Moffatt and Nichol Chief Economist Walter Kemmsies sees the growing middle class in countries such as China and India presenting unlimited potential for agricultural exports from the U.S., as long as supply chain costs remain competitive.
“Every additional cost hurts exports,” Kemmsies said, referring to transportation issues such as equipment shortages, container repositioning costs and rail and ocean freight rate fluctuations.
The Midwest Shippers Association, which represents exporters of identity-preserved grains in the Upper Midwest, grapples with those supply chain costs daily, said Bruce Abbe, the association’s executive director.
The gateways of choice for identity-preserved grain shippers are the Pacific Northwest ports of Seattle, Tacoma and Portland. Intermodal rail service from the Dakotas, Minnesota, Iowa and Wisconsin find their natural terminus at the PNW ports.
“The PNW is a good place,” Abbe said. The ports feature efficient intermodal handoffs between rail and ocean carriers, ample container terminal capacity and a well-developed inland transportation network to the agricultural heartland.
However, the cost of moving containers from the Upper Midwest to the PNW, combined with the ocean move to Asia, isn’t competitive with the higher-volume trade lane from Chicago to Asia via Los Angeles-Long Beach, Abbe said. Repositioning empty containers from urban hubs to loading docks in the Upper Midwest also adds hundreds of dollars to the export cost, he said.
Port executives in the PNW are sensitive to the issues inland shippers face. Port staff in Tacoma, for example, meet regularly with ocean carriers, terminal operators, railroads and shipper interests to work out ways to make the PNW port the most efficient gateway for intermodal shippers, said Mike Reilly, Tacoma’s director of intermodal business.
Equipment repositioning is a costly proposition for many shippers in the Upper Midwest, but the explosive growth of oil and gas developments in North Dakota’s Bakken shale region offers an opportunity for agricultural exporters in that state.
Some of the containers carrying fracking sand and oil field supplies from Asia that are imported through the PNW ports move by rail to the inland port of Minot, N.D., in the heart of the Bakken play. When the imported cargo is unloaded, identity-preserved grain shippers have access to the containers for exporting their products to Asia.
Much of the fracking sand is transloaded at the ports into rail boxcars. If more of the sand were to move in containers to Minot, Abbe said his members would benefit tremendously. Rail and ocean carriers are passing up opportunities for lucrative export shipments to Asia by using the boxcar alternative, he said. The Port of Minot is taking over control of its operations from a private operator, with one objective being to increase the flow of marine containers to the Upper Midwest, he said.
Still, with total exports increasing through the PNW ports, farm products are coming from somewhere, and the source is right in the ports’ backyard. Grains, tree fruits, vegetables and forest products from the Pacific Northwest comprise most of the agricultural trade through the ports, said Bari Bookout, director of commercial strategy at the Port of Seattle.
Pacific Northwest apple growers, for example, project a doubling of exports by 2015 as India’s market grows in importance. The country went from almost no apple imports from the PNW a few years ago to 4 million cartons today. Exports to India are expected to double over the next few years.
Macroeconomic and climate trends will result in a similar story for other U.S. agricultural exports, Kemmsies said. North America is the most efficient agricultural producer in the world, and demand in Asia for quality food products is increasing each year because Asia’s productive capacity is limited.
Asia has a bigger water deficit than the Middle East, Kemmsies said, and the shortage could spread southward if China builds more dams on its rivers in an attempt to manage its water supply.
Bulk shipments of animal and human feed grains from the Lower Midwest already move in significant volume through transloading facilities located near the PNW ports. Those grains are shipped in rail hopper cars to the ports, where they are transloaded into marine containers. By contrast, the high-value, identity-preserved grains exported from the Upper Midwest must be loaded into containers at the source to preserve their quality.
Although the PNW is generally considered a deficit area when it comes to container availability, rapid growth in merchandise transloading and cross-docking in the port area is making an increasing volume of containers available for grain shippers.
Reilly said 25 distribution facilities for retailers and direct shippers are located on Port of Tacoma property, and another 25 facilities are located within 10 miles of the port.
Kemmsies expects transloading near seaports to increase because ocean carriers, which own or lease almost all of the containers, are experiencing an equipment deficit. Before the 2008-09 recession, carriers maintained a ratio of 2.5 containers for every container in use, but the ratio has since dropped to a dangerously low level of 1.5 containers in inventory for every one in use. Carriers now are incentivizing customers to transload their imports near seaports rather than shipping the boxes intact to inland destinations, he said.
The growth in transloading of international freight in the PNW is complemented by increasing domestic cargo moving by rail so that intermodal freight overall is increasing in the region, Union Pacific spokesman Aaron Hunt said. UP’s domestic intermodal business includes grass seed, nursery stock, Christmas trees, paper and lumber products from the PNW shipped to other U.S. regions, as well as the northbound shipment of wine and canned goods from California’s central valley into the PNW.
UP responded to the growth in international and domestic intermodal business in the PNW by investing in lift operations, track sidings and intermodal yard enhancements. Over the past decade, UP has invested more than $1 billion in Oregon alone, Hunt said.
BNSF likewise is investing hundreds of millions of dollars in the Pacific Northwest as part of its overall $4.1 billion capital spending program this year, spokeswoman Amy Casas said. BNSF sees growing opportunities for bulk grain shipments to the PNW in line with an expansion of export capacity in the region, as well as significant expansion of unit train loading facilities in the nation’s interior, she said.
With some 70 percent of the international cargo handled at the ports moving inland by rail, the PNW is more dependent upon intermodal transportation than any other region in the country. The ports have invested heavily in on-dock and near-dock intermodal yards that are considered to be the most efficient in the country.
With plenty of intermodal lift capacity, Bookout said more of Seattle’s investments now are geared toward grade separations and track improvements to remove bottlenecks and smooth the flow of containers between vessels and trains. Seattle is close to the point where all rail access will be grade-separated, she said. The same is true on a regional basis, where a progress report on the FAST Corridor shows all but two of the more than 20 grade separation projects planned for Washington state have been completed.
Kemmsies said public-private efforts such as those in the PNW would help the U.S. to compete with growers in Brazil, where the government has launched a multibillion-dollar effort to develop the infrastructure needed to move its agricultural products to seaports. Since last year’s drought in the Midwest, Brazil surpassed the U.S. to become the world’s largest corn exporter, according to the U.S. Department of Agriculture.
[Updated 6/18/13 to delete reference to "Port of Minot" in response to clarification from Midwest Shippers Association Executive Director Bruce Abbe.]