Bulk ocean freight rates, which had been depressed for years because of overcapacity, in mid-April were the highest since December 2013.
First-quarter inspections of the three major grains (corn, wheat and soybeans) totaled 35.7 million tonnes, up 25% from the same period in 2016 and 28% above the five-year average, according to data from the Grain Inspection, Packers and Stockyards Administration (GIPSA) of the U.S. Department of Agriculture (USDA). Corn exports at 15.9 million tonnes for the period were up 58% from a year earlier and were the second highest on record since 1995. Soybean inspections at 13.5 million tonnes were down 2% from a year earlier but were up 2% from the five-year average. Wheat shipments at 6.3 million tonnes were up 34% from a year ago and were the highest since 2013. First-quarter corn inspections exceeded soybean inspections for the first time since 2008.
For the respective 2016-17 marketing years, the USDA forecasts U.S. corn exports up 18% from the prior year, wheat exports up 33% and soybeans up 5%.
Bulk ocean freight rates, which had been depressed for years because of overcapacity, in mid-April were the highest since December 2013, the USDA said in its April 20 Grain Transportation Report. Rates for shipping grain from the U.S. Gulf to Japan were $40.25 a tonne, up 64% from a year earlier, and from the Pacific Northwest to Japan were $22.25 per tonne, up 51%.
“The rate increases were driven by strong grain movement and increased demand for other bulk items such as coal, iron ore and steel,” the USDA said, also noting that shipping analysts said the Baltic dry-bulk freight forward agreement market was inverted, suggesting traders were not as optimistic about rates remaining at the current high levels in the third and fourth quarters of 2017.
The world is awash in corn, wheat and soybeans. The USDA in its April World Agricultural Supply and Demand Estimates report forecast record high global ending stocks of all three commodities in 2016-17. Low prices for most of the commodities have contributed to strong export demand.
Nearby wheat futures fell to new contract lows for Chicago and Kansas City contracts in late April but have since rebounded on concerns that adverse weather has negatively affected the hard and soft winter wheat crops. Spring wheat prices also have been supported by concerns about planting delays. Whether the price increases will affect wheat exports remains to be seen, but it’s late enough in the marketing year that the impact should be minimal for 2016-17.
Interestingly, despite, or maybe because of, all the rhetoric about trade with Mexico, U.S. exports of corn, wheat and soybeans to that country have all increased for the respective marketing years to April 6, although shipments to most of the other major buyers also increased, according to USDA data. Mexico, the major export market for U.S. corn, took 12.070 million tonnes for the period, up 10% from a year ago. The largest increase was South Korea, up 279% at 4.845 million tonnes. Japan, the second largest foreign buyer of U.S. corn, was up 45% at 9.384 million tonnes.
Mexico passed Japan as the United States’ major wheat buyer for the marketing year to date (which ends May 31) at 3.081 million tonnes, up 39% from the same period last year, compared to Japan at 2.607 million tonnes, up 12%. Shipments of U.S. wheat to Brazil were up 177% at 1.184 million tonnes, and to China were up 89% at 1.346 million tonnes.
Of course no country can surpass China as the world’s largest soybean buyer, taking 35.376 million tonnes so far, up 32% from the same period last year and accounting for 64% of all U.S. soybean exports. Mexico was a distant second, receiving 3.320 million tonnes, up 12% from the same period last year.
Demand to ship ocean freight by container also remains strong, although like bulk freight, has come off a lengthy period of oversupply, low rates and high debts for shipping companies. Hanjin Shipping, once South Korea’s largest shipping company and the seventh largest in the world, was declared bankrupt in April after going into receivership and seeking court protection in August 2016, according to BBC News.
Hanjin’s bankruptcy and exit from the market is expected to reduce the industry’s overcapacity and help other shipping companies that also have struggled the past few years. The world’s largest container shipping group, Denmark’s A.P. Moller-Maersk, in April reported a net loss of $1.9 billion in 2016, only its second annual loss since the mid-1940s, the BBC said. Most analysts agree that the ocean shipping market bottomed in 2016 but will take two to three years to reach a balanced level.
The dynamics of the ocean container carrier structure was reorganized as of April 1 from four alliances to three, resulting in larger vessels, fewer port calls and changing origin/destination port calls.
“The agricultural export community is concerned the newly formed alliances and their use of larger vessels will reduce voyage options as well as cause terminal and landside congestion,” the USDA said.
At the same time, the United States and several other countries are investigating the container shipping industry for possible antitrust violations due to those alliances.
While most corn and wheat are shipped via bulk freight, a sizable amount of soybeans are shipped via container as are most non-food items shipped to and from the United States.
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Traffic on the BNSF Railway, which was some of the most affected by severe winter weather, continued to improve in the Pacific Northwest, although new landslides in Wyoming again impacted traffic recently.
Grain shipped by rail increases
As may be expected, increased exports translated into increased movement of grain by rail in recent months. Rail car deliveries of grain to ports for the year through April 14 totaled 144,544, up 19% from the same period a year earlier, the USDA said. Total year-to-date loadings were 325,253 rail cars, up 8% from the same period last year, according to data from the American Association of Railroads (AAR).
Freight rates to ship rail by grain soared during the winter months, approaching $4,000 per car for a time due largely to restricted movement caused by severe weather across the northern corridor to the Pacific Northwest. But rates since have fallen sharply and were comparable with year-ago rates despite the increased demand. Secondary bids for shuttle trains for May were as low as $225 per car below tariff in the week ended April 13 on the BNSF Railway, up $94 from the prior week but unchanged from a year ago, according to the USDA and industry sources, with shuttle rates on the Union Pacific as low as $450 below tariff for May. The average non-shuttle secondary per car bids/offers was $63 below tariff, up 63% from the prior week and also unchanged from a year ago.
Traffic on the BNSF Railway, which was some of the most affected by severe winter weather, continued to improve in the Pacific Northwest, although new landslides in Wyoming again impacted traffic recently.
“The agricultural network has clearly felt the improvements throughout the north as well as across the whole system,” John Miller, group vice-president for agricultural products at BNSF, said on April 28. “Reduced holding of trains, increased velocity, more consistent turns per month for shuttles and near zero past dues are evident across our geography.”
Total BNSF trains held for the week ended April 27 averaged 37.1, down 38% from a week earlier but up 73% from a year ago. Train velocity was 19.4 miles per hour, about even with a week earlier but down 15% from a year earlier. Terminal dwell at 25.4 hours was down 4% from a week earlier but was up 12% from a year ago. All categories showed improvement from earlier in April.
“We see strong, consistent demand into the Pacific Northwest as exporters make their last sales before the South American crops begin to undercut U.S. exports for the summer,” Miller said.
As with grain, total rail movement of freight across all railroads also was above year-ago levels. U.S. carloads and intermodal units totaled 6,711,782 during the first quarter of 2017, up 3.5% from the same period last year, with carload traffic at 3,324,102, up about 6%, and intermodal units at 3,387,680, up more than 1%, the AAR said.
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For grains, trucks are most important for shorter hauls of products from the farm to local elevators, processing plants or in the case of corn, to ethanol facilities, as well as for finished products, especially refrigerated items.
Trucker turnover rate lowest in six years
In contrast to the strong ocean and rail movement of grain, the American Trucking Associations (ATA) said fourth-quarter 2016 truck driver turnover (drivers changing jobs) at large truckload fleets was at an annualized rate of 71%, the lowest in six years, and at smaller fleets (annual revenue under $30 million) was at 64%, the lowest in five years. The bulk of the freight measured by the index is not grain.
“Continued decline in turnover reflects the overall choppiness of the freight market,” said Bob Costello, ATA chief economist. “As inventory levels throughout the supply chain are drawn down to more normal levels, and freight volumes recover, we should see turnover rise along with concerns about the driver shortage.”
The ATA’s advanced seasonally adjusted For-Hire Truck Tonnage Index in March fell 1% from February to 137.5% of the 2000 base of 100 after slipping slightly in February but was up about 1% from March 2016 and compared with an all-time high of 142.7% in February 2016. The unadjusted index, which represents the change in tonnage actually hauled before seasonal adjustment, was 143.9% in March, up 14.6% from February. While the ATA tonnage index represents mostly non-grain truck tonnage, it is seen as a barometer of the U.S. economy since trucks carry about 70% of the tonnage carried by all modes of domestic freight transportation. For grains, trucks are most important for shorter hauls of products from the farm to local elevators, processing plants or in the case of corn, to ethanol facilities, as well as for finished products, especially refrigerated items. Railroads are the primary mover of grain for longer distances from country elevators to terminal markets and to export facilities, as well as moving containers from inland locations to ports, and visa-versa. Barges primarily move grain from terminal elevators to ports.
“Like several other economic indicators, March truck tonnage was likely hurt by some late-season winter storms,” Costello said. “Despite last month’s dip, seasonally adjusted tonnage rose 1.2% during the first quarter overall from the previous quarter, and increased 0.2% from the same quarter last year. While I’m not expecting a surge in truck tonnage anytime soon, the signs remain mostly positive for freight, including lower inventory levels, better manufacturing activity, solid housing starts and good consumer spending. As a result, we can expect moderate growth going forward.”
One result of the slowdown in freight movement appears to have been the recent merger of two Phoenix, Arizona, U.S.-based trucking giants, Swift Transportation Co. and Knight Transportation Inc., forming North America’s largest trucking venture with a market value of about $5 billion. Although Swift shareholders will own 54% of the new company, Knight’s executive chairman, Kevin Knight, assumed the same title in the combined company, The Wall Street Journal said, noting that Swift has struggled since with the retirement of its founder and leader Jerry Moyes, who will be a director on the board of the combined companies.
While the driver shortage issue may have eased slightly due to reduced tonnage and less demand for trucks and drivers, it remains a major hurdle the industry must deal with in the next several years.
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New FSMA rule slows shipping
A greater challenge for trucks and railroads alike that carry bulk food products such as flour is the food sanitary transportation rules developed as part of the U.S. Food and Drug Administration’s Food Safety and Modernization Act (FSMA). Increased requirements for cleaning truck trailers or rail cars between loads are adding costs and well as time to grain product shipping. The final rule placed principal responsibility for compliance on the shippers, receivers and loaders of rail cars and trucks rather than on the carriers, the NGFA said, and the new rules do not apply to barges.
“I’m told by major carriers that freight costs will increase 1% to 2% because of the new requirements,” said Ken Bisping, director of logistics at Grain Craft. “I believe that is conservative. It’s going to cost a lot of money.
“In the past, you could put white flour on a truck as long as it had white flour on it previously. Today that’s not the case. You can’t just grab a truck off the road. You can’t just use anyone’s truck. You can’t do emergency work.”
Bisping said most carriers are upgrading wash facilities, but separate wash stations aren’t always open, which complicates shipments under the new FSMA rules. More inventory is moving by rail as a result, he said. Grain Craft has gone to dedicated trucks and adjusted wash cycles. There are stricter audits at the mill level and previous content has to be checked among other added requirements.
Both trucks and railroads are affected because there is a lot of rail-truck transfer, Bisping said. Railroads are trying to have newer cars to avoid contamination from rust and other materials.
“This is all good,” Bisping said, “but eventually it will drive costs up. It’s not an insurmountable change. We just have to adjust to it.”
The new rule went into effect April 6 for large companies, and not all the details have been worked out by the FDA, which leads to uncertainty for carriers and shippers.
The National Grain and Feed Association (NGFA), along with the National Oilseed Processors Association and the North American Millers’ Association and other members of the industry, including rail and trucking companies, met on April 5 with the FDA on the issue. The industry delegation expressed concerns that there was no requirement for rail or truck carriers to provide information on the last load hauled or the previous clean-out unless the carriers signed a written agreement with the shipper or receiver requiring them to provide such information.
During the meeting the AAR said Class I rail carriers were working to develop a portal through which shippers could access information on the last three loads hauled in the cars being used, and said it would engage further with the grain industry on implementation and costs.
“Both AAR and ATA conceded that industry standards currently do not exist regarding what constitutes various types of conveyance cleanout, nor are records kept of when those conveyance cleanouts occur,” the NGFA said.
The rail and trucking industries agreed to join a new industry working group to develop best practices needed to comply with the new FSMA rules. At the same time, FDA inspections and enforcement still are months away, the NGFA said, with training of inspectors yet to be completed, although “such inspector training has been delayed and currently there is no timetable for doing so.”
Finally, all modes of transportation are facing higher fuel costs as crude oil prices have been hovering a couple dollars on either side of $50 a barrel in 2017, compared with about $40 a barrel at the same time last year, although prices took a jump to the mid to upper $40s in May 2016.
The U.S. average on-highway diesel fuel price was $2.60 a gallon the week of April 24, up 18% from a year earlier, according to the Energy Information Administration of the U.S. Department of Energy. The average price is used by both trucking companies and railroads in setting fuel surcharges.
