Growing petchems exports to test Gulf Coast container supply

The current flow of empty containers out of Houston will not meet the projected growth in containerized exports of plastic resins and other petrochemical products on the US Gulf Coast unless ocean and rail carriers plan to ship more empty boxes to where exporters need them, according to a panel of supply chain experts at Petrochemical Update’s Supply Chain & Export Logistics Conference.

Speaking at the conference in Houston on December 2, Gary Furneaux, supply chain manager at ExxonMobil Chemical, and Dean Stinn, commercial enterprise readiness manager at Chevron Phillips Chemical, said that the availability of empty containers on the US Gulf Coast is a top concern for petrochemical producers that plan to grow their polyethylene (PE) exports in the next few years.

ExxonMobil is building a 1.5 mtpa ethane cracker at its existing Baytown, Texas olefins plant and adding two 650,000 tpa polyethylene units at its Mont Belvieu plant in Texas, slated for exports to multiple destinations around the world.

Chevron Phillips is building a 1.5 mtpa ethane cracker in Baytown, Texas, as well as two 500,000 tpa polyethylene units at its complex in Old Ocean, Texas.

North American PE export volumes have been flat or decreasing in the last five years but are projected to double from 4.5 million tons currently to about 9 million tons in 2020, according to Geir Olafsen, managing director at Norway-based consultancy ShipVis.

Growing US ethylene production and the investment in new polyethylene capacity will increase North American polyethylene production to more than 24.5 mtpa by 2020 from about 19.95 mtpa at the end of 2014, assuming 75% of the announced projects are built and commissioned by 2020, according to Petrochemical Update estimates (see table below)

Source: US Ethane, EthyIene & PoIyethyIene: Exports & Markets Report (December 2015).

The new volumes could "create an additional 210,000 container exports through the Port of Houston," starting in 2017-2018, according to Furneaux.

Conservative estimates by the Port of Houston Authority project at least 250,000 TEUs per year of additional plastics resin to begin moving via the Port of Houston terminals starting in 2017. By comparison, Port Authority facilities handled 1.95 million container TEUs in 2014, of which 244,812 TEUs were plastics and resin exports.

Flexible options

Three rail carriers are currently repositioning surplus empty containers from Dallas to the ports in Los Angeles/Long Beach, as well as the Port of Houston, mostly for Latin America-bound containers. At same time, there isn’t a fast intermodal service to the East and West coasts from Houston, Stinn said.

“A lot of [containers] go back to the port of LA/LB on the West Coast empty out of Dallas. So it looks like an opportunity to us,” he added.

A shortage in vessel and equipment capacity at the Houston Ship Channel is driving shippers to seek alternatives years ahead of an expected boom in container exports.

Stinn said that Chevron Phillips Chemical is looking for additional packaging flexibility, containers and port access and is considering exports out of container-surplus ports on the US West Coast, the East Coast, and Mexico's Pacific Coast. Maersk Line, for example, is investing in a project to build a new deep-water container terminal in the major Mexican Pacific port of Lazaro Cardenas.

The expansion of the Panama Canal in 2016 could also bring more containers from Asia to the Port of Houston, alleviating a consistent shortage of such containers and helping export larger volumes of resin.

Repositioning containers

Shipping lines will need accurate export volume and market forecasts to plan and guarantee sufficient equipment to meet the projected polyethylene export growth, according to Karen Nutt, director of sales Gulf Region at ocean carrier Maersk Line.

“Once we have a real forecast, we will definitely start to position in and hang on to equipment to manage that. And then utilization will dictate how much we keep here or how much we bring in,” Nutt said during Petrochemical Update’s conference on December 4.

Nutt added that even though the US Gulf Coast as a whole has a good balance between imports and exports, the overall picture does not account for the imbalance by carrier or by trade.

Low utilization rates and overcapacity have strained ocean carriers’ balance sheets in recent years as the demand for their services has remained flat. Ocean freight rates in the US went through wild swings in 2015 and are expected to remain volatile in 2016.

According to Nutt, shipping lines could reduce significant costs by optimizing their container supply.

"We have to find a way to limit high-frequency spot positioning. It is expensive. It gets very expensive,” Nutt said, adding that repositioning equipment is one of the top three expenses for ocean carriers globally.

It costs on average between $200 and $250 (embedded in normal ocean freight rates) to reposition an empty 40-foot container from import-surplus markets such as Central and South America to the US Gulf, Christian Jensen, president of the Jensen Companies, told Petrochemical Update in late 2015.

The total price for a shipment consists of a basic rate, mandatory surcharges and extra services.

Weak profits at ocean carriers have led many container lines to consolidate their routes and services. In 2015, for example, Maersk Line and Mediterranean Shipping Co., kicked off their 2M Alliance with 22 joint strings on east-west routes.

Some carriers have also started optimizing costs in North America by grey pooling chassis, but according to Nutt, the grey pooling of containers – a strategy that could reduce the number and frequency of container repositioning – will not happen “by 2018, when the [polyethylene export] business starts to move.”

“[Containers are a] pretty precious resource, it is also a competitive advantage or a disadvantage, so I am not sure that we are there yet,” she said.