Container trade braces as coronavirus, IMO rule slashes ‘can’ supply

6 Feb 2020 | Tim Worledge

Container-based trade faces substantial disruption in the early part of this year as the supply of containers reels from a slowdown in the Chinese economy because of the coronavirus, accentuating the impact of a change in fuel quality standards for the shipping sector, trade sources have told Agricensus.

Often referred to as ‘cans’, containers – or twenty-foot equivalent unit (TEUs) – are an increasingly important part of international trade, and carry a range of agricultural goods from corn-based feeds like DDGS through to soybeans, corn and wheat.

“The latest estimate I saw this morning was that it’s projected that there will be about a 6 million TEU drop in container volume through Chinese ports in Q1,” one US-based market source told Agricensus, with traders in Vietnam reporting a struggle to source containers.

And with many of those containers now trapped in China, there is shrinking supply elsewhere – a dynamic that will likely keep delivered prices for smaller parcels grains and DDGS at relatively high levels.

“It’s very hard to find empty containers, which are still in China… I’ve heard February shipments are running out, March is following as well,” one Vietnam-based market source said of the situation in the US, raising fears that supply will be compromised in the weeks, and potentially months, ahead.

“Maybe this is the reason why CNF offers cannot move down while FOB Gulf is down sharply,” a second Vietnam-based source said, referring to falls in US Gulf DDGS cargo prices that do not seem to have translated into lower delivered prices.

Although not necessarily correlated, US DDGS cargo offers for March shipment have slumped 2.2% to $216/mt since January 21, while March shipment DDGS offers for containers on a delivered basis have held at $245/mt over the period.

Can it

Statistics from the World Shipping Council state that China exported 36 million TEUs in 2014, with the US importing 19.6 million in the same year – although those figures will have been disrupted by the dislocation of US-China trade following the onset of trade war.

Nonetheless, the export of cans containing white goods from Chinese factories is a key dynamic in agriculture trade, with empty boxes often being filled with US agricultural products and sent back to Asia destination markets.

“Reductions of imports and space will mean far fewer empty containers in the US and many other places for export loads,” the first market source said.

The combination of trade war, a major cut in the sulphur content of marine fuels introduced at the beginning of the year and the Lunar New Year – which was extended in China as the coronavirus outbreak spread – had already brought about disruption before fears about the impact of the coronavirus on economic activity had taken hold.

While it is Vietnam-based sources that have sounded the alarm, containers are widely used across Asia’s destination markets.

That means the situation could also impact China’s efforts to meet the terms of the phase one trade deal, which pledges to substantially increase US agriculture purchases.

To date, much of China’s buying of US corn has been achieved through the container market, with last week’s US export inspection data highlighting 1,543 mt destined for Hong Kong.

That’s part of the 77,833 mt of 2019/20 corn purchases split between China and Hong Kong, which are listed as the total commitment of net sales and accumulated exports in the current marketing year.

Alongside that, US DDGS would also make a lucrative addition to the US-China trade slate – where volumes have collapsed from 2.3 million mt in 2016, to just 166,091 mt for January through November 2019, according to the US Grains Council.

Much of that volume moved in containers, with up to 60% of world trade moved by the humble TEU.

“The shortages already being faced are going to get much worse, as there simply is not enough volume coming in… it’s not a pretty picture for the next few months,” the first source said.