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Asian Grain Mills Stick With Containers Despite Higher Costs

A decline in bulk freight rates to record lows will likely put a dent in the growth of the use of containers to ship grains and oilseed to Southeast Asia, however traders note that smaller millers will likely continue to use containers.

The use of containers to import oilseed and grains to Asia began about 10 years ago when mills began using empty shipping containers returning to Asia after delivering electronics and other goods to overseas markets. Because this method offered the benefits of a dependable schedule, the ability to place smaller contracts, and door to door shipments, its popularity with Asian mills has been growing. Last year containers accounted for 20% of Southeast Asia’s grain and oilseed shipments, compared to between 10% and 15% in 2013.

However, a sharp decline in crude oil prices and an expansion of the global bulk vessel fleet have brought bulk freight costs to record lows – down 25% in February. Bulk freight rates from the Western U.S. to Port Klang, Malaysia are currently between $20 and $25 per ton compared to between $40 and $45 per ton for container shipping. This price differential has driven some larger feed suppliers to switch to bulk shipping, but the gap would need to widen another $10 to $15 for it to offset the benefits of container shipping for most small Asian mills according to traders.

"While we expect that the depressed bulk market may temporarily reduce the volume of grains shipped in containers, the value and opportunities of this mode of transportation will keep this segment vibrant," Voytek Chelkowski, managing director of Singapore-based freight consulting firm Seamind, tells Reuters.

The flexibility and ease of shipment that containers offer, in addition to the ability for mills to track non-genetically modified and organic grains, still outweigh the cost benefits of bulk shipping.

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Lynda Kiernan is Editor with HighQuest Group Media and of the Oilseed & Grain News. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@highquestgroup.com.

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