US ports must act as hiking exports threaten container availability
Availability of empty containers on the U.S. Gulf Coast is a top concern for petrochemical producers that plan to grow their exports in the next few years and the solution will involve ports, trucking and rail working together, an analyst told Petrochemical Update.
Availability of empty containers on the U.S. Gulf Coast is a top concern for petrochemical producers that plan to grow their exports in the next few years.
Petrochemical producers could face a shortage of empty containers “unless ocean and rail carriers begin to look at other options,” Walter Kemmsies, Managing Director, Economist and Chief Strategist, Ports, Airports & Global Infrastructure for JLL’s U.S. Ports, Airports and Global Infrastructure Group, said.
“It’s not just a petrochemical issue. Container availability from the U.S. Gulf could impact other high growth potential exports,” Kemmsies added. “The U.S. Gulf Coast has very high export potential, at this point greater than import flows. However, this may be changing.”
U.S. Gulf Exports
Rapidly growing U.S. ethylene production and investment in new polyethylene (PE) capacity will increase North American PE production to more than 56 billion pounds by 2020, up from about 44 billion pounds in 2015 as supply grows faster than domestic demand, according to Petrochemical Update’s US Polyethylene Export report.
U.S. PE production will exceed domestic demand, adding up to 6-9 billion pounds of excess inventory for export through 2020.
The added supply will create opportunities over the next decade for North American companies to export their excess supply to regions like Europe, South America, China, Africa and India. The majority of all new resins production is along the U.S. Gulf Coast near Houston.
“Cheap and abundant natural gas feedstock from shale led to the construction boom and production of resins. Now, much of those resins will be going into boxes for exports,” Kemmsies said.
In 2015, the chemical manufacturing sector had $184 billion in exports, accounting for 14% of the value of all U.S. exports. According to the American Chemistry Council (ACC), chemical industry exports are expected to increase an average of 7% through 2021.
Exports of chemicals linked to shale gas are projected to reach $123 billion by 2030, notes ACC, more than double the total in 2014. That will drive theraise the trade surplus from these chemicals to increase from $19.5 billion to $48.3 billion by 2030.
Container traffic
Global container traffic will surpass the 200 million TEU (Twenty-Foot Equivalent Units) threshold for the first time ever in 2017, according to the latest Drewry Global Container Port Throughput Index.
The index shows that all regions experienced year-over-year improvement, with the fastest growing regions being North America, up 12.6%; Latin America, up 11.1%; and China, up 10.3%.
The index shows that all regions experienced year-over-year improvement, with the fastest growing regions being North America, up 12.6%; Latin America, up 11.1%; and China, up 10.3%.
Port Houston’s TEU volumes as a percentage of total US TEU volumes increased from 4.6% in 2010 to 5.2% in early 2017. Resins, plastics and chemicals/minerals account for 46.7% of Port Houston’s TEU’s, according to a report by JLM.
An estimated 250,000 TEU’s in new exports will be created as soon as 2019 as newly delivered petrochemical projects ramp up production. By comparison, Port Authority facilities handled 1.95 million container TEUs in 2014, of which 244,812 TEUs were plastics and resin exports.
All Port Houston facilities have handled 28.8 million tonnes of cargo year to date as of September, a 9% percent increase over the first three quarters of 2016. Container volume recorded an 11% increase versus last year, and in September surpassed the 1.8 million twenty-foot equivalent unit mark.
“Among other factors, such as the small, albeit increasing, number of direct services between the Gulf Coast and Asia, the U.S. Gulf population is not big enough to collect sufficient imports in containers to reuse for these growing exports. The industry has to consider other options such as drawing containers from other sources,” Kemmsies said.
Repositioning
It’s not so much a problem in container availability as it is getting the containers to the US Gulf.
Much of the imports that come into the U.S. are from Asia and arrive on the U.S. West Coast in California.
“Many containers come from Asia. We unload the boxes. Sometimes they go back to Asia, but mostly they stay empty,” Kemmsies said.
When imports arrive in California on ships, some product is moved by rail to North Texas in the industrial park of Alliance near Dallas.
Rail carriers are repositioning these surplus empty containers from Dallas to the Port of Long Beach and Port of Houston, mostly for Latin America-bound exports, Kemmsies said.
“A lot of containers go back to the West coast empty out of Dallas so it looks like a good opportunity,” Kemmsies said.
Empty boxes are also available at the Ports of Savannah and Charleston on the East Coast.
“Some of these efforts may require additional logistics depending on the ultimate destination of the exports,” Kemmsies said. “If sending product to Latin America, it makes sense to go straight there from the U.S. Gulf Coast.”
Alternatives
For many years, the U.S. maritime administration MARAD has been trying to get the industry to move containers to barges so as not to worsen congestion and highway maintenance costs.
“This has not worked well in the past. It has not been economically viable,” Kemmsies said. “However, recently it has become viable to move empty containers from Memphis or another major inland container destination like Dallas to New Orleans on the Mississippi River. Excess empty boxes are increasingly being barged down the river to New Orleans.”
“The U.S. petrochemical industry is causing some interesting changes in the port industry,” Kemmsies added.
The Memphis, Tennessee to New Orleans, Louisiana route is one of the very few routes where containers are moved by barge without public sector subsidies, according to Kemmsies.
Other areas attracting containerized imports are Mobile and New Orleans.
Walmart is opening a super, regional import distribution center in Mobile, Alabama in 2018. The purpose of the center is to receive containers of merchandise from Asia and redistribute the products to Walmart stores across the south. The facility would bring substantial business to Mobile’s container terminal at the port.
Only five other of these Walmart import centers exist. They are in Mira Loma, California near Los Angeles, Baytown Texas near Houston, Elwood, Illinois near Chicago, Williamsburg, Virginia, and Statesboro, Georgia.
Costs increase
But repositioning equipment is an operating expense for ocean carriers and can negatively impact the revenue a container can generate.
Containerized imports pay a higher rate than containerized exports. If an empty container is diverted to move exports to a destination that does not send a lot of imports to the US, then it will have to be repositioned. The lower revenue earned on the containerized export is unlikely to offset the revenue lost while the container is repositioned, according to Kemmsies.
“To convince a carrier to take containers off you have to pay a significant repositioning fee,” Kemmsies said. “Repositioning fees can be higher than the ocean freight rate depending on the route and potential time that the container will remain empty and therefore not generating revenues.”
All the port authorities are making major efforts to support exporters, often stepping way out of their comfort zone to help out and meet growing export demand, Kemmsies said.
“10 years ago economic forecasts were that exports would grow a lot from the U.S.,” Kemmsies said. “Exports did grow a lot, but not enough at least in part because of logistics problems. The petrochemical industry in the U.S will need to find a way to overcome these problems, potentially assisted by port authorities.”
By Heather Doyle