Ag exports are too big for containers
Agricultural exports have been going strong but American farmers are frustrated because they could be exporting even more, if not for a bottleneck in shipping. Scott Tong reports.
A ship is unloaded of shipping containers at the Port of Long Beach near Los Angeles. (David McNew/Getty Images)
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TESS VIGELAND: The country's trade deficit soared in July, touching its highest level in 16 months -- just over $62 billion.
The bright spot? Exports. They're up 3.3 percent over last year. Agricultural products are one reason. But here's the thing that's driving American farmers batty: They could export even more, if not for a bottleneck on the shipping front. Marketplace's Scott Tong reports from the farmland of eastern Maryland.
SCOTT TONG: For a fresh perspective on the global economy, here's how it looks through the eyes of a chicken.
Life begins at a corporate hatchery, followed by seven weeks of feeding on corn and soybean meal. Then Joe or Jane Chicken then gets slaughtered. Its white meat sells in the U.S. Dark meat goes to Eastern Europe. And the fat sells to soapmakers. Chicken feet? Export to China.
CARLOS AYALA: Here in the U.S., not a lot of people like them. I do, but that's not very popular here.
Carlos Ayala is vice president with Perdue chicken in eastern Maryland.
AYALA: So we export them over to China. And they love them. They'll pay close to double the price for a chicken foot than they will for boneless breast meat.
China imports more than 1.2 billion chicken feet every month. That's enough for one claw per person. They're stewed, pickled, fried, breaded . . . but here's the catch: Ayala can't find enough shipping containers to send them over.
Ayala: It used to be a lot like a utility. If you pick up the phone you expect to hear a dial tone. Flip a light switch and the light turns on. We order a container, we'd get containers. That has changed.
What has changed is the number of containers coming in to U.S. ports. Three hours south in Norfolk, Va., ships still come and go. But they're smaller than just a couple years ago, since struggling American consumers are buying less.
Smaller ships mean fewer containers. So when these vessels return to Asia, there's less space for American exporters.
Peter Friedmann is executive director of the Agriculture Transportation Coalition.
Peter Friedmann: There's no additional capacity from North America, U.S., Canada -- East Coast, Gulf Coast or West Coast. The ships are full.
So these days, bags and bags of Perdue chicken get forklifted into a port freezer facility, where they wait like airline passengers on standby. Now, this problem ruffles feathers for all exporters -- cotton farmers in the South, almond growers in California, and grain producers in the Midwest.
To be clear, the sky is not falling. U.S. agriculture exports rose 45 percent over last year, thanks to a weak dollar and healthy demand from Asia. But Friedmann thinks his members could export 20 percent more, if not for the shipping bottleneck. And when some orders take too long to get there . . .
Friedmann: You lose the customer. The customer says I need it fresh, I need it now. I've got to put it on market. I've run big advertisements here in Japan. I'm expecting it. And if you don't deliver, I'm going to have to find a substitute. And if we cannot be a dependable source, they will go somewhere else.
Somewhere else like Turkey or Brazil. Frustrated American farmers blame the shipping carriers for cutting back their slow boats to China. But to economist Paul Bingham, this is just business. He's with the forecasting firm Global Insight.
Paul Bingham: Many of these companies truly are global. And they've got options. They don't need to just serve the U.S market. They've got business that has nothing to do with the United States.
In fact, carriers make more money sailing within Asia, or between Asia and the Middle East. Perhaps that reflects a new balance in the world economy. And if things stay that way, U.S. exporters like Perdue will keep counting their chickens they're not selling.
In Salisbury, Md., I'm Scott Tong for Marketplace.
Comments
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From Malvern, PA, 09/18/2008
Dear Scott:
I found your piece about the chicken feet and ag exporting fascinating. I am sending a copy to my son, Edward, studying Agricultural & Resource Economics at the Univ of MD. He right in the chicken heartland. Thanks
From norwalk, CT, 09/12/2008
this is true - we can load frzn in breakbulk refrigerated vessels but the storage and stevedoring cost ( union) on the west coast is prohibitive
From Harrison, NJ, 09/11/2008
Scott got some of this right: shortage of export reefer containers in USA is real. Rates and turnaround times (speed with which containers are used, get paid for and return to use) are much better in the inter-Asian trades than in the USA. They are likewise more profitable in the Asia/South America East Coast trade.
But the smaller ships Scott and Bingham talk about calling the USA are due to more fundamental reasons, and Bingham is on the right track.
Problem is that your listeners don't understand the economics of container shipping. Container shipping is never "one-way": the business works on the triangulation of interests: e.g., the carriage of light but profitable finished products from China to the US, where the containers are turned around to carry much heavier, much less profitable cargoes to China to move the boxes back. Since the dawn of containerization most such two or multi-route trades have been "imbalanced" as regards paying freight (profit) and weight. If a ship comes into the USA loaded down to it's "marks" and full (Plimsoll lines) with 3000 containers averaging 10 metric tons, it must return with 3000 containers to keep the container fleet balanced, but can only take about 800 full containers outbound (with the rest being empties) because average export cargo weight from the USA is more than twice as much as the inbound. Technically, there will only be a fraction of the export space compared to import.
The deeper underlying question is: why does America import light high value cargo and export low value heavy cargo (ag, waste paper, rags, plastic scrap, metal scrap, etc.)? The answer is simple: America stopped producing goods for export since the 1950's because its labor rates, regulatory costs, environmental concerns and capital structure were too restrictive to compete with the developing world. America wants its discounts at Walmart, but is unwilling to pay the cost to produce these goods in the USA. In fact, America no longer has the ability to manufacture much of what it buys abroad and has even become famous abroad for the poor quality of the manufactures it still purveys.
Bingham is right when he says that the international shipping lines will go elsewhere with their ships (when they can) if the profit is better. What he neglected to mention due to the brevity of the time offered perhaps is that in addition to losing its manufacturing base, the USA no longer has an national merchant marine, and is nearly 100% dependent on foreign owned and flagged vessels for all container and most bulk ocean shipping. All developing countries know what the American Founders (John Adams, etc.) knew: that a functional deep ocean merchant marine was an essential component of domestic national interest and a necessity for successful economic policy. The American people, and its governments since Truman have completely given up on funding, fostering and promoting the American Merchant Marine. Politicians like Obama and McCain have something thing in common here: neither one of them has any clue about the nature of this vital industry and are both blathering about the Jones Act cabotage laws and the American Merchant fleet knowing full well that there is no voting constituency that will value it. US sailors, mates and shipping professionals that used to populate the major ports of the US have been replaced by foreign nationals with only very short term profit interest regarding the fluctuating needs of American shippers or consumers.
I guarantee that this will get much worse before the American public wakes up to realize that this part of their patrimony has been a corpse since the mid 1960's.
From St. Louis, MO, 09/11/2008
I don't understand: from everything I read, most containers heading for the Far East leave U.S. ports empty. I understand that few of these are refrigerated, and thus not suitable for some products, but how about the rest??
Jim Wilson
St. Louis
P.S. I listen to "Marketplace" on KWMU
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