A new problem for exporters

A new problem for exporters

Just when U.S. exporters are better positioned then they have been in years because of the plummeting dollar, the system for getting containerized exports into foreign markets has all but broken down. And, according to exporters, the situation is likely to worsen in coming months.

Containerized exports are moving in large numbers and reflect the improved competitiveness of the U.S. - TEU volumes out of the country were up more than 12 percent in the first half of 2007, and the trade deficit narrowed in September - but the decibel level of complaints by shippers, especially those in the Midwest, is growing by the day.

The problem boils down to a lack of containers available where they are needed at a time when exports are surging because of the falling dollar and soaring demand for specialty grains that are produced in abundance in the Midwest. The resulting supply-demand imbalance is causing rates to skyrocket. "The fact is, we now have more than enough exports. We have an imbalance outbound," said Peter Friedmann, executive director of the Agricultural Transportation Coalition in Washington.

For Midwestern exporters, obtaining a reliable supply of equipment has never been easy. Boxes carrying Asian imports end up at distribution centers in or near metropolitan areas, far from the agricultural regions where the commodities originate. Many of the containers arriving in the interior are rushed back to Asia empty to be used for another high-paying import cargo, limiting the supply available to exporters.

However, two recent factors have disrupted this already-precarious dynamic. The first is the huge increases in rail rates charged by the railroads to the steamship lines over the past two years, which have led to fewer containers making their way into the interior. Unable to pass the rail increases on to shippers, several ocean carriers, most prominently Maersk, either have curtailed inland services or have encouraged shippers to transload goods into domestic equipment near ports.

The second factor is a surge in demand, specifically in Asia, for non-genetically modified grains, a byproduct of growing wealth in the region. These grains must be shipped in containers. "The big issue on specialty grains is traceability and identity preservation, so we are precluded from using bulk conveyances like rail hopper cars," said Bob Zelenka, executive director of the Midwest Shippers Association in Minneapolis, which represents about 100 exporters shipping a total of 10,000 containers per year.

With the slack shipping season approaching just as the cotton export season is heating up, the confluence of circumstances has led to an unexpected crisis in the export market. "It frankly caught everybody by surprise," Friedmann said. Shippers either must move product by truck to a population center where containers are available, incurring extra handing costs, or they must pay what are amounting to significantly higher steamship rates.

Carriers are seizing the opportunity of the supply-demand imbalance to offset spiking fuel costs and other expenses. "We are going to charge whatever we can get - so the rates are going to continue to go up," said Ed Zaninelli, vice president of westbound trade for OOCL (USA). "We are still not covering costs."

Zelenka said one carrier, which he declined to name, has imposed five general rate increases on his members this year, and a sixth has been announced and will take effect in December. "We have seen an over 100 percent increase in our rates to Japan," he said.

Friedmann said the situation will improve only when carriers recognize that exports can be a profit center and support the market appropriately. "Some carriers have gotten ahead of the curve; they understand that exports will be a long-term profit center and not just a repositioning move. There are other major carriers who still believe that in the long term, the U.S. will continue to be the major consuming nation, and thus they are focused only on the imports."

For example, he said wealthy Asian consumers are willing to pay higher prices for products made from specialty commodities, which can translate into higher rates on boxes. "I think some of the carriers are surprised with how much some will pay for an export container, and they are also surprised with how fast an export container can be turned (back to the carrier) on the other side."