Shipping Delays are Slowing Dairy Product Flow by Land and Sea
The COVID-19 pandemic created disruptions in the transportation of goods worldwide, the effects of which are still being felt today.
Phil Plourd, president of Madison, Wis.-based Blimling and Associates, said the bottlenecks and delays in both sea and ground transportation will likely impact international and domestic dairy trade through 2021 and possibly beyond.
Plourd’s dairy research and brokerage firm recently published “Bumpy Roads, Choppy Waters,” a situation and outlook report on global freight and transportation. In a webinar addressing the same topic, he noted the impact that freight movement has on virtually every industry, including agriculture.
“About 90% of the world’s goods are transported by water,” he shared. “Due to massive government stimulus, spending – particularly via e-commerce -- is way up for American consumers. While that may be good for the economy, it is putting pressure on shipping traffic and port access, because many of those purchases are coming from overseas, especially China.”
Indeed, the U.S. currently is running at a trade deficit of about $70 billion per month, meaning considerably more goods are being imported than exported. The trifecta of lopsided demand, congested ports and a global shortage of shipping containers currently is created a fairly shocking phenomenon.
“Right now we have ships heading back to Asia loaded with empty shipping containers,” stated Plourd. “It’s more cost-efficient to turn them around immediately to pick up more I-phones and patio furniture than to wait a day or two to load those ships with powdered milk or grain.”
As a result, dairy products may begin stacking up in warehouses waiting for a home. Plourd said there is healthy Asian demand for U.S. dairy foods, especially in newer markets like Vietnam and Korea. But the challenge is getting them there.
Domestically, retail commerce also is slamming the trucking industry. “Reefer, dry van and tanker rates are running at levels we’ve never seen before,” Plourd said. “At the same time, fuel costs are going up; carriers are facing soaring insurance costs; and there is a nationwide shortage of truck drivers.”
He said truck and trailer manufacturers also are swamped with orders, which were declining pre-pandemic. Their production is being hampered by delays in accessing parts, along with soaring steel and lumber costs.
On average, there is a journey of about 1,500 miles for food in the United States to travel from farm to plate. Today about 3.4 cents of the average U.S. food dollar go to transportation costs.
Once again, backlogs in shipping capacity do not bode well for dairy products. Transporting a truckload of cheese from central California to eastern Wisconsin costs about $6,072 today – or about 14 cents per pound -- compared to $4,774 a year ago (11 cents per pound).
Plourd said reefer shortages and costs could be especially troublesome on a regional basis. “If you’re a milk processor in a region where tanker freight is tight, there’s the potential for some seller desperation to set it, triggering a ‘fire sale’ of sorts,” he explained.
Because he does not envision a major slowdown in trucking demand soon, Plourd predicts domestic freight rates will remain steady throughout the rest of 2021.
The normalization of air travel later this year could alleviate some shipping pressure, especially internationally. Shipping container manufacturers also have ramped up production and are working to catch up. But in the short term, delays and chaos are likely to continue.
“Eventually, I do believe the container shortage will be resolved, ports will return to normal staffing, and global shipping lanes will open up,” predicted Plourd. “But I highly doubt any of those issues will be completely solved this year.”