The use of containers for the export of grain from Australia has been steadily increasing over the past decade and this method now makes up a significant proportion of total exports each year.
Grains exported in containers include wheat, malting barley, feed barley, oats, pulses (predominantly chickpeas and lentils), sorghum and canola with Asian ports the most common destination.
This season export trade has been significantly impacted by lack of container space, and/or equipment issues with shipping lines.
Most of these issues have stemmed from the poor financial performance of the global container shipping industry in recent years. This in turn has led to over capacity as volumes have struggled to recover following the global financial crisis (GFC) and international freight rates have remained low over the same period.
The industry response has been twofold.
Firstly, there has been global rationalisation of the industry, via a series of takeovers and mergers.
Secondly, shipping companies have reduced investment in fleet upgrades leading to an increase in the average vessel age of and a dramatic increase in the occurrence of breakdowns and shipping delays.
Another major blow to the industry was the collapse of South Korean company Hanjin Shipping last year, owing creditors over US$8 billion. At the time this left 97 ships, cargos and crews stranded in numerous ports around the globe. Hanjin was one of the world’s largest container carriers, shipping more than 100 million tonnes of cargo annually.
Here in Australia there have been a number of other factors that have compounded the global issues. Reduced import activity post the traditional pre-Christmas retail positioning has meant that the supply of suitable, food grade, containers have been less than in recent years and much less than the pre GFC volumes.
In addition, a container imbalance has developed domestically. Importation of goods into Australia in 40 foot (40’) containers has increased at the expense of 20 foot (20’) containers leading to an oversupply of the 40’ variety. Not many domestic packers can handle 40’ containers, road weight restrictions means that they can only be half filled and a lot of destinations throughout Asia don’t have the infrastructure to manage the larger boxes.
So how has all of this impacted Australian trade? Well it all started with pulses to the Indian subcontinent in October last year. The delayed start to harvest and the strong front end demand meant the product needed to be shipped early to avoid the inverse in the market. Other cereal and agricultural products were then impacted. Shipping lines reacted by prioritising the higher paying pulse cargos to the detriment of traditional milling wheat shipments into South East Asia.
Like bulk exports, any delays in container shipments have significant knock-on effect across the entire supply chain. Many shipments, from multiple marketers, have been cancelled by the shipping lines, at very short notice, in the past six months. This resulted in a loss of efficiency for packers, dead freight issues for transporters (both road and rail), delays with packing facilities being able to receive farmer deliveries and therefore farmers not getting paid as quickly as they had originally expected.
Such delays are extremely detrimental for exporters and destination buyers alike. Containerised wheat buyers traditionally buy just in time so any delays impact their production efficiency. Buyers impose financial penalties on Australian exporters for late shipment, normally due to the aforementioned cancellations. The catch here is the shipping lines won’t be held liable.
To add insult to injury the shipping lines have substantially increased their second quarter freight rates and imposed ‘peak season’ surcharges so product that was originally intended to be shipped in February, but now not going out until April in many cases, is incurring an additional freight cost. Once combined, all of these penalties far outweigh the original margin the exporter hoped to achieve when they originally negotiated the business.
Strong export demand continues for containerised agricultural produce from Australia. However the reputation of the Australian exporter is being jeopardised by the lack of accountability of the global container freight providers.
Source: Nidera Australia. Peter McMeekin is Nidera Australia’s origination manager.