Virtues Of Containerization In Grain-Trades

We in Canada are closely wedded to exporting grains in bulk, believing that this is the most efficient and least costly means of getting grains to overseas markets. We have containerized some crop segments, mainly pulses and specialty crops, but as much as 85% of our grain exports are still in bulk. There is a belief that exporting grains in bulk is in the nature of things, but it does not have to be this way, as we can see from many other parts of the world.

With the advent of intermodal systems, most trades have containerized, not just high value goods but also what are generally regarded as commodities like forest-products and grains. Now grain-trades within EU as well as across Eurasia and Central Asia to the Pacific are mostly containerized, whether moving by rail or sea. The hold-outs are where intermodal systems are lacking – like grain-origins in South America and grain-destinations in less-developed countries.

Compared to Asia Pacific, North America is lacking in container-port capacity. Among the top 50 ports in terms of container traffic volume, 28 are in Asia Pacific (15 of them in China, including 7 of the top-10). The largest container port in North America is Los Angeles (9th) followed by New York (18th), Savannah (29th), and Seattle (47th) – container volume in Seattle is 8% of the largest port, Shanghai, and 10% of the 2nd largest Singapore. The only other North American container-port in the top-50 is our own, Vancouver (49th), handling about the same volume as Seattle.

Together with smaller ports, container volumes through North American ports are at least 60-70 million TEU. Given the trade imbalances, more inbound cargo than outbound, 10-15 million TEU return empty from North America, which is enough capacity to containerize 150-200 million tons of grain-exports. From our West Coast, Vancouver and Prince Rupert, even a larger share of containers return empty that could take up 10-15 million tons of grain-exports.

Given this empty capacity, why is containerization not making further inroads to North American grain-exports? Skeptics would say, obviously containerization is too costly; otherwise, bulk-systems would not be so dominant. The reality, however, is very different than that. Let’s draw some comparisons between bulk and container costs from our Prairies to Asia Pacific.

Inland consolidation: Through bulk channels, grain-companies consolidate the grains they buy from producers at country-elevators. Then those grains are moved in unit-trains of hopper-cars to much larger coastal-terminals, further consolidation. The unit-costs of rail-transportation (per ton) are indeed lower in bulk than in containers. But if we take into account the fully allocated terminal costs, inland and coastal, unit-costs are in fact lower in container loads.

Ocean shipping: From large coastal terminals grains are loaded on to bulk-vessels, typically 30,000-40,000 T ships. Unit operating costs (per ton) of these bulk-vessels are generally comparable to typical 2500-2600 TEU container ships that call to our ports – larger 10,000-20,000 TEU container-ships are much more efficient, but our ports cannot handle them. When we compare bulk-charter rates to container charges across the Pacific (again per ton), the latter are much lower, particularly in view of the fact that those containers otherwise go back empty.

Distribution costs: Thus, a ton of grains grown in the Prairies generally lands on the shores of an importing country at a lower cost in containers than in bulk. But the story does not end there as containerization brings even greater savings in inland distribution. First, the need for coastal bulk-terminals is eliminated at the receiving end as at origin. Second, containers are loaded on trucks or rail-cars for final deliveries to end-users, while de-consolidation of bulk-stocks involves multiple tiers of handling, with additional costs and trading margins born by end-users.

Benefits to buyers: Containerization not only reduces point-to-point logistics costs but also brings further benefits to end-users. By receiving regular container-loads in accordance with production needs, end-users reduce storage and inventory costs. Most importantly, they get the types or grades of grains they require with crop-integrity intact in tested and sealed loads (one or multiple bags in a container) – in compliance with identity-preservation standards.

Skeptics of containerization may not be swayed, but these brief perspectives speak for themselves, and explain why global grain trades have been shifting away from bulk to containers. As to why Canada is left behind in this regard, lacking container-logistics capacity may be playing a role, but a more potent obstacle is resistance from vested interests – bulk-traders heavily invested in terminal-assets.

Our platform is confident of improving the logistics capacity, while we hope market-realities will take care of the skeptics. In our next blog we will turn to producer and end-user interests that we are confident will give impetus to containerization.