ship
September 23, 2016

Headwinds Could Slow Dairy Export Shipments

 |  By: Fran Howard

Just when it looks like U.S. dairy products are nearing the point where they are once again competitive in world markets, turmoil in the shipping industry could create higher transportation costs for U.S. exporters in coming months. On August 31, the world’s seventh largest shipping line by capacity, South Korea-based Hanjin, filed for bankruptcy protection.

“At some point, U.S. dairy exports likely touch several ports and ships operated by Hanjin, suggesting that shipments to Asia could experience some delays or minor disruptions in coming weeks,” says Sara Dorland, analyst with the Daily Dairy Report and managing partner at Ceres Dairy Risk Management, Seattle. “In fact, the California Milk Marketing Board reported that 40% of U.S. dairy exports originated in California in 2014. But compared to the 2014 West Coast port strike, the Hanjin bankruptcy pales in its potential impact to exporters.”

As Hanjin moves further into bankruptcy, the shipper has stopped taking on new cargo, which has disrupted shipping from California to New York, Dorland notes. On Monday, a South Korean judge ordered Hanjin to unload its 63 chartered ships and return them to their owners. Outbound Hanjin containers are being turned away.

“Other shipping companies have responded by adding shipping lanes and surcharges, resulting in at least a 15% increase in the cost to ship product,” notes Dorland. The cost of shipping a 40-foot container on the Busan-Los Angeles route has jumped about 55%, from $1,100 to around $1,700, according to freight forwarder Pantos Logistics, South Korea. Rates between South Korea and the U.S. East Coast via Panama have risen to $2,400, about a 50% increase.

The Hanjin bankruptcy is only the tip of the iceberg for stressed shippers, according to the Los Angeles Times. China’s slowdown and a glut of consumer goods in the United States means growth prospects for the industry are minimal.

“To put Hanjin’s size in perspective, an estimated 25,000 Hanjin containers cross the Pacific every day,” Dorland says. “Hanjin has filed for bankruptcy in several countries, including the United States, to protect is vessels and cargo from being seized by creditors.”

The West Coast ports of Long Beach, Calif., Portland, Ore., and Seattle have a very large Hanjin presence. Hanjin accounted for 78% of the volume shipped out of the Port of Portland, according to the Portland Business Journal, and it is the largest customer of Pier 46 in Seattle and Pier T in Long Beach, both terminals that Hanjin operates, Dorland states.

“While rising global dairy product prices are helping lift new hopes of increased U.S. exports, minor setbacks this month from Hanjin and the Cooperatives Working Together program (a $52 million settlement in a class action suit alleging the program engaged in price fixing through its herd retirement program) have caused headwinds on the road to recovery,” Dorland says.

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