U.S. exporters are discovering that low freight rates are a mixed blessing. Some trans-Pacific carriers are rejecting low-value cargo. They'd rather send the containers back to Asia empty so they can be quickly refilled with better-paying shipments for the U.S. import market.
That's just one of the problems facing shippers on the westbound backhaul leg of the trans-Pacific trade. Potential congestion at West and East Coast ports, a shortage of containers and chassis, possible delays on the rail networks and late or lost documentation from shipping lines make life difficult for corporate transportation managers.
Low freight rates have contributed to declining service, shippers said this month at the annual meeting of the Agriculture Ocean Transportation Coalition, or AgOTC, which represents many U.S. exporters in the trans-Pacific.
Declining freight rates - some as low as $300 per FEU for low-value commodities - are the result of a severe and persistent trade imbalance. Carriers continue to add capacity to accommodate the booming eastbound trade, where typical rates are $2,000 per FEU, but those vessels return to Asia half empty. U.S. containerized imports from Asia exceed exports by a ratio of 2.7-to-1.
This is producing occasional shortages of containers. Peter Friedmann, general counsel of AgOTC, said a recent survey found the lack of equipment availability to be the top concern of the organization's members.
Port congestion is another problem. Carriers and shippers were burned last year during five months of congestion in Los Angeles-Long Beach that was caused by a severe labor shortage and congestion on the western railroads.
Carriers last year eliminated some port calls to keep their trans-Pacific services on schedule, building a 5 to 6 percent buffer into their schedules. That proved to be insufficient, said Ed Zaninelli, director of westbound services at Orient Overseas Container Line. OOCL this year is reconfiguring its services and eliminating some double port calls to produce a 10 percent buffer in case congestion resurfaces, he said.
Capacity also is tight at some East Coast ports, said Donna Lemm, director of business development at Mallory Alexander, a Memphis forwarder that handles a variety of agricultural products. Exporters in Memphis can ship to Asia through ports in the Southeast or the West Coast. However, congestion on the eastern railroads and at some East Coast ports, coupled with difficulty in booking space on all-water services to Asia, has caused Mallory Alexander to return to the West Coast this year, Lemm said.
Congestion at some East Coast ports is so bad that shipments have been held as long as two weeks, said Tom Vander Weide, general manager of the logistics division at G3 Enterprises, which ships products for E&J Gallo Winery.
Because vessels on all-water services have higher utilization rates, carriers have priced their services more aggressively. That means export freight rates from the East Coast are now about the same as intermodal rates through the West Coast, Lemm said.
Port congestion could hit cotton exporters hard. About 70 percent of U.S. cotton exports are shipped during a four-month period each fall, said Sheila Bracken, manager of transportation and export operations at Allenberg Cotton Co. in Cordova, Tenn. A major selling point of U.S. cotton exporters is their reliability in shipping the product on time compared with exporters in other countries, but that advantage is starting to erode, Bracken said.
Vander Weide said congestion on roads, rail networks and at the ports is a hidden cost that increases the price of shipping goods overseas. Another hidden cost, shippers say, is sloppy carrier handling of documentation. Documents that exporters need to claim payment for shipments sometimes are held by carriers for five to seven days, Lemm said. "Documents are money. If you wait seven days to get the documents back, that's lost money," she said.
Albert A. Pierce, executive director of the Westbound Transpacific Stabilization Agreement, said carriers this year are seeking rate increases of $50 to $200 per FEU, and shippers are generally not resisting the increases. "Shipping lines have been able to make the case for more compensatory rates in the interest of maintaining service levels and equipment availability," Pierce said.
OOCL's Zaninelli was not so positive, at least for dry cargoes. "There is not a dry westbound rate that is profitable for anyone," he said.