Reefer capacity is up, rates are not, as international perishables markets compete with U.S.

By Richard Knee

• Under a recent agreement between vessel operators and Australia's meat exporters, rates on shipments to the United States are to be set in U.S. dollars instead of Australian dollars. It's a significant shift that will "achieve some stability," Andrea Bolch, senior vice president-North America for Australia New Zealand Direct Line, told Marine Digest.
  
  Rates in Australian dollars were relatively flat, but in real terms they were declining, not just because of inflation but also because of the continual strengthening of the U.S. dollar, Bolch explained. The currency-basis switch couldn't have come at a better time, from the carriers' view, because those long in the U.S.-Oceania trade now face an additional challenge: increasing competition with the recent entry of Maersk-Sealand.
  
  In other global regions, rates and capacity supply/demand for refrigerated and frozen commodities aren't expected to change dramatically unless the U.S. dollar takes a sudden nosedive or there are any climatic quirks that affect crop production.
  "In various trades around the globe, there's increased capacity, so a lot of [shipping] companies are at break-even or below the water line," said Frank Masi, vice president of trade services in North America for Mitsui O.S.K. Lines. "It's a global world. We're competing with other countries for a lot of products."
  
  Even when other countries can't match the United States in quality, they sometimes have a leg up because they are closer to buyers, Masi said. There are a few pockets of market growth for U.S. producers, notably China, he said. In the trans-Pacific, year to date, the perishables market is "down five percent, across the board, though our own business is growing slightly" he said.
  
  Rate levels are stable, Masi said. "There's a trickle of rates coming down, but that's just a matter of the competitive forces. Margins are at very low levels. The return on capital investment is very low in the industry." Margins "are a matter of how efficiently you can utilize a container ­ finding cargo, getting it back in timely fashion, dwell times and turn times," he said.
  
  MOL likes to "triangulate" the routes it refrigerated containers take in order to minimize empty backhauls to the United States; for instance, a box might make the return trip from Southeast Asia via Japan, where it would be loaded with electronic products or other dry cargoes, he said.
  
  Learning the specific rates in any trade lane is guesswork because of the huge percentage of cargo moving under confidential service contracts. One shipping executive said reefer rates in the trans-Pacific were "probably" about $4,000 on average, about the same as a year ago. He stressed he had no hard figures to go on. He added that carriers' costs have in the meantime gone up. "Inflation, fuel, labor, terminal contracts ­ we've seen increases in all segments, except freight rates," the executive said.
  
  "Rates are down as far as frozen meat products," said Mathew Menary, perishables/less-than-containerload representative at the Cold Arrow Express unit of Nippon Express, a freight forwarder in South San Francisco. There has been a small increase in outbound capacity demand because some confectioners in the U.S. Gulf Coast area shifted from air to ocean, sending their goods via Los Angeles/Long Beach after last September's deadly attacks on the New York World Trade Center and the Pentagon, he said.
  
  The trans-Atlantic is "not a large reefer trade," according to Henning Nielsen, director of refrigerated services at Maersk-Sealand's U.S. headquarters in Madison, New Jersey. "Most of what we handle goes to non-EC (European Community) countries ­ frozen poultry to Russia and Eastern Europe." That moves throughout the year. Carriers are just starting to receive export shipments of fresh grapefruit from Florida and fresh apples from the Pacific Northwest, he said.
  
  Vessel capacity and the reefer equipment supply in the U.S.-North Europe trade traditionally dwindle after autumn because owners move their vessels and containers to the southern hemisphere to carry stone fruits, he said. Inbound, carriers have been handling some Clementines ­ a variety of small, seedless, sweet oranges ­ out of Spain, he said. "We get some flower bulbs, but that's basically out of season."
  
  Nielsen said he did not have rate information readily at hand but his gut feeling was they were staying flat. In the America's trades, the strong U.S. dollar spells high volumes out of the South American east coast, according to Doug Webster, an outside spokesman for the Hamburg-Sud family of carriers, which includes Crowley American Transport and Columbus Line.
  
  Traffic in Brazilian mangoes is growing by an estimated 20 percent this year; they're moving in high-cube, 40-foot-long containers at 46 to 50 degrees (Fahrenheit), Webster said. The season lasts from August to November, filling the gap between the end and start of harvest cycles in Mexico, he said. Brazil also sells a lot of chicken to North America and Europe, he said.
  
  Southbound, there's some traffic in fresh California citrus and vegetables, and Pacific Northwest apples, he said. California stone fruits move during the summer, he said. Moving cargoes intermodally in and out of Brazil is difficult because insurers don't cover those shipments, and each state charges a tax at its border, he said.
  
  Carriers have made some attempts to bring rates to where they were before they suffered "gargantuan losses" in the late 1990s, he said. "They've got modest increases, in general, in the East and West Coast trades. Volumes northbound are very strong; southbound, they're not very strong."
  
  Argentina, normally a major trading partner of Brazil, can't afford to buy much these days and there are no signs the Argentine government is ready to take actions that would persuade the banking community to support its economy, he said. Vessels are filling at least 99 percent of their reefer capacity from Australia and New Zealand to the United States, according to ANZDL's Bolch. In some cases, vessels have added reefer capacity by bringing in containers with portable generator sets, she said.
  
  "Volumes have increased the last couple of years. The World Trade Organization has just advised the United States it must remove its tariff and raise its quota on [chilled Australian] lamb," she said. Some volume has shifted from the Australia-Far East trade, because the U.S. dollar's rise means Australian exporters can get higher prices here than in Asia, she said. Kiwi fruit, avocadoes and some apples move here from New Zealand, at "reasonable" rates ­ not at levels the carriers would like, Bolch said, "but not as dead as they could be."
  
  Southbound, ANZDL and its partner carriers ­ P&O-Nedlloyd, Columbus Line and Far East Shipping Company ­ carry the equivalent of 1,000 20-foot containers (TEU) of citrus to Australia and 400 TEUs to New Zealand each year, she said. During the fall, Australia imports frozen Pacific Northwest fish bait for catching tuna to sell to Asian markets, she said. California ships out about 600 TEUs of onions and garlic each year, mostly to Australia, and 400 TEUs of table grapes to New Zealand, she said. Australia has banned California table grapes because of infestation by a small insect called the glassy-winged sharpshooter.
  There is an excess of southbound ship space and equipment for perishables, because carriers gear the supplies to accommodate the much heavier northbound volume, she said. Southbound rates "have deteriorated the last couple of years ­ as much as 30 to 40 percent. Carriers see the southbound market as a way to position their equipment back for the northbound trade."
  
  There's scant hope of any recovery because of the currency-exchange situation and "a new competitor, called Maersk," she said. Maersk-Sealand is transshipping a lot of Latin American exports to Oceania via Long Beach, from where it provides fortnightly service, she said.