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16 Апреля 2014

RLL Container Report - 16 April 2014

From: John Keir, Ross Learmont Ltd Email: john.keir@telia.com Date: 16 April 2014

Way down among Brazilians
Coffee beans grow by the billions
So they've got to find those extra cups to fill
They've got an awful lot of coffee in Brazil

In the words of the song, “They’ve got an awful lot of coffee” – and other agricultural products – in Brazil. Last year, Brazil was blessed with a record harvest, including 80,000 tons of soybeans. Unfortunately, this abundant harvest overwhelmed the local transport system and eventually caused local exports to lose out to competitors in the USA, who were able to call on a more efficient and competitive transport network to move their agricultural products more quickly and at lower costs to overseas markets.

Around sixty percent of the Brazilian soybean harvest is moved by truck to the port of export in Santos. The port of Salvador is much closer but critically there are no direct deep-sea services from there to Asia. Consequently, agricultural products were trucked 1,900 km south, which was both time-consuming and expensive. Then, upon arrival at the port, trucks had to wait in queues that stretched back 24 km. As a result, loading delays for vessels rose to 90 days and consequently freight rates shot up by 68% in just one year. Buyers quickly switched to the US soybean merchants to supply their import needs.

US growers are very much aware that their products are more expensive but they also know they can normally rely on a more efficient transport network to get their products to a major port and from there on a large and fast container vessel to eager buyers in China, S E Asia, Africa etc. It is this transport advantage that allows the USA to compete globally. Brazilian producers, on the other hand, are 20% less profitable because of domestic transport inefficiencies. However, the Brazilians have quickly learned their lessons and are imposing major transport improvements to bring costs under control in order to make their agricultural products more competitive.

The Brazilian commodities giant, Cosan responded quickly by merging its supply-chain arm, Rumo Logistica, with America Latina Logistica to create Latin America’s largest railway and logistics company. This gives exporters an alternative to road transport and at the same time greater access to faster and more price-competitive box carriers operating from a modern and efficient container terminal. This will, in turn, put pressure on their US competitors to come up with even greaterefficiencies. Brazilian agricultural exporters will also benefit from the introduction of Hamburg-Sud’s brand new 9,600-teu vessels, the fourth of which was christened in Buenos Aires on 28 February. In addition to a vastly improved box capacity, the new vessels can carry 2,100 refrigerated teu of meat and fruit exports from Latin America to countries in the Northern Hemisphere. These factors will combine to put greater pressure on US agricultural exporters to come up with even greater efficiencies.

All this piles pressure on the US railways, which face challenges in extracting greater efficiencies from their rail networks. First, the “low-hanging fruit”, in the form of easily accessible cargoes, has already been picked. In the 3-year period from 2007 to 2010, containerised grain exports rose six fold to 6.6 million tons on average compared with the 3-year period up to 2003. Second, rail capacity is reaching its limits and agricultural products already account for 25% of all containers carried on US railways. The delay in opening the Panama Canal has forced vessel operators to discharge containers at West Coast ports, from where the railways have to transport them all the way to the Mid-West or the East Coast. Third, agricultural products have to compete against higher value products such as petroleum. Using the “fracking” process, the USA is quickly reducing its reliance on imported oil. Fourth, agricultural products pay a premium for rail services and this is unlikely to change, as capacity constraints will not improve in the immediate future.

There is, however, a large number of import containers into America that still return empty. Of the almost 270,000 export teu loaded out of Los Angeles in February, 128,048 teu were empty. The statistics are much the same at other US ports, thus providing agricultural exporters with a vast reserve of cheap cargo space for exports all over the globe. The West Coast ports around the Bay Area decided to follow the example of the Gulf Port of New Orleans, which receives much of its agricultural export cargoes by barges operating on the Mississippi River. However, rather than sending the exports cargos by bulk vessels, the Port of Oakland opted instead for a fully intermodal service.

The port set up a container reception terminal at the city of Stockton, which sits at the head of the fertile Central Valley and on the San Joaquin River system, which eventually flows into the San Francisco Bay. The Stockton terminal acts as distribution and collection point for containerised export cargoes originating from the fertile valley. From Stockton, it is a short, leisurely barge-ride to the container terminal at the Port of Oakland. The Stockton to Oakland barge service will take a great deal of laden and empty containers off the heavily congested highways in the Bay Area, thus reducing the overall environmental impact on one of the largest conurbations in North America. Not only with the air be better but with no traffic lights to contend with, the barge-service may well provide a far more reliable “just-in time“ service between Stockton and Oakland than the big diesel trucks which they replace.

John Keir, Ross Learmont Ltd.
16 April 2014

Copyright ©, 2014, John Keir

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