U.S. exports of recycled plastics, metal and paper to China are taking a beating because China’s new administration is cracking down on the importation of adulterated scrap products.
The so-called Green Fence policy launched by President Xi Jinping in February is taking a toll on three of the highest-volume commodities shipping lines carry in the westbound trans-Pacific.
Exports of scrap products to Asia “decelerated to almost flat” in the first quarter, Journal of Commerce Economist Mario Moreno said. Shipping executives began to notice the impact in early March, and they expect second quarter volumes will show an even more dramatic decline.
For years, China has required extra inspections of scrap products to ensure the containerized shipments don’t include “junk,” as the industry calls adulterated products. Wastepaper shipments have been found to include discarded syringes and other medical products. Entire engines are sometimes hidden in shipments of scrap metal.
President Xi’s administration, however, has called for dramatically increased inspections of containers carrying scrap products as part of its overall policy of improving the environment.
For large scrap exporters in the U.S., the policy means increased scrutiny of vendors from whom they source the material. A major infraction of China’s policy could result in the exporter losing its license. For ocean carriers, the policy means containers can be held up at China’s ports for weeks as officers painstakingly unload the contents for inspection.
U.S. exporters are doing their best to minimize their risk. Nick Halper, director of export at Illinois-based pulp and paper company Paper Tigers, said cheaper bulk grades are most susceptible to inspection and rejection, so his company is shipping higher grades of product and is faring well.
Shipping lines are dealing now with known shippers that have maintained good track records. Joe Alagna, vice president for U.S. sales at China Shipping North America Agency, said the Chinese government is “very serious” about ensuring that clean scrap products enter the country, so China Shipping is “very conservatively” choosing its partners who export scrap to China.
The drop in low-value scrap exports is having an illusory impact on overall freight rates in the westbound Pacific. According to the World Container Index, the average freight rate for shipping a 40-foot container from Los Angeles to Shanghai in the week of May 23 was $898. That was up 2.7 percent from Jan. 1 and 6 percent higher than the same week in 2012.
Lamont Petersen, vice president of marketing at South Korea’s Hyundai Merchant Marine, said the average freight rate in the westbound Pacific appears to be increasing because shipping lines are carrying less of the low-value, high-volume scrap commodities, and that lifts the average rate for the trade.
Overall freight rates westbound, in fact, have been under pressure. Bob Weiss, independent administrator at the Food Shippers Association of North America, said westbound rates are “slightly soft.”
Carriers, however, aren’t caving in and offering deeply discounted rates, either. If rates on certain commodities drop too low, carriers are walking away from that business, he said.
The summer months are normally a slack period for most westbound cargoes, but demand usually picks up in the fall, especially with the new agricultural crop. This year could see a better than average harvest. Hong Kong-based Orient Overseas Container Line notes that much depends upon the weather, but it expects exports to be better than they were the past two years, a spokesman said.
The U.S. Department of Agriculture also is bullish on exports of many products, with the exception of meat, which will suffer the residuals of feed-grain issues during the 2012 drought. Staples such as soybeans, grain, cotton, horticultural products, distillers’ dried grain and corn should be good, however. Corn production is expected to be noticeably higher than during the 2012 drought, said Oliver Flake, an economist at the USDA’s Foreign Agricultural Service.