This article has been reprinted from the Dec. 19 USDA Grain Transportation Report.

Over the last 20 years, containers have become integral to the worldwide transport of agricultural products, including grain.

This article examines the current containerized grain market, identifies trends to date in 2019, and highlights some issues expected to affect the market in 2020.

Overview of Containerized Grain in 2019

Although over 100 different agricultural products ship in containers (including various fruits, vegetables, meats, and grains), containerized grain and oilseeds are shipped in the largest quantities.

After increasing substantially from the early 2000s to 2016, containerized grain exports from the United States generally decreased through 2017, before rebounding strongly in 2018.

As of the end of September 2019, year-to-date (YTD) containerized grain exports were down 14 percent from the same period last year and down 2 percent from the 5-year average.

Soybeans remain the top containerized grain export, followed closely by dried distillers’ grains with solubles (DDGS) (see table).

However, both commodities decreased from the same period last year—soybeans by 9 percent and DDGS by 16 percent.

Although DDGS shipments have driven the containerized grain market for many years, containerized soybean shipments steadily increased nearly every year in the last decade.

Containerized soybeans shipments reached record levels in 2017 and 2018, topping 215,000 20-foot-equivalent units in both years.

Since 2017, some exports previously destined for the Chinese bulk soybean market switched to the containerized soybean market to serve smaller but emerging Asian markets such as Indonesia, Taiwan, Thailand, and Malaysia.

Outlook

At recent Agricultural Transportation Coalition (AgTC) workshops held in Atlanta, Minneapolis, and Kansas City, the agricultural transport community (agricultural and forest shippers, carriers, and other stakeholders) discussed current issues and concerns affecting the industry.

The following summarizes a few key issues that were discussed.

Low Sulphur Fuel Mandate and Fuel Surcharges:

In less than 2 weeks, beginning January 1, 2020, the International Maritime Organization (IMO) is set to enact Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL Convention), which lowers the maximum sulfur content of marine fuel oil used in oceangoing vessels from 3.5 percent of weight to 0.5 percent.

For each vessel, carriers have the option of (1) installing scrubbers that would reduce sulfur emissions or (2) using very low-sulfur fuel.

However, both options involve significant costs.

For instance, according FreightWaves, low-sulfur fuel is expected to be 25 percent more expensive than the current high-sulfur fuel oil.

At the same time, installing scrubbers requires large capital outlays, with estimates ranging widely from $6 million per vessel to more than $12 million per vessel.

An additional hurdle to scrubber installations is the long wait time—currently, about 6 months, owing to a backlog of orders for major suppliers.

Faced with likely higher and fluctuating costs for low-sulfur fuel purchases, container carriers have begun to implement “fuel surcharge” programs.

Typically, under such a program, shippers pay an additional charge that adjusts up and down with shifting fuel prices.

The surcharges stem from the carriers’ need to recoup the additional costs imposed by complying with the mandate and fuel price fluctuations.

Shippers, too, have concerns, most notably, about the lack of fairness and transparency in the formulas carriers use to recover these additional costs.

Given an average range of $770 to $950 in freight for a port-to-port move for containerized exports, a $300 surcharge could increase freight rates by 30 to 40 percent.

Detention and Demurrage Charges:

Detention and demurrage charges are widely used by the containerized shipping industry.

The carrier charges the shipper a detention fee for use of containers beyond the allowed free period, while the port charges the shipper a demurrage fee, usually minimal, for use of space within the terminal beyond the free period.

Carriers typically use these charges to incentivize quicker turnaround of containers by shippers. Detention and demurrage charges have increased significantly since 2014, and according to the Federal Maritime Commission (FMC), weather and congestion delays do not fully account for these charges.

The FMC is seeking to establish standardized language on detention and demurrage charges and to determine whether the fees are reasonable.

At the workshops, shippers expressed concern the charges could allow carriers to generate revenue streams unrelated to freight costs and that shippers would be penalized for factors outside of their control, such as port congestion and vessel delays.

Shippers are hoping that the new year brings reform and additional scrutiny of how, when, and why these charges are assessed.

Carrier Consolidation:

Having significantly consolidated in the last few years, the containerized shipping industry has seen a sharp reduction in the number of carriers.

By 2021, it is projected that 75 percent of the containership fleet will be owned by just seven companies.

This ongoing consolidation is a source of tension between shippers and carriers.

Shippers argue that consolidation and alliances have led to weaker competition, along with more congestion and delays.

Carriers maintain that consolidation has contributed to reduced costs, greater efficiencies, better managed ship capacity, and better service.