US: Container Shortage Puts U.S. Export Boom in a Box

Many U.S. companies hoping to profit from surging exports created by the weak dollar are facing an unexpected hurdle: There aren't enough of the big, metal shipping containers that help form the backbone of the global economy. The shortage is threatening to limit the benefits U.S. producers can reap from one of the few bright spots in an otherwise troubled economy. While housing and financial markets have slumped, many companies have seen a rise in their export business, helping offset the domestic slump and lessening what would have already been a far more painful downturn.'

Finding enough of the big metal boxes used to be a cinch, because the nation's massive hunger for imports meant they were constantly arriving and stacking up from Long Beach, Calif., to Long Island, N.Y. Shipping companies typically scoured the country for anyone willing to fill outgoing boxes. But with the slump in the value of the dollar making U.S. goods more attractive to foreign buyers and many overseas economies continuing to hum, the tide has shifted in recent months. Trade figures being released Thursday are expected by many economists to show further growth in exports.

Shipping containers, and the way they're handled, reflect how the U.S. interacts with the global economy, which is one reason the problem has emerged now. For years, the U.S. crafted a trading system that was designed to pull in masses of imported consumers goods such as sneakers and VCRs as efficiently as possible from countries like China. Far less was expected to flow the other way. What has happened now has thrown a wrench into the works. Cutbacks by U.S. consumers have slowed the growth of imports, while the weak dollar is making the U.S. into an export machine. Meanwhile, the places where most of these exports are originating are far from where boxes are being unpacked and soaring energy costs make it too costly to just load them on trucks and move them around.

"There are some places, particularly in the Midwest, where there's a complete lack of containers," says Philip Damas, the head of container research at Drewry Shipping Consultants in London. And it's not just boxes that are in short supply. Maersk Inc., the U.S. subsidiary of A.P. Moller-Maersk Group, the Danish container shipping company, notes a shortage of chassis, which are sets of wheels and frames on container-carrying trucks. Without enough chassis to deliver containers, it doesn't matter how many are piled up in a port, says a company spokeswoman. Yet another problem: Many shipping lines, including Maersk, have shifted container capacity away from the U.S., just when U.S. producers need them most.

This has meant lost orders, delays, or a scramble for alternatives, such as costlier air freight. A Wisconsin producer of riding lawn mowers expects fewer "opportunistic sales" to European customers in coming months, because he can't book containers on a few days' notice, three weeks are needed, while a South Carolina construction-machine maker says the shortage has delayed shipments to Australia and Europe. McCain International, the big french-fry company with operations in the U.S. and Canada, says it can't get enough refrigerated containers. Among the hardest hit are companies that shippers counted on to fill otherwise empty outbound ships: scrap metal and paper concerns.

"This is a huge problem for us and it keeps getting worse," says Shailesh Vyas, president of Bay Bridge Enterprises LLC, a scrap-metal processor in Chesapeake, Va. Mr. Vyas said shipping lines used to call on him to fill outbound 40-foot containers with scrap metal. But shippers no longer want low-value scrap when they can fill ships with higher-value goods, such as grain, chemicals and machinery.

As recently as August, Mr. Vyas was sending up to 1,000 containers a month to customers in India, Bangladesh and Pakistan, which melt scrap to make new steel products. Now, he's lucky to get 300 or 400 boxes, he says. "What's really frustrating is that, today, I could be moving 2,000 boxes a month without any problem, but I can't get the boxes." Analysts say shipping costs are rising, too. Mr. Damas, the London-based consultant, says the cost of shipping a 40-foot container from the West Coast to China is now $1,500, up at least 20% in the past year. In many cases, boxes that previously would be sent to inland locations never leave the coast.

The problem surfaced about six months ago and can be traced to a confluence of factors, beyond the slump in the dollar. For one, the global commodity boom has increased the cost of shipping items by bulk, which in turn has pushed more goods into containers. It doesn't help that containers don't tend to flow to places that make most U.S. exports. More imports to the U.S. are consumer goods, which are often unloaded near retailers and warehouses in large cities, including Los Angeles, Chicago, and New York. In the case of Chicago, many containers come off ships from Asia and onto trains destined for "inland" destinations. But U.S. commodity exports, such as cotton and corn, are grown far from those hubs.

The shortage of boxes is forcing some businesses to rethink how they structure operations. Dan Ariens, chief executive of Ariens Co., a Brillion, Wis., maker of lawn mowers and snowblowers, spent the last few years perfecting just-in-time production, which allowed him to sharply reduce inventories in warehouses.
"We've had to adapt to work with longer lead times, which means trying to get better vision from customers," says Mr. Ariens. Even then, he figures he'll lose some business because of the dearth of containers. For instance, an early spring in Europe might prompt a surge of lawn-mower orders, but he won't be able to get his products there quickly enough. Air freight is too expensive to even consider, he notes.

Manufacturers like Ariens work closely with freight forwarders, which help companies move goods around the world. But Tim Schwerzler, vice president of sales at Harbour Freight, the Batavia, Ill.-based forwarder who works with Ariens, says many manufacturers, even huge companies with long-standing relationships with the shipping lines, are facing similar problems. "A lot of companies have product sold, but can't get the product out, it's tying up a lot of inventory," says Mr. Schwerzler. "Even if you get containers, you find more people fighting for space on the ships."

Sometimes, the shortage can torpedo an entire transaction. One of his customers wanted to buy ice-cream sandwiches from a company with factories in the upper Midwest to ship to the Caribbean, but couldn't get a steady flow of refrigerated containers to the factory. Shipping ice cream by truck to a distant port was too costly and fraught with risk of spoilage. Analysts say that barring a global slowdown that put the brakes on U.S. exports, the problem will dog exporters at least through the end of next year.



Source : wsj.com

Publication date: 4/10/2008

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