Shipping paradox: Ocean trips to China for $12 per ton give pause to those paying $30 per ton to ship via rail.
Not that long ago, it might run a U.S. recycler $1,800 to send a loaded container from the West Coast to China. Today, that same container can be had for a few hundred bucks.
"It's like a K-mart Blue Light special," says Mike McInerney, president of Celtic Logistics, Greet, S.C. "There are some huge bargains, but only 10 minutes to make the purchase."
BACKING UP. With McInerney's help, as part of our story we can follow a typical shipment of scrap paper from the Eastern United States to Shanghai:
Nov. 1, 2006
Buyer prices paper FOB ramp. Buyer advises seller it will be shipped via ABC Container. Seller gets the empty container at the ABC yard, takes it home and fills it. The container will be delivered to a ramp in Memphis or Chicago.
The shipper got a good deal--it will cost $400 from Port of Long Beach/Los Angeles to ship our 25 tons of scrap paper in a 40-foot container to Shanghai. That is a fair price today in a market that ranges from $200-$900.
"Backhaul rates are very cheap," notes Bingham. "America is buying so many finished goods on the import side that carriers can't fill up the empties for the trip back to Asia. Big piles of containers are sitting empty.
The steamship lines prefer any revenue to sending a box back empty. Even if they make only a little money, it is better than nothing.
The ships make their money on the trip from Asia to North America. The same container that ships baled paper to Asia, when filled with finished goods destined for Target or Wal-Mart, will fetch $3,500 to go to the United States. Even with a product like finished paper, it will command $2,400 for the trip to North America. "It's crazy," McInerney says. How long will it last?
"If anything, the risk is that prices will drop further in 2007," Bingham says. While Global Insight economists predict more growth in containerized shipping, it will be at a slower rate.
Meanwhile, capacity will grow. Steamship lines are betting business will increase. Super-sized ships are on order from Korean and Japanese shipyards. "We expect a 12 percent increase in bottom capacity, but we do not expect trade to increase," Bingham says. Orders for those ships extend to 2009. Plus, old ships (with smaller capacity) are not going offline.
"That translates to downward pressure on ocean shipping rates," Bingham says.
And that downward pressure is regardless of fuel rates. Even with bunker fuel adjustments, if fuel prices are less than $80 per barrel, costs will drop.
Container port throughput in the Americas expanded by 121 percent between 1995 and 2005, according to a report by Ocean Shipping Consultants Ltd. (OSC), Surrey, U.K. That number stands at 71.2m TEU (20-foot equivalent units).
OSC says that the U.S. Pacific South range of ports increased its dominance in North American market share during the 1990s, but the growth has leveled off. The share of shipments has remained in the 39 percent range since 2003. The other U.S. and Canadian port ranges all lost market share after 1995. However, the booming trans-Pacific traffic helped to boost the amount of material being handled on the West Coast--from Canada to Mexico.
Nov. 7-16, 2006
Scrap paper reaches port. Typically, this takes four to seven days, but it can stretch to 15. In this case, the buyer gave the seller a cutoff date of Nov. 9, so material should be at the ramp in the yard by Nov. 7. From here out, the ocean carrier is responsible for the container.
RAIL AND TRUCK. The one sticking point in the export business is here at home. Competition for both trucks and rail is strong. In fact, with increased diesel fuel costs, changes in the allowable hours of service and a recent inability for the trucking industry to attract new drivers, the pressure is on.
Most truckers do not haul only recyclables, either. "Forget about the ocean portion--getting your box to port will be the most expensive part of the trip," Bingham says.
A Midwestern recycling company will pay a lot more for domestic hauling than it will to move scrap across the Pacific. It can cost $800 to move that container from Chicago to Los Angeles. Even drayage for a West Coast shipper can be as much as for the ocean trip. In fact, it is the low cost of the ocean part of the trip that makes exporting cost-effective.
Indeed, the long ocean voyage will cost about $12 per ton to China. But going from Chicago to Los Angeles costs $30 per ton.
It takes a couple of days to get material to the port and get it loaded. Some new, very large vessels take more than a day to load.
Nov. 20, 2006
Our shipment clears customs, is loaded on the ship (not in it--containers often stack several stories high on deck) and hits the deep blue sea.
TRANSIT TIME. Our container of scrap paper will have a lot of company. Booming imports from Asia and steady economic growth in the western United States has put particular pressure on ports on the Pacific seaboard, OSC says.
Once a container of scrap is on a ship, sailing time depends on port-of call sequence. Few ships make one-stop trips from Puget Sound to Shanghai or Los Angeles to Hong Kong.
Dec. 7, 2006
After making one stop in Korea, our ship docks in Shanghai, China. Container is discharged.
"Two to three weeks on the water is a good rule of thumb," Bingham says.
Material moving from the Atlantic Seaboard and transiting the Panama Canal will likely spend 22 days on the water. So, the total shipping time could be more than 45 days, door to door.
Dec. 10, 2006
The container is discharged to the buyer, who received the paperwork more than a week ago.
In 2004, recovered paper was by far the leading commodity filling up containers shipped from the United States to China at some 524,000 containers. Next came mixed scrap metals at 172,000 containers. Then came cotton with 94,000 containers.
Dec. 13, 2006
Buyer's deadline to get container off the Port of Shanghai and to his location. The port is not running a parking lot and charges the shipper extra if deadline is not met.
BACK TO THE USA. As soon as the container is emptied at any Asian city, it typically takes a day or two to refill it and have it on its way back to the United States or Europe, usually with high-value finished goods.
Dec. 16-18, 2006
Container is reloaded with finished goods headed back to the United States and is delivered to Port of Shanghai. The same container our scrap paper dealer paid $400 for now costs Wal-Mart $3,400 for the voyage to North America. That scrap paper, shipped from the eastern United States, is delivered to the paper mill to be converted into finished product.
The author, a Recycling Today contributing editor in the Cleveland area, can be contacted at email@example.com.
Europeans, too, are shipping materials to Asia. Shipments of these recyclables are competing with American scrap. Just as ,n America. fewer goods are going from the West to the East. so there is pressure to fill backhauled containers from European ports.
Meanwhile, the US. dollar has continued to drop, making American recyclables--paper, plastics and metals--more competitive on the world market.
"The supply side and dollar decline will work to the advantage of American exporters," predicts Paul Bingham. principal in the global trade and transport practice at Global Insight Inc Waltham Mass.