Highlights
– Slowing US economy causes shipping companies to shift containers to more lucrative routes between Asia and Europe
– Container scarcity has pushed food storage facilities to critical capacity levels and shipping prices upward
– While US farm exports likely to exceed previous year, workforce cutbacks likely for some US shipping companies
As United States (US) exporters hope to take advantage of a weakening US dollar and a growing demand for agriculture goods in emerging Asian economies, a current shortage of shipping containers is significantly damaging export potential. According to the United States Department of Agriculture, US agricultural exports are up 20 percent in weight from a period of six months ending February 28, 2008 (Source). However, several economic factors are threatening to cut profits for US farmers and agricultural processors, as well as exporters of manufactured goods, scrap metal and paper in the near-term to mid-term.
Contributing Factors
The following is a list of the most notable factors contributing to the blockage of some US exports:
• Rapidly expanding Asian economies such as India and China coupled with a weakening US dollar has led to a vast increase in demand for US agricultural exports. However, a staggering US economy has led to a drop in imports, forcing shipping lines to move containers to more lucrative routes between Asia and Europe. For example, the ports of Los Angeles and Long Beach saw a seven percent and ten percent drop in imports for the first three months of 2008. During the same period, exports increased 21 percent and 26 percent respectively. Furthermore, the number of empty containers moving into Los Angeles and Long Beach dropped 28 percent and 25 percent for the same period (Source).
• Finished goods such as electronics that are imported into the US are generally lighter in weight when compared to export shipments. Export potential is limited as export containers are commonly filled with heavier agricultural goods, scrap metal, and lumber, causing vessels to only partially fill containers as they reach their tonnage limit quicker.
• The ship building industry is placing a greater emphasis on building container vessels. This has caused the price of limited space on bulk carriers, which are designed to transport unpackaged cargo such as grains, to rise. Additionally, Asian importers are insisting that agricultural goods be shipped in sealed containers, making it more difficult for exporters to find space on container vessels.
Downfalls
The following are a few of the notable drawbacks felt by exporters, as well as storage and trucking companies from the container shortage:
• Many cold-storage meatpacking facilities are nearing storage capacity.
• Producers of meat, poultry and cheese are paying greater costs for containers to be sent hundreds of miles.
• Truck drivers are losing valuable hours as some are forced to camp overnight at rail yards to line up for empty containers at agricultural loading points.
• The container shortage has forced smaller exporters to make orders for containers almost two months out, which sometimes ends in not being able to fill containers and containers being delivered at the wrong time.
Outlook
According to the Los Angeles Times, a spokesman for the lobbying group, Agriculture Transportation Coalition, claimed US companies could be exporting up to a 20-30 percent higher volume of agricultural products (Source). While this trend is a concern for the US economy, larger agricultural exporting companies are not likely to be affected from the shortage due to greater shipping resources. Still, workforce cutbacks are likely for US shipping companies in the near-term. With several countries facing widespread food shortages, containers will likely continue to be rerouted to more lucrative routes between Asia and Europe until the US dollar appreciates.
