U.S. reefer exports to Latin America total only about 10 percent of the volume of reefer exports to Asia. And only one reefer container goes southbound from the U.S. to Latin America for every eight or so containers that moves northbound to the U.S.
Yet carriers in the region have reason to be optimistic. Despite the recession, southbound reefer traffic from the U.S. grew at a pace of 9.7 percent, to 25,668 FEUs, over the 12 months ending June 2009, said Vincent Rankin, director of reefer sales at APL, citing figures for all carriers.
A wide range of opportunities provided by recent U.S. free-trade agreements with other countries in the region, including the Central America Free Trade Agreement, have encouraged U.S. exporters. Most Latin American economies have escaped the brunt of the global recession because their banks kept interest rates high and never made credit readily available to those not able to afford it. Optimism could blossom further if the U.S. Congress ratifies the pending trade agreements with Panama and Colombia.
“Asia is quite a mature market, but Latin America is a new frontier,” Rankin said. “Trade relations are opening up.”
APL, he said, is “trying to push” this new market “in a big way.” Exporters also benefit from southbound rates — averaging from $2,500 to $3,000 per 40-foot reefer from the U.S. to Central America, and about $2,000 to $2,300 from the U.S. East Coast to Colombia — that are much lower than those northbound. Northbound rates are “quite high,” Rankin said, from $3,500 to $5,000 for a 40-foot reefer. But these rates have fallen over the past year because of increased competition, he said.
Shipments of poultry, fresh fruit, potatoes, pork and chemicals lead the list of U.S. exports to the region. The largest market is Guatemala, which had a 17 percent market share of southbound traffic, followed by Honduras, at 11 percent, Panama at 9.6 percent, and Colombia, with a 9.1 percent share. Central American markets are consuming more apples, grapes and peaches, especially from July through December.
Because the countries have poor infrastructure, however, buyers there often hold onto refrigerated containers until they sell them, using them as cold storage. They don’t have the cold storage facilities available to empty the containers right away.
Colombia is the largest buyer of southbound poultry shipped from East Coast ports such as Charleston and Savannah, ports closer to major poultry producers in the Southeast. Southbound fresh fruit — Pacific Northwest apples from September through May, along with grapes, peaches and nectarines from July through December — are shipped out of port on the West Coast, primarily Los Angeles. Frozen potatoes that originate in the Midwest can come from any East Coast port, including New York-New Jersey, Norfolk or Savannah.
Imports dominate the U.S.-South America trade lane, and in a big way.
For every eight or so containers going northbound from Latin America, only one container heads south from the U.S., so APL and other carriers must ship some empty containers southbound to redress the imbalance. Over the 12 months ending June 2009, even though southbound traffic grew and northbound traffic dropped between 5 and 8 percent, northbound traffic remained the business driving the trade.
To minimize the impact of this imbalance, Rankin said, carriers do as much as they can to promote exports to South American countries from which they carry imports. Another tactic is to load dry cargo into a reefer container, or just make the container available to a U.S. exporter, such as a furniture maker, that doesn’t need refrigeration. Once the container arrives in, say, Chile, it can be turned around for a northbound move.
Rates for dry cargo, or “reefer dry,” are typically discounted by about 15 percent, still better for the carrier than an empty box.
Carriers also look for ways to make reefer routes most cost-effective. For example, after APL empties its refrigerated containers in Buenaventura, Colombia, it ferries the boxes to Guayaquil, in neighboring Ecuador, where they can be filled with seafood (mostly shrimp), mangoes, plantains and bananas for northbound shipment to the United States. Or the carrier can move the containers to Peru to pick up locally produced citrus, grapes, asparagus and mangoes for U.S. buyers.
Northbound traffic from Chile typically consists of farm-bred salmon, and a range of fresh fruits grown in that country in those seasons in which they are not produced in California, which has a similar climate. This includes apples, blueberries, grapes, peaches, nectarines and plums.
Although wine is sensitive to extreme heat, South American wines such as Chile’s Malbec are not usually refrigerated, merely insulated to protect against temperatures of 100 degrees Fahrenheit or more. Chile is not a big supplier of U.S. reefer imports, however. It exports about 80 percent of its fresh fruits all over the world, unlike the U.S., which consumes a similar percentage of its fresh fruit output domestically.
Northbound reefer shipments of Chilean salmon, once a profitable business, have become a major trouble spot because fish farming has created more competition for salmon around the world. In addition, air cargo providers such as Chile’s LAN Airlines compete heavily for the Chilean salmon exports, and the air carriers have shaved their rates to make up for diminished demand in other expedited markets.
But the troubles run far deeper than simple competition.
Exports of Chilean salmon to the U.S. declined 14 percent to $213 million during the first four months of 2009 because of an outbreak of the Infectious Salmon Anemia virus. Wal-Mart Stores announced in July that it stopped buying salmon from Chile. Wal-Mart has apparently switched to Atlantic suppliers of salmon, such as Norway and the United Kingdom.
On a broader scale, Chile’s share of global salmon production is expected to fall to 20 percent in 2010 from 35 percent in 2008, according to a recent study by the Chilean Association of Banks.
The harvest cycle typically takes two years, so the industry, including Chile’s northbound shipments of salmon, isn’t expected to pick up until 2011.
Like salmon, northbound volume of fresh fruit from northeastern Brazil is declining this year, but for a different reason, said Henrik Simon, director for reefer cargo for the South America east coast at Hamburg Sud.
High-value fresh fruit such as mangoes and papayas are cultivated in huge, irrigated plantations in the northeastern state of Pernambuco. From there, the fruit shipments are transported about 500 miles to the Port of Suape, also in Pernambuco, then shipped to the U.S., usually to the Port of Philadelphia.
Until this year, reefer container volume of these products was growing at a pace of about 5 to 7 percent a year. But the business is projected to decline 10 percent this year, Simon said. As a result, reefer rates have fallen some 20 percent this year from last year’s levels.
“Mangoes, grapes and papayas are considered luxuries in the U.S.,” Simon said. “Most people cut the costs of luxuries and eat less.” In the U.S., consumption of locally produced fruits such as apples and lower-priced tropical fruits such as bananas has remained immune to the downturn, he said. U.S. sales of high-end tropical fruit are not likely to increase until the U.S. economy recovers from the economic downturn.
Dole Foods has seen the standby fruits stand up in the downturn.
“Bananas have held up quite well” during the recession, said David Bright, vice president of marketing at the food distributor. Over the first half of this year, overall sales of yellow bananas grew 1.2 percent in the U.S. compared to the same period last year. That’s because U.S. consumers have been “trading down” to bananas from more expensive fruits, he said. Banana prices are up about 4.3 percent this year, but sales volume, measured in pounds, is up about 1.2 percent. As a result, reefer container volumes “are not down,” said Ulises Carrillo, vice president of global logistics at Dole Food. “They are on track.”
Although Dole has been privately owned since 2003, publicly owned Chiquita Brands International recently reported its income from continuing operations during the second quarter of 2009 was $89 million, up more than 50 percent from $58 million in the second quarter of 2008.
Like Chiquita, Dole operates its own fully integrated, refrigerated container line, allowing the company to control its supply chain more cost-effectively, Carrillo said. Dole ships its bananas from Ecuador, Costa Rica and Honduras to five “equally important” ports in the U.S.: Wilmington, Del.; Port Everglades, Fla.; Gulfport, Miss.; Freeport, Texas; and San Diego.
Dole also operates a “very active” backhaul service, which offers reefer and dry cargo capacity to southbound shippers, Carrillo said.
It uses some of its southbound capacity to carry the raw materials and equipment it needs to keep its operations running smoothly in Latin America. Although the dynamics of the banana business remain essentially the same, recession or no recession, Carrillo said Dole is constantly updating its infrastructure to remain competitive in any economic environment.
“We are very active in replacing containers with more reliable refrigerated units that are more cost-efficient,” he said. “We have a very tight supply chain, and we are continuously modernizing our fleet.”
Contact Alan M. Field at email@example.com.