February 27, 2013

Rail, steamship lines in talks to build intermodal network to expand agricultural exports

Big western rail, five of top seven liners involved, says firm coordinating the talks.

By Mark B. Solomon

Five of the seven biggest steamship lines and a large western railroad are in talks to tap into underutilized capacity at the nation's two busiest ports in an effort to expand global markets for U.S. agricultural exports.

The proposed initiative would involve hauling intermodal containers to the ports of Los Angeles and Long Beach from California's "Central Valley." A 450-mile long swath extending from Redding in the north to Bakersfield in the south, Central Valley is one of the state's most productive agricultural regions. At the ports, the containers of agricultural products from the Valley would be loaded aboard ocean containerships for the trip across the Pacific.

The move from the Central Valley to the ports would actually be the second leg of a round-trip starting at the ports' docks. Containers carrying import merchandise into Los Angeles and Long Beach would be transferred to a "loop train" for the northbound moves up the coast, with the train stopping at various intermodal ramps to unload the cargo. Large retailers, produce packers, and growers, and the railroad would synchronize their schedules so the railroad could accept containerized shipments of agricultural products for the return move to the San Pedro docks.

Informal discussions with the ship lines and the railroad began about six months ago, and took on a more serious tone at the start of the year, according to Curtis D. Spencer, president and CEO of IMS Worldwide Inc., a consulting company that specializes in supply chain, industrial real estate, and foreign trade zone management and is based in Webster, Texas, a Houston suburb. Spencer and his firm are coordinating the initiative.

Spencer could not identify the railroad. Spencer also would not disclose the names of the ship lines though he said they are five of the world's top seven carriers based on containers transported. There have been no pricing or capacity commitments made at this point, Spencer said. However, at least two unidentified shippers that combined account for 20,000 import "lifts" have expressed strong interest in the service, he said.

A lift is defined as a trailer or container being lifted onto or off of a railcar. One intermodal movement can consist of multiple lifts depending on how many transportation modes handle a piece of equipment.

The initiative would take advantage of attractive pricing for westbound container movements off the southern California coast, according to Spencer. He said about half of the containers leaving the ports for Asian destinations depart empty. Most of the equipment sailing westbound is headed for Asian ports to be loaded with import cargoes returning to the U.S.

Because of the demand imbalance, container space off the West Coast, especially at Los Angeles and Long Beach, is priced inexpensively, according to Spencer. He estimated it is cheaper to load an export container at Los Angeles or Long Beach than at Oakland and Seattle/Tacoma, ports that have better balance between imports and exports.

Spencer said the so-called "match-back" process at the heart of the initiative appeals to ocean carriers because it helps offset container-repositioning costs that can run into the hundreds of millions of dollars. If properly executed, the project will allow empty containers to be placed near an area with revenue-producing cargo instead of returning empty to the ports, he said.

According to Spencer, the project will save the ports money by reducing the number of empty containers in their environs and give exporters access to equipment at a local container yard rather than at a port 150 to 450 miles away. Additionally, the program will benefit the environment because truckers won't have to drive empty miles returning the containers to port.

The fact that the program is being considered speaks to the growing popularity of converting export traffic historically moved in bulk shipments to containerized loads, which are easier and less expensive to handle.

A GROWTH IN EXPORTS
Currently, import volumes at the Port of Long Beach outpace exports by a 2-to-1 ratio, according to Lee Peterson, a port spokesman. In 2006, the ratio had widened to a 3-1 ratio before narrowing during the 2008-09 recession as a weaker U.S. dollar made export values more competitive in overseas markets, Peterson said. The port is also seeing a growing demand for U.S. exports, especially agricultural products, he said.

Long Beach is planning to build a grain-handling facility to accommodate the projected demand, Peterson said. The port is working on a mandatory environmental impact study, and Peterson said he didn't know when it would be finished. That phase of a large infrastructure project can take years before it is completed and approved, if it is approved at all.

As agricultural exports continue to grow, there will also be need for additional supporting infrastructure outside of the port. There are plans, for example, to develop an inland port in Pinal County, Ariz., located in the heart of the state halfway between Phoenix and Tucson. The facility will connect directly with the Port of Long Beach for the movement of import and export loads, according to a source within the industrial property industry.

The source said the project will initially focus on U.S. agricultural exports that would support the rail intermodal investment, followed by a push to generate import flows to back the development of warehousing and distribution facilities adjacent to the intermodal yard.

More articles by Mark B. Solomon

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