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The great container crunch

Commodity prices are soaring, but grain and pulse growers are worried they'll miss out. The reason? The boxes used to ship their product are suddenly in short supply

Globe and Mail Update

Monday, May 19, 2008

VANCOUVER — A year ago, the red lentils Lloyd Affleck grows on his 1,300-acre farm near Beechy in southwestern Saskatchewan were selling for about 20 cents a pound.

The same lentils now sell for about 40 cents a pound. Sought after by customers in India, Europe and elsewhere, the lentils are caught up in the food and commodities price boom sweeping the globe.

Mr. Affleck is working flat out to get this year's crop seeded, the first step of a process he hopes will result in a blockbuster harvest this fall.

There's just one problem: The freight containers Mr. Affleck and other exporters need to get their product to customers are in short supply.

A consumer slowdown in the United States is making it harder for exporters to line up the workhorse metal boxes for shipping. Fewer DVDs, barbecues and running shoes are being shipped to North America as consumer spending slows, and so fewer empty containers are available for Mr. Affleck and other growers to get their crops to would-be buyers.

"The world is hungry for our products, and we're ready to ship," Mr. Affleck said Wednesday, stopping his tractor for a brief interruption from seeding.

"But container shortages and transportation as a whole has been a problem. We can't get it to market."

The container crunch is a constant worry for Mr. Affleck.

He's already sold some of his future harvest to buyers in India and hopes desperately he can meet his obligation to deliver it.

The shortage also reflects deeper woes in the network of railways, roads and ports that Canadian exporters rely on to move their goods and that especially threaten pulse producers, those who grow the edible seeds of legumes such as peas, lentils and chickpeas.

These farmers have seen their industry flourish in part because of cheap container shipping. Over the past 20 years, Canadian pulse production has surged. Canada is now the world's biggest exporter of lentils and peas. Pulse crops accounted for more than $1-billion of $28-billion of agricultural exports in 2006.

One factor behind the growth of so-called special crops was shipping lines' desire to find a way to get some cash and cargo for the backhaul leg of boats sailing back to China. "The TV sets, barbecues, weed whackers - everything we want to consume over here in volumes creates available containers for export," says Greg Cherewyk, transportation director for Winnipeg-based Pulse Canada, which represents pulse growers and processors. "We're finally getting a taste of what happens when the pull for those products starts to ... slump."

Containers have become increasingly tough to book in recent months, exporters and brokers say. "We used to be able to make an order with a buyer overseas, e-mail a booking and arrange for a shipment maybe three weeks from now - we would be able to do that quite easily," says Larraine Adrain, who works at Agricom International Inc., a North Vancouver-based company that ships crops grown in Saskatchewan and Manitoba through Eastern Canadian ports to customers in Africa and Europe. "Now we don't know when we can get space on a ship. You almost need to know that first before you can make a sale. So it's really prohibitive for exporting."

There are many factors at work, says Mark Hemmes, president of Quorum Consulting Corp., an Edmonton firm that monitors grain handling under a program set up by the federal government. For one thing, shipping and rail lines have honed in on asset utilization. "Five years ago, the willingness of a railway to give a good rate, even free, to position containers to inland points was quite high," he says. "In the five years since, railways have been inundated with containers, they're more focused on asset utilization - essentially the day of the freebie is gone."

For shipping lines, it might be more profitable to send containers back empty than to move them inland.

The container crunch will shake up the grain sector, Mr. Hemmes believes. "I think it's going to shift a lot of markets we sell into. And it will probably dry up certain markets we used to feel easy getting into."

Pulse Canada is involved in nearly a dozen programs aimed at improving access to containers and easing logjams in the port-railway system, which in recent years has struggled with congestion.

For producers such as Mr. Affleck, the uncertainty over whether they can successfully ship their crop is as big a worry as the weather. Mr. Affleck, chairman of Pulse Canada, has visited India twice, most recently last year when customers asked if they could rely on timely delivery. Mr. Affleck, who farms the same land his grandfather homesteaded 100 years ago, made no promises. "I said we would do our best."

Can you box that for me?

The box

Standard-sized, twenty-foot-equivalent (TEU) containers have over the past 50 years transformed global trade and are used to ship a staggering variety of goods, ranging from consumer electronics to grains to shellfish and bananas

Why they're in short supply in Canada:

With bulk shipping prices skyrocketing, some goods once shipped in bulk, such as lumber, have migrated to containers, increasing demand

A slowdown in the United States means fewer containers are coming to North America, which means fewer empty containers are available to ship goods out

What it means:

Headaches for grain producers and other exporters that rely on containers to get their products to market

By the numbers

$1,200

Ballpark rate for a container

in Vancouver a year ago

$2,000

Ballpark rate for a container in Vancouver today

3

The percentage average annual increase in Canadian trade value between 2002 and 2006

7

Percentage average annual increase in container volume between 2002 and 2006

More than 50

Percentage growth in container volume at Port of Vancouver since 2002

More than 200

Percentage growth in container volume at Port of Vancouver since 1997

Source: Quorum Corp.

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