Calm Before the Storm

Calm Before the Storm

While most of the country wilts under stifling heat, U.S. exporters shipping to Asia are enjoying a rather pleasant summer. Freight rates are stable, and shipping space and equipment are sufficient.

That’s certainly a far cry from last winter and spring, when capacity and equipment shortages strained exporters’ patience, leading to an outcry that spurred a Federal Maritime Commission fact-finding mission into carrier-shipper practices.

But exporters shouldn’t get too comfortable, because by October, those space and equipment problems could return. After the summer lull in the westbound Pacific, U.S. exports are expected to surge and remain strong through next winter. Containers, both dry and refrigerated, will be difficult to secure, and carriers already are announcing freight rate increases to take effect in October.

If carriers this winter again lay up a large amount of vessel capacity for the slack season in the eastbound Pacific, exporters will face equipment shortages, vessel over-bookings and freight rates that increase every three months.

Exporters are concerned. “Carriers are threatening to pull capacity back out as soon as the import volume falls off again,” said Tamara Rossi, manager of logistics and operations at Blue Diamond Growers, a Sacramento, Calif.-based almond exporter. “This is unnerving.”

It’s unnerving because the two-directional trans-Pacific trade operates on opposite cycles. U.S. exports are strong when imports from Asia are weak, and vice-versa. Last winter, exporters had to book their shipments four to six weeks ahead, and even then their containers were sometimes rolled to subsequent voyages. Some exporters lost sales because they couldn’t secure enough empty containers.

For now, exporters have no complaints. Meat exporters, for example, have sufficient vessel space and equipment, said Jim Herlihy of the U.S. Meat Export Federation.

Westbound freight rates have been stable for several months. In fact, rates have drifted downward on shipments from Los Angeles-Long Beach and Oakland, said Bob Weiss, independent administrator at the Food Shippers Association of North America.

Carriers, he explained, added so much capacity to satisfy eastbound import demand that the lines are having trouble filling their ships for the return trip westbound.

Although carriers are announcing westbound rate increases of about $300 per 40-foot container to take effect in October, that’s a “far cry” from last fall and winter, when rates increased $900 per FEU every three months, Weiss said.

Carriers were able to command the higher rates after reducing capacity more than 10 percent during the recession. As Asian economies recovered, exports jumped, putting a premium on space and equipment.

Exporters, while happy with current conditions, don’t want a repeat of last winter. “I don’t care for this roller-coaster ride,” Rossi said.

Indicators point to strong exports for most commodities this year. Cotton growers planted a huge crop that is expected to yield 19 million bales, compared with 10 million last season, said Ed Zaninelli, vice president of trans-Pacific westbound at Orient Overseas Container Line. That could help fill a gap left by India, which is normally a cotton exporter but is using most of its crop for domestic use. In Russia, a severe drought knocked that country out of the wheat export market, so U.S. wheat exports also should explode.

In the refrigerated sector, summer fruit and vegetable growers are ramping up seasonal exports. Apples and pears from the Pacific Northwest will be harvested later in the fall.

With eastbound ships full of U.S. consumer merchandise imports for the holiday season in the early fall, carriers won’t have much space available to reposition empty reefer containers back to the United States. The result: “People will struggle for equipment and space,” Zaninelli said.

Exporters of dry commodities face a similar fate. “We anticipate demand for space to be very strong in the fourth quarter,” said Ken O’Brien, vice president of Pan American trade at APL. “We anticipate a series of further rate restorations in October.”

Rate increases this year will start from a higher level than last year. The base rate for dry commodities now is about $1,200 to $1,300 per FEU, compared with $800 when freight rates started to increase last fall. For shippers, the good news is that rates won’t increase as much as last year.

Contact Bill Mongelluzzo at bmongelluzzo@joc.com.