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FEATURE: Container shortage weighs on US grain prices, drawing scrutiny from regulators

Highlights

Container shortage for US exporters contribute to declines in grain prices

Regulators uncertain if shipowner practices violated US Shipping Act

New York — Prices for some US agricultural products have trended lower over the past two weeks, owing at least partly to a shortage of available containers that has obstructed their access to export markets. Product that would normally be exported via containers was said to be moving into other outlets, including domestic feedlots and river barge terminals, according to sources.

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The impact of the container shortage on US agricultural exports has drawn the ire of the Federal Maritime Commission, the primary US shipping industry regulator, as many shipowners prioritized repositioning empty containers back to Asian ports to take advantage of more lucrative headhaul trans-Pacific container rates.

Platts Container Rates 13 – North Asia to West Coast North America – increased by 44% over the second half of 2020 from $2,700/FEU to $3,900/FEU on Dec. 14 on strong US consumer demand for imported Asian goods. In many cases, shippers are paying additional premiums to $6,000/FEU or more on the spot market to stock US store shelves ahead of end-of-year holidays.

By contrast, backhaul rates from the US West Coast to North Asia have only risen by $50/FEU since July, to $600/FEU.

The divergent rates of return have encouraged shipowners to deploy sweeper ships to collect empty containers at US ports and return them to Asia as quickly as possible. Shipowners have lacked the financial incentives to source US agricultural spot cargoes for the backhaul routes despite many of these exports targeting buyers in Asia, and even growers with long term contracts with shipowners have had their shipments deferred to a later date.

The shortage of containers available for US exporters escalated further in October as the US goods trade deficit widened to the highest level in a year at more than $80 billion, according to the Commerce Department.

With access to export markets cut off, supplies of some agricultural products increased in the domestic market, causing a downturn in spot prices and earnings for producers.

The Platts US Soybeans assessment for FOB New Orleans fell to $470.50/st on Dec. 14 from $483/st on Nov. 23. The Platts assessment for FOB Chicago Dried Distiller Grains with Solubles, used in animal feed, dropped to $203/st from $221/st over the same three-week period.

January-September containerized US agricultural exports were on track to exceed the annual record on the back of one of the strongest soybean harvests in years and improved trade relations with China following the Phase 1 trade agreement in January.

Soybeans and DDGS exports were the top two containerized grain export products over this period at 217,964 TEUs and 171,224 TEUs, respectively, or 45% and 34% the total 496,259 TEUs for the nine-month period, according to the Department of Agriculture.

But more recently, the shortage in container available to US exports has threatened to curtail this growth.

US REGULATORS INVESTIGATE, BUT UNCLEAR ON VIOLATIONS

Although backhaul container rates to Asia have only increased modestly in the past several months, US agricultural exporters have faced additional costs in storage and trucking fees due to changing shipping schedules, as well as costly changes from one shipping company to another in some cases, the USDA said.

"Since early October, many agricultural exporters have experienced a decline in ocean container shipping service as carriers have given priority to the surging Asia-to-US import cargo," the USDA said in its Dec. 3 Grain Transportation Report. "This triage has left many would-be agricultural exports from the United States stranded."

After hearing these complaints from US exporters, the FMC took up an investigation on Nov. 20 to determine if shipowners calling on the Ports of Los Angeles, Long Beach, or New York/New Jersey are in full compliance of the US Shipping Act.

"This abandonment of a significant US export industry, the American agricultural industry, is shutting them out of global markets. We are looking into all potential – I repeat – all potential responsive actions," FMC Chairman Michael Khouri said at an industry forum on Dec. 8.

But the actions of shipowners may not be prohibited in this case under the vagaries of the US Shipping Act, which prohibits collaborative and discriminatory behavior against US exporters, FMC Commissioner Daniel Maffei said at a separate forum on Dec. 9.

"The dearth of containers for export does not seem to be tied to any specific type of commodity or individual entity," Maffei said. "And indeed, it is not a problem that's limited to the United States. I have also heard from shippers who are struggling to get containers out of other countries that are as different from each other as Canada and Vietnam."

Maffei said Congress would need to revise the US Shipping Act, first passed in 1984, if it wanted the FMC to regulate how shipowners make their equipment available to US exporters.

"It was written in an era when it was assumed that the marketplace could resolve most problems and there were more than two dozen common carriers competing, some of which were US-based," Maffei said.

S&P Global Platts Grains Solutions