Container trade continues to stumble

Major shipping lines have been finding it more profitable to send containers back to China empty so they can refill them immediately rather than wait for them to be filled with grain in countries such as Canada and the United States.  |  Reuters/Willy Kurniawan photo

Shipping companies’ excessive market control gets the blame as containerized grain backs up on the Prairies this winter

Thousands of containers continue to steam back to China empty, even though huge amounts of Canadian crops are backed up waiting for empty containers.

It’s a stark symptom of a system that allows ship owners to focus on their best interests and ignore those of many shippers, say some subject to the system.

“The terminals right now are plugged, like jammed, jammed, jammed,” said Greg Northey, vice-president of industry relations for Pulse Canada.

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“For the steamship lines, there’s always an incentive to get the empty container from Canada back to China as quickly as possible. They would prefer it to not have to be loaded with grain.”

While bulk shipments of grain are sailing all over the world, the containerized trade has been in a bad situation for months now. Huge exports of manufactured and intermediate goods from China to North America have boosted shipping rates from China.

Backhaul grain shipments from North America are much less lucrative for the ship lines, and often involve complications such as having to send the containers to places like India and other parts of Southeast Asia, rather than directly back to China.

That means some of the world’s major shipping companies would rather eschew the discounted fees for hauling commodities like grain and simply ship empty containers back to China immediately.

“It is just sucking every available container back to China as soon as possible,” said Northey.

In the autumn, major ship line Happag-Lloyd stunned agricultural shippers by saying it was not going to haul grain for a while due to the surge in demand for containers in Asia. Other shippers were less open, but did the same thing, Northey said.

Last year was a tumultuous one for ocean freight. In the initial period of the pandemic, exports from Asia collapsed as fear gripped populations and people stopped buying goods, and supply chains were disrupted by outbreaks and lockdowns. China locked down much of its economy in major areas.

Then everything reversed. Chinese production came back on line, and demand from North American consumers suddenly surged.

Container trade expert and historian Marc Levinson said the explosion of demand for containers was profound.

“You actually had in the midst of this crisis people with a lot of money to spend,” Levinson said on the Jan. 18 Odd Lots podcast.

“They couldn’t go out to dinner. They couldn’t go on vacation. They couldn’t go to the theatre. (But) they could buy things. So that actually increased the demand for physical products.”

As well, the global shipping industry has gone from being marked by many players to being dominated by three major alliances of shipping and import-export interests. That means they don’t need to chase business as much as in the past.

“People aren’t building ships now because people don’t need to be worried about their competitors so much,” said Levinson.

That has led the containerized grain business to face a crisis in finding containers, getting containers into loading facilities, getting them onto ships, and keeping terminals and loading facilities from getting plugged.

“They’re really exercising their market control,” said Northey.

A regulatory investigation is taking place in the U.S., and Europe is also investigating how its exporters are being treated. China has cracked down on the rates that ship companies are charging.

However, Canada has relatively little regulatory power to deal with ship lines, Northey said.

“They have ways of holding steamships to account better than we do,” he said.

With loading facilities unable to get crops into containers and onto ships, much less is flowing into west coast ports.

“Even if you can get a container, you can’t get it to the terminal. They’re getting rolled constantly,” said Northey.

That’s backing up crops on the Prairies this winter.

“We seem to be going from the worst it’s ever been to the worst it’s ever been to the worst it’s ever been,” he said.

Transloaders and other container exporters are scrambling to find, load and deliver whatever containers they have.

“The transloaders have become quite adept at that over the years,” said Northey.

But it’s not enough to clear the backlog, a situation prairie farmers have seen before but not to this degree.

“It’s just part of life as a backhaul industry,” said Northey.

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