Backhaul bonanza

Backhaul bonanza

Bob Weiss has his own way of tracking the growth in market opportunities for U.S. food products. He counts the Asian destinations for which ocean carriers quote rates. By that measure, the market is booming.

Weiss, independent administrator of the Food Shippers Association of North America in Bellevue, Wash., said that in the mid-1990s, food shippers had one option for exporting to China - transshipment through Hong Kong. Today, the food shippers group has rate quotes for 18 destinations in mainland China.

The story is similar, though less dramatic, in India, where carriers are offering service to six locations, and Indonesia, with five destinations instead of the one that was offered just a few years ago.

The proliferation of fixed-day, weekly liner services with refrigerated container capacity is opening market opportunities in Asia for U.S. food products. Fast growth in U.S. import trade from Asia has increased services on the westbound backhaul route. Meanwhile, rising living standards are increasing demand for U.S.-made food products in China and other Asian nations.

Trans-Pacific carriers don't add services based on the U.S. export trade. U.S. imports from Asia are twice the volume of exports to Asia, so liner services are driven by the eastbound trade. However, as manufacturing centers in southern, central and northern China generate more liner services to carry exports to the U.S., shipping lines are stepping up their marketing of westbound refrigerated shipments, which often provide higher revenue than dry cargo.

China is now an important market for frozen poultry from the U.S. Exports of poultry have doubled in recent years, said Rich Gallagher, director of the North American reefer trade at Orient Overseas Container Line. Beef is also a growing market.

China is now the world's manufacturing center for many consumer products imported by Western nations. The millions of Chinese employed in those plants are enjoying an improved standard of living, and are beginning to develop a taste for Western foods. Shanghai, which has had a strong presence of Westerners on and off since the 19th century, was one of the first locations on the mainland to start up steak houses and other American-style restaurants.

With growing affluence, Chinese consumers in other large cities are also seeking Western-style food products. The U.S. Department of Agriculture discussed the trend in a June 10 report entitled "Agricultural Situation: Emerging Markets in East and Central China."

"Rapid growth is not merely making the overall China market bigger, it is creating markets within China as rising incomes turn previously obscure cities into major centers for business and commerce. Yet the vast majority of these emerging city markets remain unknown outside of China," the USDA report said.

In East and Central China alone, the USDA identified 20 cities the size of Boston. Some of those cities already have Western-style supermarkets that cater to Chinese with rising incomes.

Shipping lines are helping to increase awareness of the large Chinese port cities by offering regular liner services to Shenzhen (Yantian), Xiamen, Ningbo, Qingdao, Tianjin, Dalian and others. U.S.-style food products, especially perishables, benefit from rapid transit times to such locations.

Chilled and frozen shipments require special handling and monitoring of temperature and humidity conditions inside the container. That's difficult when the reefer container is being moved hundreds of miles from Hong Kong to central China. Direct vessel calls in Shanghai make it easier for carriers to monitor cargo.

"The more you can do yourself, the better the monitoring," said Scott Dailey, a spokesman for APL Ltd.

Another development that is opening up markets for U.S. food products is the expansion of American fast-food restaurants in the larger cities. Some products, such as frozen french fries, are shipped regularly from the Pacific Northwest.

"China has not yet developed a potato suitable for fast-food french fry standards," said Grove Conrad, vice president of McMullen Consulting Inc. and a longtime shipping executive. "Much of these products has to move to different Chinese port cities in reefer containers - direct call reefer services."

Port of Seattle export statistics confirm that certain U.S. food products are gaining popularity in China. Poultry exports increased 231 percent in the past two years. Meat is up 112 percent, and berries, 160 percent. Shipments of U.S. milk and dairy products increased sharply, although from a smaller base.

The products that do best in Asia, and particularly in China, are those that do not compete with lower-cost local production. Apple exports from the Pacific Northwest have declined the past year because China is a large producer of apples, not only for domestic consumption but for export to other Asian nations.

China has not followed the model that Japan established when it became an export powerhouse in the 1980s. Being a small island nation with limited agricultural potential, Japan began importing a wide variety of food products as consumer incomes increased. Japan accounts for 44 percent of the U.S. reefer trade to Asia, whereas China accounts for only 6 percent, OOCL's Gallagher said. Seventeen percent of the westbound reefer exports go to Hong Kong, with about half of that volume continuing on to inland points in China.

Hong Kong is slipping, though, as a gateway to China now that carriers offer so many direct services to ports on the mainland. According to the USDA, 64 percent of the agricultural products moving to China were transshipped through Hong Kong in 1993 but only 19 percent last year.

Nevertheless, the distribution patterns for some products remain centered in Hong Kong. Brokers and importers there control the importation of almonds, for example, so Blue Diamond, the large exporter in Sacramento, Calif., ships almost all of its Chinese-bound almonds to Hong Kong. Last year Blue Diamond shipped three containers of almonds directly to China, compared with 300 containers to Hong Kong, said Tammy Rossi, Blue Diamond's transportation manager.

Not all food exports to China are intended for consumption there. Gallagher noted that a growing volume of frozen fish from Alaska and the Pacific Northwest is being shipped to China for processing. The fish is thawed, gutted and filleted and shipped back to the U.S., either as fillets or sometimes as fish sticks or similar consumer products.

Exports of reefer products to China will continue to grow as the transportation infrastructure is extended inland. The Yangtze River corridor, with a population of more than 360 million, holds great potential, said Jon Monroe, a San Francisco logistics consultant and former shipping executive.

Monroe spent three weeks in October visiting many of the 20 river ports between Shanghai and Chongqing that have grown in importance with the opening of the Three Gorges Dam project. With deeper water on the Yangtze, the river ports can accommodate larger barges and feeder ships for products moving to and from Shanghai. Most of the ports are adding reefer plugs or cold-storage facilities. Monroe said these developments "will enhance the ability of shippers to get reefer products to market."