Bob Sinner’s family has been growing wheat in North Dakota’s Red River Valley for five generations, first, for the ever-expanding U.S. population, but increasingly for Asia.
“In the late 1980s, we began to see changes in the food industry, especially in Asia, which was looking for better-quality identity-protected grain to improve their food products,” he said. As president and co-owner of his family’s SB&B Foods, Sinner decided back then to focus the North Dakota-based grain company on direct sales to Asian buyers of identity-protected grains segregated in containers shipped to West Coast for shipment.
Now he’s looking for new markets in Africa and the Middle East that could channel shipments of SB&B’s IP grain shipments through East Coast ports that have traditionally handled its exports to Europe. He is taking a wait-and-see attitude for now, but he thinks it will happen.
“Africa will be the next big export area for U.S. agricultural exports. When that happens, the East Coast ports will become important for grain shipments,” Sinner said.
With the expansion of the Panama Canal in 2014, Sinner also thinks more of his grain exports to Asia might be channeled through the East Coast ports. “That’s coming,” he said. “There will be increased competition for grain shipments even to Asia off the East Coast because of the Panama Canal expansion.”
East Coast ports aren’t waiting for the canal’s expansion to market their facilities to grain shippers for bulk and containerized exports. “We are getting more calls by East Coast ports these days,” said Bruce Abbe, executive director of the Midwest Shippers Association in Minneapolis.
The association consists of grain sellers more interested in shipping specialty grains in containers than bulk. Most member exports go by rail to West Coast ports, but Abbe said a lot of members’ containerized grain shipments are routed by Canadian Pacific Railway around Chicago through Detroit to Toronto and then down to Montreal for export.
He expects exports through East Coast ports to grow, pointing to U.S. Department of Agriculture forecasts of stronger exports this year to regions that can be reached via East Coast ports.
The USDA expects sales to the European Union to grow $1.5 billion this year, primarily because of increased grain and feed shipments. It raised its sales forecast for the Middle East because of greater purchases by Turkey and Saudi Arabia, and to North Africa because of $300 million in increased sales to Egypt. But it lowered its forecast for sub-Saharan Africa because of lower-than-expected shipments of grains and feeds.
Although total exports of containerized grain, soybeans and animal feed through East Coast ports dropped 19 percent year-over-year in the first half of 2011 to 66,644 20-foot equivalent units, exports to the Middle East, while still relatively small, jumped 56 percent to 4,191 TEUs.
East Coast ports are trying to gain a greater share of the containerized grain export business. “We’re calling on the ADMs, the Cargills and the Bunges and saying we have 14,000 empty containers on terminal here any day in Savannah,” said John Wheeler, director of trade development for the Georgia Ports Authority.
Although rock-bottom rates have helped bulk carriers recapture much of the grain exports that migrated into containers when bulk rates were high three years ago, Wheeler said other market factors are fueling the growth of containerized grain exports off both coasts.
Banks that used to finance purchases by large grain traders in lots of 30,000 to 40,000 tons will only finance smaller purchases now because of the tightening of credit. So grain shippers are buying smaller lots more easily shipped in containers.
Another advantage containers hold is that a lot of destinations for the grain in Africa and Southeast Asia don’t have the infrastructure to handle big bulk ships. They might be able to unload the grain in some ports, but they don’t have the trucks to move it in bulk. “But almost anyone can get a chassis for containers. That’s the biggest change. So we are seeing a shift back to containers,” Wheeler said.
Container lines are seeing growing momentum in grain exports. “We are seeing more agricultural exports convert from bulk into containers in all sorts of different grain segments,” said Jack Mahoney, director of trade management for Maersk Line in North America. “Even with the changes in bulk prices, we are finding that there is a stickiness because containers are convenient.”
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Containerized shipments allow grain shippers more flexibility in the size of the lots they sell and provide a more even flow of volumes between them and their receivers. Mahoney said the carriage of containerized grains is a relatively new one that only developed within the last few years. Maersk has a team of salespeople who focus on this segment, calling on grain shippers and attending grain industry events.
Maersk is capturing growing grain exports from the Ohio Valley through East Coast ports. It also is seeing growing exports through East Coast ports to Southeast and North Asia on its all-water services through the Suez and Panama canals.
But Mahoney said low bulk rates are putting pressure on pricing. “We don’t see the volumes leave us, but we see the price pressure,” he said. “We feel like we must decrease prices or we feel we can’t afford to increase prices and stay competitive.”
The growth of containerized grain exports from the northern Midwest is curtailed by the critical shortage of empty containers in areas where the grain is grown. “Obviously, exporters rely on equipment that arrives in the U.S. in the form of imports, but we have a transportation system in this country that focuses on large metropolitan areas, regardless of where the demand for exports is coming from,” Sinner said. “If you need equipment in North Dakota, you have a repositioning issue.”
As a result, container rates are still more attractive for importers than exporters. Sinner has to negotiate with his ocean carriers to secure equipment for his exports at rates that include a charge for repositioning containers from Chicago to Minneapolis, 250 miles east of his company’s location near Fargo.
“The reality is that our imports go to where the population is, and our exports from this country come from where the farmland is,” Mahoney said. “In the Middle West, we try to bring in enough imports to match with exports. We would not want to get in a situation where we bring in so many imports that we have to pay on our own to evacuate the equipment.”
To get around the container shortage, some Midwest grain shippers are shipping grain by rail in hopper cars to facilities around East Coast ports, where they can be transloaded into containers. The hopper cars unload the grain into a dump pit, from where they move on conveyor belts above ground and then are blown or conveyed into containers that are railed directly to ocean container terminals.
“The biggest limit on the business is finding enough facilities near East Coast ports that have this kind of equipment,” Wheeler said. Some ports have transloading facilities that handle either Norfolk Southern or CSX trains, but none that serve both lines.
But specialty grain shippers don’t like this solution. “The rail carriers and to some extent the ocean carriers don’t get it,” Sinner said. “They say we need to move our grain to ocean ports and transload it into containers, but my question is: Who is responsible for product damage? Who’s responsible for product contamination or food safety? They’ll throw their arms up and say, ‘We’re not.’ ”
The only solution, he said, is to seal grain products in containers at the point of origin, “so nobody tampers with that product.”
Sinner hopes the boom in oil drilling in western North Dakota will provide some relief from the shortage of container equipment that slows his exports. The oil industry imports by container artificial “frac” sand called proppant from China to extract oil from shale deep underground. SB&B would like to use those containers to export its specialty grains, but that still requires the repositioning of equipment by truck over 270 miles of two-lane highways from Minot to Fargo that truckers hate.
“It’s dangerous, there are weight restrictions and all sorts of other issues,” Sinner said.