Bulk Freight, Containerized Cargo

In the fourth quarter of last year we earned a new containerized freight customer. Earning a new customer to supply cargo insurance to in itself isn’t unusual. What was unusual was it was a commodity that would typically go bulk in a ship’s hold. If you are not familiar with bulk shipping think of the difference between buying bags of sand in cartons and buying a dump truck load of sand, then put that thought on steroids. Bulk makes sense with large volumes of granular type cargo from grain to sands and minerals. Shipping bulk translates to more tonnage at a lower transport and handling rate. It has been the preferred method volume shippers of granular cargo; although that seems to be changing a little due to market influences in related to equipment imbalances.

As the market improves in the United States we are beginning to import more goods from Asia. Shippers in Asia happily load consumer goods and industrial supplies into containers and ship them to the USA and other countries to supply our needs. Here in the USA we produce and ship to Asia large amounts of agricultural commodities such as oil seeds and grains along with some granular non-fuel minerals needed in Asia for manufacturing. You can see where the imbalances of equipment are coming from. Asia is shipping full containers out and receiving large amounts of non-containerized commodities back. This trend creates and stop gap in the life-cycle of container turn around forcing ocean carriers to consider shipping empties back to Asia which isn’t an attractive option.

Behold the growing trend of shipping goods that were formally shipped bulk in containers. Ocean carriers are practically giving the container space away for commodities in large amounts headed to Asia as a way of closing the gap in container turn around. As a result U.S. containerized grain exports to Asia have more than doubled since 2006 and Australia’s grain exports are estimated to have 10 to 15 percent now containerized.

Some exporters of grains and minerals like the flexibility of the containerized option. There is a definite elasticity using containers. Formally grain or mineral producers had to ship huge amounts of product all at one time to bring their product to port to meet the bulk vessel. Moreover some smaller producers just couldn’t fill a ships hold fast enough and were forced to sell to commodity houses. Using containers they now can load in a continuous stream and have the ability to reach many different customer locations formally out of easy reach using bulk. A grain or mineral producer exporting 20,000 tons a month can now sell a 200 ton deal and ship it to China as a part of their larger production shipped in containers. The economical exposure to smaller buyers using their existing pipeline makes containerized shipments quite attractive. For their part, smaller Asian buyers get to deal directly with producers with no need to deal with bulk receiver intermediaries to source product.

There are adjustments to be made for inland transport and handling. Although the added costs of loading, dray, unloading, and containerized cargo insurance, are neutralized by the astoundingly inexpensive containerized ocean freight. For my part in developing a cargo insurance product I had to stop thinking in terms of containers and bookings and use a philosophy more attuned to ‘per ton’ cargo insurance costs when it came to pricing. At the same time keeping my execution tied to higher premium bookings and containers as it is a more comprehensive coverage including washing over board, jettison, and loss while loading and unloading the vessel. As it stands the total insurance costs are less than .50 cents per ton and came in well under the threshold needed to make the better insurance economical.

Containerized shipments will never replace bulk as the primary mode of transport for grains, oils seeds, sands, minerals, and similar, to Asia. Super users and supers sellers will still use bulk as their principle method as it is a proven way to move mountains of matter. Although for at least some shippers and receivers of formally bulk product, bulk is turning into the 2nd best choice. Will the trend continue? That remains to be seen. It must be kept in mind continued global consumption of Asian produced consumer goods must continue to thrive for the lines to need a way to pay the freight in getting the empty containers back to Asia. If you like the trend of using containers for formally bulk freight, you would be best served to lavish yourself and loved ones with consumer goods gifts.

I am the messenger on this subject and am in no way ahead of the curve. I garnered much of the information from a Reuters article http://www.reuters.com/article/agri-container-idUSL5N0LF3MZ20140214 when I was doing some research on containerized volumes. The article by Sarah McFarlane and Jonathan Saul is a good read and worth the few minutes if you ship bulk commodities and want to reach new markets.