Study of Containerized Shipping of Soybean Meal Exports. prepared for the Illinois Soybean Association

Transcription

1 Study of Containerized Shipping of Soybean Meal Exports prepared for the Illinois Soybean Association April 29, 2011 Page 0

2 Project objective Objective: Identify opportunities that the Illinois Soybean Association should pursue in order to assist its constituents increase containerized shipments of soybeans and soybean meal. 1. Overview of U.S. soybean and soybean meal trade flows and how soybeans and products flow from the field to end markets. 2. Highlight which companies are the major players in the container shipping industry? 3.What is the process for moving soybeans and soybean meal from the farm to destination markets via containers? How does the landed price of soybeans and soybean meal moving from Illinois to major markets via containers compare to bulk shipments? 4. In order to increase the volume of Illinois soybeans/meal container shipments, where should additional facilities be located? Should the Illinois Soybean Association focus on the domestic market or the international market? Which companies should the Illinois Soybean Association pursue as partners in order to increase soybean and soybean meal shipments out of Illinois? Recommendations/Opportunities Page 1

3 Table of contents 1. Executive Summary 2. Overview of U.S. and Illinois soybeans and soybean trade flows 3. Major players in the U.S. and Illinois container shipping industry 4. Landed price analysis of soybeans and soybean meal moving from Illinois to major destination markets 4. Recommendations for increasing container movements of Illinois soybeans and soybean meal Page 2

4 Executive Summary - export outlook for containerized soybean and soybean meal shipments Asian demand for soybean and soybean meal is expected to increase substantially over the next ten years as GDP per capita increases throughout the region resulting in consumers allocating a greater portion of their incomes to consumption of animal protein and vegetable oil. At the same time, container shipping companies are expected to increase the number of containers in production as well as their fleets in order to meet increased future demand for container shipments. As the U.S. economy continues to improve, demand for containers in the Midwest is expected to increase leading to improved availability of empty containers in the Chicago area that can be used on the backhaul to Asia for shipping soybean and soybean meal. The completion of the Panama Canal project in 2014 is expected to result in an increase in container shipments out of the Gulf, which shippers based in Illinois are ideally suited to take advantage of given their access to the Mississippi, Illinois and Ohio Rivers. Illinois is well positioned to take advantage of these market dynamics due to its large soybean and soybean meal production, the lack of local demand for protein meal which provides a strong incentive to export to markets outside the state the proximity to Chicago, the largest container market in the Midwest, to large soybean production areas. Page 3

5 Executive Summary- major players in the Illinois containerized soybean and soybean meal market The major players in the Illinois soybean market include the large origination companies - ADM, Bunge, Cargill and CGB(Consolidated Grain & Barge owned by Zennoh). These companies operate have large origination and processing capabilities throughout the state and generally ship their soybeans via barge to New Orleans for the export market. In addition, there are a number of smaller players in Illinois that have taken advantage of the container market to export their soybeans and soybean meal. The container market has enabled smaller players to enter the export market directly without the capital expense of having to build large export facilities while cutting out the middlemen (brokers) from the equation. The Illinois Soybean Association should focus on these smaller, regional players when considering where to build a container trans-load facility. The major rail lines and container shipping companies operate in the inter-modal yards surrounding Chicago as it is the primary container market in the Midwest. For this reason, container availability in Chicago is much higher than in other Midwestern states. This provides exporters of containerized grains with a substantial transportation advantage over exporters located in other states in terms of exporting soybeans and soybean meal via container. The other major inter-modal hubs in Illinois are located in East St. Louis and Peoria. These hubs can expect to experience significant container throughput volume in 2014 when the Panama Canal expansion project is completed giving Illinois the added advantage of being able to move containers by barge to New Orleans. Page 4

6 Executive Summary- landed price analysis Currently, container freight rates out of Illinois are competitive with bulk rates off the East Coast and the PNW to some markets in Asia, but are not competitive with bulk rates out of the Gulf. This is primarily due to the efficiencies of barging soybeans and soybean meal to the Gulf. However, the expansion of the Panama Canal is expected to result in increased container traffic out of the he Gulf as well as on the Mississippi River. This will lead to an increase of containerized soybean and soybean meal exports via container-on-barge which will reduce container freight prices out of Illinois. Illinois Bulk vs. Container Shipments to Asia ($/MT) China Japan South Korea Taiwan Philippines Vietnam Container (ex. Illinois) $ $ $ $ $ $ PNW Bulk Rail $ $ $ $ $ $ Ocean $ $ $ $ $ $ PNW Total $ $ $ $ $ $ Gulf Bulk Barge $ $ $ $ $ $ Ocean $ $ $ $ $ $ Gulf Total $ $ $ $ $ $ East Coast Bulk Rail $ $ $ $ $ $ Ocean $ $ $ $ $ $ East Coast Total $ $ $ $ $ $ Container vs. PNW bulk $ 5.60 $ $ $ (0.40) $ 0.60 $ (1.40) Container vs. Gulf bulk $ $ $ $ $ $ Container vs. East C. Bulk $ (8.99) $ $ 0.01 $ (14.99) $ (13.99) $ (15.99) Page 5

7 Executive Summary- key locations to consider for investment in trans-load facilities in Illinois Historically, the Chicago area, with its vast inter-modal network, has been the primary location to consider for investment in trans-loading facilities due to the large volumes of containers available in this market. Soybean growers and processors have trucked their soybean and soybean products to transloading facilities in Chicago, loaded them into containers and shipped their products to the major ports on the east and west coasts for delivery via containers ships to Asia. This is flow of product likely to remain prevalent case even after the Panama Canal expansion project is completed as demand for inter-modal goods in rural areas of Illinois will not be as high as in Chicago. However, with the expansion of the Panama Canal, new opportunities for inter-modal hubs and trans-load facilities are likely to increase as more containers enter Illinois via the Mississippi River system. Peoria, a major industrial city on the Illinois River located approximately 100 miles south of Chicago in the middle of Illinois grain production belt, and East St. Louis, a city located across the river from the inter-modal hub of St. Louis, represent significant investment opportunities assuming that container flows increase on the river system. Page 6

8 Executive Summary- SWOT analysis of investing in trans-loading facilities in Illinois Strengths Easier access to smaller customers in foreign markets. Backhaul opportunities for containers returning to Asia leads to discounts, especially in markets located near major intermodal hubs such as Chicago and St. Louis. Lack of port infrastructure in Asia s smaller markets makes it difficult to unload fully-loaded bulk vessels. Containers solve quality issues that some importers face with bulk vessels due to less water erosion and dust, etc. Allows smaller, more regional companies to enter export market without the capital cost of building export elevator. Major export markets (China, Taiwan, South Korea and Japan) are major container hubs in Asia. Opportunities Panama Canal expansion leads to greater traffic of containers on the Mississippi River. Possible trans-loader investment along the river system in industrial hubs such as Peoria and East St. Louis which are both located on major rail lines. Weaknesses Container prices dependent on availability, i.e. the level of trade activity in the U.S. and global economy. Higher unit/ton cost and freight rates than bulk. U.S. interior grain transportation infrastructure designed for bulk shipments. U.S. grain export terminals intended for bulk shipments. Lack of major intermodal hubs in primary grain growing regions leads to higher cost to reposition containers in order to handle grain movements. Lack of drayage opportunities in major Midwest grain production markets. Threats Further economic recession stunts demand for containerized imports of inter-modal goods from Asia to the U.S. Continued boom in Intra-Asian trade leads to higher freight rates in Asia forcing container shippers to divert fleets from the Transpacific trade route. Page 7

9 Table of contents 1. Executive Summary 2. Overview of U.S. and Illinois soybeans and soybean trade flows 3. Major players in the U.S. and Illinois container shipping industry 4. Landed price analysis of soybeans and soybean meal moving from Illinois to major destination markets 4. Recommendations for increasing container movements of Illinois soybeans and soybean meal Page 8

10 Flow of soybeans and soybean meal from farm and processing facility to end customer via containers and bulk shipments Container shipment Soybean grower Crusher Truck/ rail Soybean oil Soybean meal Truck/ Rail Trans- loading facility Rail/Barge L.A./ L.B./ NOLA export terminal Grain elevator/ soybean Asian customers Bulk shipment Soybean grower Crusher Truck/ rail Soybean oil Soybean meal Grain elevator/ soybean Truck/ rail Rail River elevator Barge PNW export terminal GULF export terminal Page 9

11 million bushels U.S. soybean production and demand 4,000 U.S. soybean supply and demand 3,500 3,000 2,500 2,000 1,500 1, U.S. exports U.S. domestic use U.S. production U.S. soybean production is expected to increase by 6.9% from 3.33 billion bushels in 2010/11 to 3.56 billion bushels in 2019/20, based on slightly increased harvested area and improved yields. Soybean exports are projected to grow to about billion bushels due to continued strong import demand (projected growth through 2019/20 is approximately 10%), particularly from China. Source: USDA, HighQuest Partners analysis Page 10

12 million bushels Illinois soybean production and demand 700 Illinois State soybean supply and demand IL exports IL domestic use IL production Illinois soybean production is estimated to grow by approximately16% from 454 million bushels in 2010/11 to 540 million bushels in 2019/20 due to increased harvested area and improved yields. Illinois soybean production accounts for approximately 14-15% of total U.S. production and ranked 2 nd nationwide (the largest soybean production state is Iowa). Illinois soybean exports account for approximately 13-14% of total U.S. soybean exports and are projected to increase through 2019 as global demand for soybeans continues to rise. Source: PRX, HighQuest Partners analysis Page 11

13 1,000 mt U.S. soybean meal production and demand 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 U.S. soybean meal production and demand U.S. exports U.S. domestic use U.S. production U.S. soybean meal production is projected to grow by approximately 10% from 35 million MT in 2010/11 to approximately 40.2 million MT in 2019/20. The U.S. share of global exports has declined steadily (from above 20% in 2000 to 14% in 2010). While U.S. soybean meal exports will continue to face strong competition from Argentina, Brazil and India, they are projected to increase by approximately 4.2% through 2019/20. However, U.S. soybean meal market share is expected to remain stable. Source: USDA, HighQuest Partners analysis Page 12

14 1,000 mt Illinois soybean meal production and demand 7,000 Illinois soybean meal production and demand 6,000 5,000 4,000 3,000 2,000 1,000 0 IL exports IL domestic use IL production Illinois soybean meal production is projected to increase by approximately17% from 5.2 million MT in 2010/11 to 6.3 million MT in 2019/20 due to the expansion of the soybean processing in Illinois. Illinois is the second largest state in terms of soybean meal production and exports. 88% of Illinois soybean meal production is exported out of the state, while 12% is used in local animal feed production. This trend is likely to continue as soybean meal production increases at a faster rate than in-state consumption. Source: PRX, HighQuest Partners analysis Page 13

15 million bushels Illinois soybean utilization 600 Illinois soybean utilization Seed Use Residual Use Crush Exports Processing accounts for the majority of total Illinois soybean utilization (past 5-year average is approximately 60%). This share is expected to decrease gradually as Illinois soybean exports continue to grow at a faster rate than local crushing due to increasing global demand for soybeans. However, the number of bushels of soybeans that will be processed is expected to grow by 1.6% (CAGR) in the next ten years. Source: PRX, HighQuest Partners analysis Page 14

16 Illinois soybean meal utilization Illinois protein fed, 2010/11 Total protein fed in Illinois, 2010/11 Poultry 14% Other 0.34% Dairy 6% Beef cattle 10% Gluten feed&meal fed 1.37% Animal protein 9.56% Non-soy olsd mead 1.25% Hogs 70% Soybean meal 87.83% Soybean meal accounts for more than 87% of total protein fed within the state of Illinois in 2010/11. Hog production is the only sector has experienced an increase in protein use in the past 10 years. Total protein meal use in Illinois is stagnating, which means more soybean meal produced in Illinois will be available for exports (exports share of Illinois soybean meal production is expected to increase from 87% in 2010 to over 88% in 2019/20) Source: PRX, HighQuest Partners analysis Page 15

17 million bushels U.S. soybean export by port region 1600 Soybean export forecast by port, 2010/ CA PNW Atlantic Gulf- East Gulf-TX Gulf-Mis. Mexico Canada Gulf- East 2% Atlantic 3% PNW 25% Gulf-Mis. 55% CA 3% Gulf-TX 4% Mexico 5% Canada 3% Historically, the vast majority of soybeans have been exported via bulk shipments out of the Gulf and PNW as these regions account for the majority of U.S. soybean export facilities and have substantial ocean freight advantages to the primary destination markets for soybeans in Asia and Latin America. So far, in the 2010/11 marketing year the Gulf has accounted for 61% of soybean exports while the PNW accounts for 25%. Source: PRX, HighQuest Partners analysis Page 16

18 1,000 mt 1,000 mt U.S. soybean and meal products major export markets with focus on Asia Major U.S soybean importers (Asian countries) 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 ROW Taiwan Japan Indonesia China The top three major Asian importers (China, Japan and Taiwan) accounted for 65% of total U.S. soybean exports in It is estimated that China s share of total U.S. soybean exports will exceed 55% in 2010/11. 0 Major U.S. soybean meal importers (Asian countries) 12,000 Asian importers account for less than 30% of total U.S. soybean meal exports. Southeast Asia accounts for about 55% of total U.S. soybean meal exported to Asia. Japan, the Philippines and Vietnam are the top three Asian countries that import U.S. soybean meal. 10,000 8,000 6,000 4,000 2,000 0 ROW Vietnam Thailand Philippines Korea, South Japan Source: USDA, HighQuest Partners analysis Page 17

19 U.S. containerized grain exports Top 10 Destination Markets for U.S. Containerized Grain Exports, 2009 Malaysia 3% Vietnam 4% Philippines 5% Korea 2% Others HK 8% 1% Taiwan 33% Japan 6% Thailand 6% Indonesia 18% China 14% In 2009, U.S. waterborne agricultural exports totaled 145 million MT, down by 1.5 million MT from During the same period, containers were used to transport 6% (8.7 million MT) of U.S. grain exports to Asia. The primary destination markets for U.S. containerized grain exports in 2009 were Taiwan, Indonesia and China. These countries accounted for 65% (5.7 million MT) of the total volume. Source: USDA, Census Bureau, PIERS, HighQuest Partners analysis Page 18

20 U.S. waterborne agricultural exports Top 10 ports moving U.S. waterborne agricultural exports, 2009 Norfolk 3% Other 24% South Louisiana 32% Los Angeles 4% Portland/OR 5% Houston 4% Westwego 5% Kalama 5% Seattle 6% Tacoma 6% New Orleans 7% In 2009, the top five U.S. ports for bulk and containerized agricultural exports were South Louisiana, New Orleans, Seattle, Tacoma, and Kalama. In terms of containerized movements, the top 5 ports were Los Angeles, Oakland, Long Beach, Seattle and Tacoma. Approximately 62% of grain(nearly 2.6 billion bushels) inspected for export departed from the U.S. Gulf in The Pacific Northwest (PNW) ports accounted for 25.5% of U.S. grain(nearly 1.07 billion bushels) inspected for export in Source: PIERS Journal of Commerce, HighQuest Partners analysis Page 19

21 1,000 TEUs U.S. containerized grain exports 500 Containerized grain exports to Asia 400 The CAGR between 2000 and 2008 was 22% Jan-Oc. U.S. containerized grain exports to Asia exploded in 2007 and reached record highs in 2008 before dropping sharply in the 2 nd half of 2008 due to decreasing demand and tight equipment supply caused by the global economic recession. Approximately 300,000 TEUs of grains were exported to Asia in 2009, down by 32% from the previous year. However, the market showed recovery in latter half of 2009 and through 2010 as the global economic situation improved. Source: estimated data collected by PIERS Journal of Commerce, HighQuest Partners analysis Page 20

22 1,000 TEUs U.S. containerized grain exports U.S. containerized grain exports to Asia by month (2010) October shipments reached nearly 40,000 TEUs, 15% over the 3-year average and 108% higher than September movements Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ave. Improving global and U.S. economic conditions, increased bulk ocean freight rates, a large and early fall harvest and strong global demand for U.S. grain products contributed to a substantial increase in volume of containerized grain shipments to Asia during October of Source: estimated data collected by PIERS Journal of Commerce, HighQuest Partners analysis, USDA Page 21

23 U.S. containerized grain exports U.S. containerized grain exports, first half year of 2010 Soybean Meal 10% Animal Feed 14% Other Grain Products 8% Soybeans 32% Commodities TEU** Soybeans 77,274 DDGS 49,702 Corn 35,526 Animal Feed 32,344 Corn 15% Distiller s Grains 21% Soybean Meal 24,890 Other Grain Products 18,929 Total 238,666 Soybeans represent the top containerized grain export out of the U.S.(102,164 TEUs of soybean and soybean meal), followed by DDGS and corn. DDGS exports to Asia are expected to continue increasing in the coming years as Asian feed manufacturers seek less expensive alternatives to corn and soybean meal to formulate into animal feed rations. Source: PIERS Journal of Commerce, HighQuest Partners analysis Page 22

24 Metric tons U.S. soybean exports to Asia via container 900,000 US soybean exports to Asia in container 750, , , , ,239 Note: data in the chart are 2009/10 containerized soybean export volumes 300, , , , , , ,311 31,231 24,087 China M China T Indonesia Japan Korea Rep. Malaysia Philippines Thailand Vietnam 09/2010~01/ / /09 01/2008~08/20008 The top three importers of U.S. containerized soybeans are Indonesia, Taiwan and China. These three markets account for approximately 75% of containerized soybean exports to Asia. The five major Southeast Asian countries (Indonesia, Malaysia, Thailand, Vietnam and the Philippines) account for about 60% of containerized soybean exports to Asia. Source: data from GIPSA Page 23

25 metric ton Illinois soybean exports to Asia via container 600,000 IL soybean exports to Asia in conainer 500, , , , , , , ,324 18,813 21,345 37,437 11,046 9,934 82,403 74,811 China M China T Indonesia Japan Korea Rep. Malaysia Philippines Singapore Thailand Vietnam 09/2010~01/ / /09 01/2008~08/20008 Note: data (red bars) in the chart are 2009/10 containerized soybean export volumes Illinois is the largest containerized soybean exporter to Asia, with total shipments of over one million MT in 2009/10. While Taiwan, China and Southeast Asian countries are major buyers of containerized soybeans, 2009/10 exports to Taiwan and China declined by more than 50% and 28%, respectively, compared to 2007/2008. Source: containerized IL soybean export shipments only include available inspection data from USDA Page 24

26 Total soybean exports by port (bulk and container) A majority of soybean exports from the U.S. are shipped in bulk out of the Gulf and PNW. Buyers from Taiwan and Southeast Asia prefer containers due to port capacity constraints in these countries. 2009/2010 China Taiwan Japan S. Korea Indonesia Malaysia Thailand Vietnam Philippines Total GULF-bulk 57.0% 24.0% 97.4% 95.7% 29.8% 55.7% 70.7% 57.5% Pacific-bulk 40.8% 36.6% 0.8% 24.7% 60.2% 34.4% Container 0.9% 32.9% 1.0% 4.3% 45.0% 44.3% 24.6% 80.3% 39.8% 6.5% Atlantic-bulk 0.4% 6.4% 0.6% 4.7% 19.6% 0.9% Others 0.9% 0.9% 0.8% 1. Over 92% of total soybean exports out of the U.S. East Coast to East Asia and Southeast Asia are shipped via containers. Approximately 70% of these shipments go to five major Southeast Asian countries shown in the table above. 2. In 2009/2010, approximately 1.93 million MT of U.S. containerized soybean exports were shipped to nine markets in Asia. Indonesia, Taiwan and China, the top three importers, accounted for 707,362 MT, 546,239 MT, and 198,754 MT respectively. Source: GIPSA/USDA, HighQuest Partners Analysis Page 25

27 Overview of container industry - current and projected availability of containers Most of the large Post-Panamax containerships delivered in 2010 were assigned to the more lucrative Asia/Europe routes, while most of the remaining units have joined Far East/U.S. routes. A record number of Post-Panamax containerships with capacity of more than 7,500 TEUs will be delivered in Collectively these new vessels will increase the capacity of the world containership fleet by 860,000 TEUs next year, accounting for approximately 63% of all new slots due for delivery in It is estimated that there will be 49 new Post-Panamax ships delivered in 2011 with capacity of more than 10,000 TEUs (compared to 29 in 2010 and 15 in 2009), as well as delivery of 27 ships with capacity of 7,500-9,999 TEUs in 2011 (compared to 32 in 2010 and 18 in 2009). The expected VLCS deliveries in 2011 are likely to enable carriers to mount four to five new highcapacity Asia/Europe routes and five Asia/U.S. routes, with most of these expected to be launched in the first half of the year. Source: Alphaliner, Journal of Commerce Page 26

28 Million TEU Containership capacity is growing World container ship capacity 12.3% 12.8% 16.0% 13.1% 13.8% 9.2% 9.9% 10.2% 8.9% 9.6% 8.6% 8.8% 5.6% *2011 * % 16% 14% 12% 10% 8% 6% 4% 2% 0% World container ship capacity YoY growth rate Note: Net fleet additions include adjustments for scrapping and delivery deferrals Container carriers are expected to increase their capacity by 8.8% in 2011 and 8.6% in Over-capacity in the containership market is expected to persist for at least one more year with demand expected to decline by 8% in 2011 after an estimated 13.6% increase in Volume growth in the primary container ports in Asia slowed in the 4 th quarter of 2010, a trend that is expected to continue into Source: Alphaliner 2011 Page 27

29 Global shipping container shortage Inventory-to-capacity ratio It s estimated that the container box inventory-tofleet capacity ratio will drop from 2.03 in 2010 to below 2, the lowest ratio on record, by the end of Many shipping container and leasing companies curtailed sourcing and producing containers during the global recession. The 2010 rebound caught many of the major container shipping lines by surprise. (It is estimated the industry needs up to 6 million shipping containers in order to regain the conventional 2.2 containers per available slot. Put that into perspective, that equates to two years worth of production.) Source: Alphaliner, JOC, HighQuest Analysis Page 28

30 Shifting trend of global containerized trade Containerized trade composition 26% 28% 30% Intra Asia 7% 5% 4% 21% 19% 17% 15% 18% 18% 32% 28% 31% Transatlantic Transpacific Asia-Europe Others Over the past decade, intra-asian containerized trade has increased its share of global containerized trade, whereas the share of transpacific and transatlantic containerized shipping have declined. The explosion of intra-asian trade has led to a global shipping container shortage within the industry. Page 29

31 1,000 TEUs Global shipping container shortage 5,000 4,000 3,000 2,000 1, ,000-2,000 Global container supply and demand E 3,500 3,000 2,500 2,000 1,500 1, ,000-1,500 Total box sales Disposals Net growth The bottleneck in container production could lead to a shortage of boxes later this year. Most affected could be the backhaul shippers from the U.S. and Europe as carriers will need to return empty containers back to demand locations in Asia quickly. Due to the financial crisis, container carriers and leasing companies disposed of a large portion of their older stock as utilization levels fell. Manufacturing of new containers was also halted in 2009 as demand fell. Carriers were largely unprepared for the surge in demand that occurred in 2010, resulting in acute container shortages in the Far East. The production of new containers began increasing in July Source: Credit Suisse research report March 2011 JOC, HighQuest Analysis Page 30

32 milion TEUs U.S. container traffic U.S. foreign containerized exports and imports Exports Imports Balance (exports minus imports) While U.S. container ports handle more TEUs of imports than exports, the percentage of exports has increased over the last three years. In 2009, maritime container imports passing through U.S. seaports accounted for 58% of total container traffic, down from its peak of 67% in In 2009, the U.S. deficit in container traffic narrowed to 4.1 million TEUs as maritime container imports fell 15% while exports fell 8%. Greater use of containers requires growth in the intermodal capacity required to handle the increased flow of goods. In 2009, loaded container throughput at the port of New York/New Jersey was 3.6 million TEUs. Assuming a typical line-haul truck carries an equivalent of two TEUs, this annual throughput translates into 1.8 million one-way truck trips per year. This is equivalent to nearly 7,000 truck trips each weekday resulting from containerized cargo. Source: U.S. DOT, Research and Innovative Technology Administration, Bureau of Transportation Statistics Page 31

33 Percentage Coastal port region's market share of U.S. waterborne foreign containerized TEUs, Port region's market share of US containerized trade flow West/Pacific Coast East/Atlantic Coast Gulf Coast 10 0 As U.S. trade with Asia-Pacific countries continued to grow throughout the last decade, the East Coast ports' share of international maritime trade declined and West Coast ports' share increased. As measured in TEUs, 51% of U.S. containerized merchandise trade passes through West Coast ports in Source: U.S. DOT, Research and Innovative Technology Administration, Bureau of Transportation Statistics Page 32

34 Million TEUs Ratio U.S. containerized trade with Asia, U.S. containerized trade with Asia Imports Exports Ratio Imp/Exp 0.0 U.S. containerized trade with several Asian countries is chronically imbalanced, especially with China, Japan and South Korea. What is notable is the rapidity at which these imbalances have emerged over the last decade. The imports/exports ratio has increased from close to 1:1 in 1996 to 2.7:1 in 2006 before declining to approximately 2:1 in This trend is expected to continue for as long as China continues to peg the yuan to the U.S. dollar and has substantial implications on the movements of containers as well as on transport costs. Source: PIERS, Japan Maritime Center Page 33

35 China (excluding Hong Kong) Japan South Korea Hong Kong Taiwan Vietnam Germany Thailand India Italy Others Percentage Top 10 trading partners for U.S. waterborne foreign containerized imports Share of total TEUs, 2000 Share of total TEUs, 2005 Share of total TEUs, 2009 In 2009, the U.S. top ten trading partners accounted for nearly three-quarters (71%) of inbound container TEUs, while more than half (56%) of the outbound container TEUs were to these countries. China was the leading containerized merchandise trading partner, accounting for nearly one-half (48%) of U.S. maritime imported TEUs, almost double the 25% share of such trade in China accounted for 22% of U.S. exported TEUs in 2009, more than double the 9% it accounted for in Source: U.S. DOT, Research and Innovative Technology Administration Page 34

36 Demand/supply in TEU thousands Far East- US monthly supply-demand in TEU, Est. utilization level % Transpacific trade volumes are expected to grow by 7-8% in 2011, according to the latest TSA (Transpacific Stabilization Agreement) forecasts. Vessel utilization levels have fallen below 90% (88% to West Coast, 95% to East Coast) since October last year, and have remained relatively weak in January this year due to the 25% year-onyear increase in capacity deployed on these routes. The weaker than expected utilization levels could have a negative impact on the TransPacific carriers attempt to raise freight rates for 2011/12 season. Source: Alphaliner, HighQuest Partners Analysis Page 35

37 US containerized imports from the Far East, Containerized Far East-US shipments reached a new record in June 2010, beating the previous high in June s volumes were 32% higher than a year ago. The Jan-Jun YTD growth of Far East-US container volumes has reached 18%, with 2nd quarter growth surging by a massive 23%. The volume surge was led by Chinese exports to the US, which reached 840,000 TEU in June. Utilization levels have been above 100% since April. Source: Alphaliner Page 36

38 Top 25 container ports for U.S. international maritime freight ( thousands of TEUs) Source: U.S. DOT, Research and Innovative Technology Administration, Bureau of Transportation Statistics

39 Major US container ports US Ports' Container Traffic, Average (TEUs) Gulfport Wilmington, DE Philadelphia Willmington, NC Jacksonville San Juan New Orleans Baltimore Port Everglades Miami Tacoma Charleston, SC Seattle Houston Norfolk Oakland Top 10 ports handled 75% of total US container traffic in Los Angeles and Long Beach account for 35% of total US container traffic from 2005 to Savannah New York Long Beach Los Angeles 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 Source: Intermodal Association Statistics Page 38

40 Major U.S. seaports foreign containerized trade (exports - imports) Major ports' container deficit (red)/surplus (blue) Port of Tacoma Port of Charleston Port of Seattle Port of Houston Port of Norfolk Port of Oakland Port of Savannah (325) (115) (152) (152) 339 The volume of inbound containers at the ports of Los Angeles and Long Beach was 3.7 million TEUs more than the outbound volume in Port of New York/New Jersey 1,061 Port of Long Beach 1,567 Port of Los Angeles 2,133 (500) ,000 1,500 2,000 2, TEUs In 2010, the volume of inbound container shipments through the ports of Los Angeles, Long Beach and New York/New Jersey reached 3.97 million TEUs, 3.13 million TEUs and 2.58 million TEUs, respectively, while the outbound container shipments out of the three ports were 1.84 million TEUs, 1.56 million TEUs and 1.52 million TEUs, respectively. Page 39

41 Container freight in US agriculture U.S. agricultural exporters began viewing container freight as a viable option for shipping goods to Asia in 2007 when bulk freight prices rose substantially. The primary reason that agricultural exporters started using container freight was due to the economy in the U.S. at that time. As the U.S. economy was in a significant boom period, U.S. consumers were importing large volumes of Asian electronic and inter-modal goods into the U.S. via containers. The challenge for container shipping companies was that there was not the same demand for U.S. goods in Asia, so containers were returning empty. The container companies realized that they needed to pursue new markets in order to secure backhaul to Asia in their containers and they began to pursue agricultural products by offering very cheap rates that were competitive with bulk shipments. Historically, the primary driver of container freight prices has been availability, not distance, so it is better to locate a trans-loader near an inter-modal hub where containers are readily available. In the Midwest, Chicago represents the low price container market (despite its distance from the major West Coast ports) due to its high availability of containers. Page 40

42 8/10/07 9/10/07 10/10/07 11/10/07 12/10/07 1/10/08 2/10/08 3/10/08 4/10/08 5/10/08 6/10/08 7/10/08 8/10/08 9/10/08 10/10/08 11/10/08 12/10/08 1/10/09 2/10/09 3/10/09 4/10/09 5/10/09 6/10/09 7/10/09 8/10/09 9/10/09 10/10/09 11/10/09 12/10/09 1/10/10 2/10/10 3/10/10 4/10/10 5/10/10 6/10/10 7/10/10 8/10/10 9/10/10 10/10/10 11/10/10 12/10/10 1/10/11 2/10/11 US$/ton Container freight rates to Asia $160 $140 $120 CA- Far East route container freight rate $100 $80 $60 $40 $20 $- CA- SEA (ave.) CA- China CA- Japan From 2007 to the middle of 2008, container freight rates in the TransPacific market soared as demand for Asian inter-modal goods in the U.S. increased due to the high levels of consumer spending in the U.S. In the middle of 2008, the U.S. dollar depreciated significantly vs. Asian currencies at the same time that the economic bubble burst, making Asian goods more expensive and forcing U.S. consumers to curb their spending. As a result, demand for Asian goods shipped by container declined significantly, leading to a decline in demand for containerized imports and container freight rates and massive losses for container shipping companies. Source: USGC, HighQuest Partners Page 41

43 US $/MT Bulk freight rates to Asia $150 Historical Panamax Bulk Freight Rates: GULF vs. PNW to East Asia $125 $100 $75 $50 $25 $- US GULF - JAPAN US GULF - CHINA US PNW - JAPAN The TransPacific bulk freight market experienced many of the same problems as the container market. Bulk ocean freight rates in the TransPacific market rose substantially throughout the first half of 2008 to as high as $130/MT, before declining to below $25/MT in November of Since then, bulk ocean freight rates have improved slightly, but are likely to increase as the global economic situation improves. Source: USGC, HighQuest Partners Page 42

44 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 metric ton metric ton Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 metric ton metric ton Seasonal patterns of U.S. soybean exports to major Asian markets China soybean imports Japan soybean imports 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, , , , , ,000 75, , , , , ,000 75,000 Taiwan soybean imports 250, , , ,000 50,000 S. Korea soybean imports 0 0 China is by far the largest import market for U.S. soybeans in Asia, followed by Japan, Taiwan and South Korea. China is likely to represent 55% of total U.S. soybean exports in 2010/11. Argentina and Brazil are the U.S. major competitors in these markets. Page 43

45 metric ton Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 metric ton metic ton Seasonal patterns of U.S. soybean exports to major Asian markets 375, , , ,000 75,000 0 Indonesia soybean imports 180, , ,000 90,000 60,000 30,000 0 Thailand soybean imports 120,000 Malaysia, Vietnam and Philippines soybean imports 90,000 60,000 30,000 0 While Indonesia is the largest export market for U.S. soybeans in Southeast Asia, soybean volumes into Vietnam have increased substantially due to the rise in container shipments to this country. Page 44

46 Major Chinese container ports 140,000,000 Major Chinese Ports' Container Traffic, TEUs 120,000, ,000,000 80,000,000 60,000,000 40,000,000 Dalian Xiamen Tianjin Qingdao Ningbo Guangzhou Shenzhen Hong Kong Shanghai 20,000, Source: China Customs, Port of Hamburg Statistics Page 45

47 Major East Asian container ports Major Taiwan Ports Container Traffic, TEUs 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000, ,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 Major S. Korea Ports Container Traffic, TEUs Kaohsiung Keelung Taichung Kwangyang Busan Major Japan Ports Container Traffic, TEUs 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000, Tokyo Yokohama Kobe Nagoya Osaka Source: MOTC of Taiwan, Port of Taichung Statistics, Port of Hamburg Statistics Page 46

48 Major Southeast Asian container ports 18,000,000 Major SEA Ports Container Traffic (TEUs) 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000, Laem Chabang (Thailand) Bangkok (Thailand) Ho Chi Minh City (Vietnam) Jakarta (Indonesia) Manila (Philippines) Source: Port of Hamburg Statistics, Port of Bangkok Authority, Report of "Thailand Shipping Report Q4 2010" Page 47

49 Container vs. Bulk Shipping- Strengths and Weaknesses Historically, the vast majority of grains exported out of the U.S. have been transported via oceangoing bulk vessels due to: sheer volumes that can be moved in bulk vs. containers unit/ton cost advantages of loading grain in bulk; interior transportation flows of U.S. grain movements; ability of U.S. grain elevators to load in bulk vs. container; ability of U.S. export grain terminals to load bulk vessels more easily than container vessels and lack of major intermodal hubs located near major U.S. grain production centers. However, in 2006, the economics of loading U.S. grains in containers changed substantially as significant volumes of containers entered the U.S. Midwest and returned to Asia without a backhaul, substantially reducing container shipper margins. This development led to an increase in containerized grain backhaul volumes to Asia and forced many grain companies to reconsider how they were shipping grains back to Asia. As the container shipping companies began offering discounts to exporters for shipping their grains to Asia, the cost of shipping containerized grain declined significantly and made it more affordable for buyers in Asia to consider containerized shipments over bulk. Containers enabled U.S. local elevators and regional grain companies to enter the export market directly without the capital expense of building an export elevator and cut out the middlemen, thus increasing these companies margins. Page 48

50 Strengths and weaknesses of shipping soybeans via container vs. bulk Strengths 1. Identity preservation for non-gmo and organic soybeans. 2. Easier access to smaller customers in foreign markets. These customers prefer containers as it cuts out cost of middle man. 3. Lack of backhaul opportunities for containers returning to Asia leads to discounts from some container shippers, especially in markets located near major intermodal hubs, i.e. Chicago and St. Louis. 4. Lack of port infrastructure (storage, inland transportation, etc.) in Asia s smaller markets makes it difficult to unload fully-loaded bulk vessels. 5. Containers help to solve quality issues that some importers face with bulk vessels due to less water erosion, dust, etc. 6. Enables smaller, more regional companies to enter export market without capital cost of building export elevator. 7. Major export markets (China, Taiwan, South Korea and Japan) are major container hubs in Asia. 8. Increased transload and container infrastructure in U.S. Midwest. Weaknesses 1. Container prices dependent on availability, i.e. U.S. and global economy. 2. Higher unit/ton cost and freight rates than bulk. 3. U.S. interior grain transportation infrastructure set up for bulk. 4. U.S. grain export terminals set up for bulk. 5. Lack of major intermodal hubs in primary grain growing regions leads to higher cost to reposition containers for grain movements. 6. Lack of drayage opportunities in major Midwest grain production markets. Page 49

51 Table of contents 1. Executive Summary 2. Overview of U.S. and Illinois soybeans and soybean trade flows 3. Major players in the U.S. and Illinois container shipping industry 4. Landed price analysis of soybeans and soybean meal moving from Illinois to major destination markets 4. Recommendations for increasing container movements of Illinois soybeans and soybean meal Page 50

52 Major players in the U.S. and Illinois container shipping industry Container shipping companies and the major rail lines dominate the U.S. containerized shipping industry. The majority of containers enter the U.S. at major port facilities on the East, Gulf and West coasts and are then moved on to rail cars for shipments to inter-modal yards in the U.S. Midwest. The containers are then returned to the port via rail empty or with agricultural goods from the Midwest. The top 20 container shipping companies (seen slide 47) accounted for approximately 87% of global TEUs moved in 2010 and 68% of the total container fleet moved in The major rail lines accounted for the vast majority of containers shipped internally in the U.S. All of these companies have major operations in Illinois as Chicago and St. Louis are two of the major container destination markets in the U.S. Page 51

53 Containerized grain flows in Illinois Illinois has a decided advantage over the other major production states on containerized exports of soybeans due to its proximity to the major inter-modal yards in Chicago and St. Louis. Chicago represents the largest container market in the Midwest due to its high demand for inter-modal goods. Container availability is generally higher here than in other Midwest states. The high container availability in Chicago allows grain shippers in Illinois greater access to containers and provides these exporters cheaper freight rates to the ports than other Midwestern states. St. Louis is another major inter-modal hub in close proximity to growers and processors located in southern Illinois. Soybean growers and processors in Illinois can deliver their soybeans and soybean meal by truck to trans-loaders located near the inter-modal hubs, load their products into containers and then rail the containers to the East, West and Gulf Coast ports for export to Asia at a lower cost than their competitors as containers do not need to be repositioned and growers and processors do not have to travel the same distance as growers and processors in neighboring soybean producing states. Page 52

54 Container shipping companies, 2010 Ranking Operator TEU TEU % Ships Ship % 1 APM-Maersk 2,176, % % 2 Mediterranean Shipping Co 1,923, % % 3 CMA CGM Group 1,231, % % 4 Evergreen Line 606, % % 5 Hapag-Lloyd 593, % % 6 CSAV Group 585, % % 7 APL 580, % % 8 COSCO Container L. 544, % % 9 Hanjin Shipping 483, % % 10 CSCL 462, % % 11 MOL 399, % % 12 NYK Line 392, % % 13 Hamburg Süd Group 378, % % 14 OOCL 352, % % 15 K Line 334, % % 16 Yang Ming Marine Transport Corp. 322, % % 17 Hyundai M.M. 320, % % 18 Zim 318, % % 19 PIL (Pacific Int. Line) 261, % % 20 UASC 217, % % Subtotal 12,486, % 3, % World total * 14,344,943 4,859 * Including top 100 container lines, as of March, 2011 The top 20 global container shipping companies accounted for approximately 87% of total TEU s shipped and 68% of all container ships in Each of these companies have operations in the inter-modal yards in Chicago which leads to increased container availability in the state of Illinois and lower prices. Page 53

55 Major container shipping companies and market share Maersk and Mediterranean Shipping Company (MSC) are the largest container shippers with a collective 27% TEU market share. TEU capacity Market Share Number of Ships Market Share Zim UASC PIL Hyundai YMMTC K Line Hamburg Süd OOCL Other Maersk, 15% MSC, 12% CMA CGM, 8% Mitsui O.S.K. Evergreen NYK 5% CSCL APL Hanjin CSAV Hapag-Lloyd COSCO Other 47% Maersk 9% MSC, 7% CMA CGM, 7% Evergreen, 2.8% APL, 2.4% Hapag-Lloyd COSCO Source: Alphaliner Page 54

56 Major shipping companies for the Far East to N. America route APL Hanjin Hyundai MM Evergreen YMMTC NYK K Line COSCON Hapag-Lloyd OOCL CSCL Zim MOL CMA CGM Maersk MSC CSAV TEU Capacity Deployed by Trade Route: August, % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FE - N. Am Eur- N. Am Eur- FE ME/ISC related Africa related LatAm related ANZ/Oceania related Intra-FE Intra-Eur Unassigned Idle Source: Alphaliner Page 55

57 National intermodal system Chicago has more inter-modal hubs than any other market in the Midwest and thus the highest container availability in the region. All of the major rail lines operating in the U.S. and Canada have inter-modal hubs in the vicinity of Chicago. Page 56

58 Illinois grain production, elevators and transportation systems Many grain elevators in Illinois are located within close proximity to inter-modal rail hubs. This enables these elevators the option to truck their soybeans and soybean meal to trans-loaders near the inter-modal yards at low trucking costs and affords them access to the export market at competitive prices. Page 57

59 Chicago area railroad intermodal map Page 58

60 Railway companies intermodal ramps in Illinois UPRR Intermodal ramp Chicago (Global I- 14th St.), IL Chicago (Global II- Northlake), IL Chicago (Global III- Rochelle), IL Chicago (Global IV- Joliet), IL Yard Center, IL Dupo/St. Louis, IL Port Los Angeles Long Beach Oakland Portland Seattle BNSF Intermodal ramp Chicago (Cicero), IL Chicago (Corwith), IL Chicago (Willow Springs), IL Logistics Park (Elwood), IL St. Louis Port Seattle Tacoma Portland Los Angeles Long Beach Oakland Intermodal ramp CNRR Chicago, IL (16800, S. Center St., Harvey, IL) Port Belledune, NB Halifax, NS Mobile, AL Montreal, QC New Orleans, LA Prince Rupert, BC Saint John, NB Vancouver, BC CPR Intermodal ramp Chicago (Schiller Park), IL Chicago (Bensenville), IL Port Montreal, QC Vancouver, BC The UP and BNSF rail lines have access to major ports on the West Coast, while the CN and CP (the major Canadian rail lines) have access to ports in the Lakes, Gulf and West Coast regions. Page 59

61 Railway companies intermodal ramps in Illinois CSX Intermodal ramp E. St. Louis, IL Chicago (59th St.), IL Chicago (Bedford Park), IL Port Boston New York/New Jersey (EMT/NYCT/PNCT) Philadelphia Baltimore Norfolk Charleston Savannah Jacksonville Ft. Lauderdale Miami Tampa Norfolk Southern Port Intermodal ramp Chicago, IL-47th Street Chicago, IL-63rd Chicago, IL-Calumet (2040 East 106th Street) Chicago, IL-Landers (7540 S. Western Avenue) Decatur, IL New York/New Jersey Baltimore Norfolk Charleston Savannah Jacksonville Miami The CSX and Norfolk Southern operate almost exclusively on the East Coast. Page 60

62 UP system map Page 61

63 UP Intermodal facilities in Illinois Global I, Illinois 14th St., Chicago Global II, Illinois Northlake, IL Global III, Illinois Rochelle, IL Global IV, Illinois Joliet, IL Yard Center, Illinois Dolton, IL Dupo, Illinois (St. Louis) Page 62

64 BNSF system map Page 63

65 CSX system map Page 64

66 Norfolk Southern system map Page 65

67 CNRR system map Page 66

68 CNRR ships grains to Asia Page 67

69 CPR system map Page 68