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March 21, 2024–Containerized shipping has become very much the norm for many agriculture exporters, keen to capitalize on its advantages over bulk shipping. But there are one or two difficulties that arise for containerized exports, too, according to a leading industry analyst.

Agriculture exporters typically pay a much lower freight rate than importers on the head haul because they are relying on the fact that ocean carriers prefer a low price to no price on the backhaul when it comes to returning shipping containers to their point of origin.

But that low backhaul price can also work against agriculture exporters as it did during the pandemic, according to Ken Eriksen, Managing Member of Polaris Analytics and Consulting, which is based in Memphis, Tennessee, one of the nation’s main gateways for agriculture transport.

That situation arose during the pandemic when ocean carriers, anxious to capitalize on the booming demand for imported consumer goods, began to raise their prices for the back haul to discourage exporters.

In essence, Eriksen said, ocean carriers told shippers “Sorry, but I don’t want you to rent my container. I’ve really got to get it back to Asia because I know what’s coming. There’s a tsunami of goods that want to go back as a head haul.” 

A related problem arose at the time too: the increasing lack of empty containers for agriculture shippers as more and more boxes were taken out of the export market to meet the growing demands of importers. 

With import freight rates then climbing to astronomical levels, it simply made no sense for ocean carriers to tie up their containers for long backhaul returns at low rates when they could make much more on the lucrative head-haul rates, leaving exporters in need of containers for their goods.

At the moment, Eriksen said, head-haul rates are beginning to climb due to hostilities in the Red Sea, drought adversely affecting the Panama Canal and even mounting concerns over labor negotiations between dockworkers and their employers on the East and Gulf Coasts.

But so far, backhaul rates have not started to rise.

“Some of those things are going to be hitting the head haul, maybe not as much, as many imports will be coming into the country. That’s where, maybe later in the year, we’ll see some challenges with the backhaul,” he said.

While shipping containers were scarce for agriculture exporters during the pandemic, Eriksen does not see a repeat performance in the coming year even if head-haul rates climb to higher levels.

“Will there be as many containers available? I think the short answer is ‘Yes, there will be’ because there’s going to be more ships in the market,” he said.  

“I think we’re going to see a very loosened, relaxed capacity utilization as we go into the second half of the year. And that may be very favorable for the rate environment.”

See Ken Eriksen explain freight rates here: https://youtu.be/jMXXfQPVzE8