reefer ships had almost 80 percent of the business,” he said. “Today, that is flipped, and containers have about 80 percent of the business.”
But although reefer will remain “the one constant light in an unstable industry,” he warned container carriers, “Don’t get comfortable and don’t get lazy. “Reefer guys go places the liners don’t go. They are creative and react quickly to customer demands,” Carrillo said.
He said reefer cargo is more delicate than dry box cargo. “Transit times must be respected,” Carrillo said. “Slow-steaming cannot be allowed to affect shelf life.”
He noted that in “true reefer trades,” such as the north-south routes, there are better transit times than traditional dry cargo lanes in the east-west trades. A Dole subsidiary operates breakbulk reefer vessels for the global fruit trader, but Dole also puts more than 100,000 TEUs on container carriers each year.
He said Dole is concerned about the growth of transshipment in the container industry. “To us, there is absolutely no upside to calling a transshipment port,” Carrillo said. “There is a better chance of getting your pizza delivered on time on Super Bowl day than having cargo make the switch to the right vessel after transshipment. It’s an uncertainty, and the produce industry doesn’t like uncertainty with perishables.”
Slow-steaming has become a fact of life because of rising fuel costs, according to representatives of both container and breakbulk carriers.
Because the breakbulk carriers don’t operate on a liner schedule, but rather take a customer’s cargo from one port to another, the customer is the ultimate decision-maker, according to Howard Posner, general manager at Seatrade USA.
Vessel officers have to report on each leg of the trip the estimated arrival time at full speed and slow-steaming. “We have a very transparent system on (fuel consumption and costs) and share the benefits” of slow-steaming with the customers,” Posner said.
Slow-steaming not only saves fuel costs for carriers, but cuts pollution emissions as well, according to William Duggan, vice president of North American refrigerated services for Maersk Line. That lessens the carbon footprint of produce and other food carried from one part of the world to another.
With slow-steaming, more vessels are used and more port calls are possible, Duggan said. “Slow-steaming is an industrywide practice with benefits to reliability, cost and the environment,” he said. “Given the benefits of slow-steaming, this practice is likely to be maintained across the industry.”
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