Weekly Insights: Pacific Northwest Port Congestion and Wildfires

Pacific Northwest (PNW) Port Congestion and Wildfires

 

(ed. note: This article was originally prepared/published in September 2020)

Upper Plains has large exportable supplies of soybeans and corn. Farmers in the Upper Plains are dependent on rail service for export shipments, which may be disrupted by port congestion and wildfires. PNW grain and soybean export elevators (KEC, United Grain, CET, Temco Tacoma, LDC Seattle, LDC Portland, EGT Longview, Temco Kalama, Temco Portland, and AGP Grays Harbor) all have access to rail delivery. Pacific Northwest comprises two United States International Trade Commission Custom Districts (Columbia-Snake, Oregon and Seattle, Washington) with seven export elevators on the Columbia-Snake River, one on the Pacific Ocean (Greys Harbor), one in Seattle, and one in Tacoma. Gray’s Harbor primarily focuses on agriculture products, such as soybean meal and distillers dried grain (DDGS). Columbia River is 43 feet until Portland. After Portland, the depth drops to 40 feet. Grey Harbor is 40 feet and Puget Sound is 70 feet.

PNW Port Congestion

According to the USDA, the U.S. Department of Commerce requires a shipper’s export declaration (SED) for export grain shipments. The SED states the type and value of the cargo and is used to control exports and compile trade statistics. Export contracts are written with the knowledge of regulations in the countries involved.

To avoid miscommunication and to ensure the quality of the food or feed, there are certain requirements that must be met by individuals or companies exporting grain, oilseeds, or related commodities from the U.S. The requirements vary based on whether the commodity is covered by the United States Grain Standards Act (USGSA) or the Agricultural Marketing Act of 1946 (AMA).

United States Grain Standard Commodities and Agricultural Marketing Commodities

Barley                       Triticale
Canola                      Wheat
Corn                          Mixed Grain Rice
Flaxseed                   Beans (dry edible)
Oats                           Peas
Rye                             Lentils
Soybeans                  Hops
Sorghum                   Processed Grain Products (e.g., flour, cornmeal, soybeans, veg. oil)
Sunflower Seeds

(Source: USDA AMS)

 

Anyone exporting 15,000 tons or more (per year) of grain covered by the USGSA must first register with the Federal Grain Inspection Service (FGIS). Phytosanitary regulations are established by the importing country. Exporters must determine if the importing country requires certification that the commodity meets that country’s phytosanitary regulations, for example, freedom from a particular prohibited insect.

Before a vessel is loaded, it must have the hull inspected and be approved. Since 1952, National Cargo Bureau Inc. (NCB) has, by assignment and under the authority of the U.S. Coast Guard, issued certificates which are prima facie evidence of compliance with the Rules and Regulations for Bulk Grain Loading. Prior to the loading of bulk grain for export, National Cargo Bureau Inc. will determine if the subject vessel is ready in all respects. The attending NCB Surveyor will address the following:

  • Review all pertinent documents and verify the vessel’s fitness to load bulk grain.
  • Conduct a hold inspection and confirm the cleanliness, bilge readiness, structural integrity, protection against heat and electrical hazards, and proper installation of moveable bulkheads, if applicable.
  • Check the compliance with grain stability requirements, as demonstrated by the proper completion of the National Cargo Bureau Grain Stability Calculation Form.

When the documents and stability calculation have been found in order, and the holds have passed inspection, the National Cargo Bureau Surveyor will issue a Certificate of Readiness (COR). This document confirms that the vessel is ready in all respects to load a cargo of bulk grain and is normally presented by the vessel’s representative to the grain loading elevator as evidence of readiness.

The vessel must enter the Columbia River to be inspected and receive a COR. The NBR will not inspect the vessel in the Pacific Ocean. If all the export elevators are booked, for vessels above 60,000 metric tons, only 19 spaces are available once Rice Island is dredged.

  1. Nine anchorages in the Astoria area
  2. Eight buoys (an anchored float serving as a navigation mark, to show reefs or other hazards, or for mooring) upriver, which Panamax-size vessels can use, but requires tugs that are an additional cost.
  3. Two anchorage spaces for vessels between 60,000 and 65,000 metric tons in Crims Island, but not acceptable for a Panamax vessel.

Source: Google

Crims Island

Source: Google

 

The 2020/21 export season has started off with major purchases from China. As a result, many of the grain elevators in the PNW area are expected to be at or near capacity through January, which means limited anchorage spaces available. Any vessel in the Columbia River, over 650 feet length overall (LOA) has limited availability and almost all vessels headed to China will be loaded above 60,000 thousand metric tons.

A similar situation occurred in first quarter of 2017. Above average corn and soybean exports combined with most cargos being transported by Panamax or larger vessels led to major congestion. At one point in the first quarter of 2017, 12 Panamax vessels were waiting for an anchor/buoy/lay berth to become available. A lay berth is used for idle (lay-up status) vessels. These berths will feature very little land side access or equipment except what is needed to secure the vessel.

Options for anchorages:

  1. Astoria or Rice island is generally the preferred choice because no tugs are required.
  2. Second best option is to buoy upriver to allow NCB to inspect cargo holds and tender a COR. Tugs and pilots cost between $12,000 to $25,000, depending on if the vessel will have to be turned around to reach the export elevator.
  3. Third option is to find a temporary lay berth upriver. A general cost for tugs in and out is $16,000 to $25,000, linesmen tie up and go lay berth costs approximately $5,500, security cost per day is $500 to $1,000, and dockage cost per day (example Panamax) is $3,000 to $8,000. The range in cost is primarily the result of the location. Worst case scenario is approximately $40,000 additional cost per day.
  4. The other option is to remain in the Pacific Ocean waiting for a slot to become available. In 2017, some vessels waited 10 days or more.

Any vessel that comes into lay berth will have priority to take first available anchor or buoy, which becomes available over any vessel that remained outside to wait for anchorage. In first quarter 2017, many vessel operators came into lay berths (when anchorages and buoys were full) to get USDA and NCB pass required for a tender COR for the grain elevator to load. Once a slot opened, the vessel shifted off lay berth out to buoy or anchorage and started receiving grain. Vessels that did not enter the Columbia River were behind the vessels that came into lay berth.

If the charter rate for the Panamax vessel is $10,000, it might be less expensive to wait in the Pacific. The larger considerations are the players, terms of the shipping contract and shipping capacity. If the shipper, charterer, and receiver are all the same company, the decision is just a straight cost minimization decision. If the companies involved are all different, a discussion will have to occur, and it will focus on the terms of the contract. The other major factor is the need for vessel capacity. Vessel capacity is the size of the vessel multiplied by how many round trips can be turned. In an ocean freight market with excess supply, the vessel will slow steam to reduce the fuel cost. In a tight ocean freight market, the vessel will run as fast as possible to increase turns. Although export volumes are up substantially versus last year, ocean freight rates are down, which indicates available capacity.

Wildfires

The major transportation issue caused by wildfires is a lack of visibility, especially at night. In this regard, rail has a major advantage over truck. The barge facilities are dependent on local truck movements to transport grain to the river elevator. The September 12 issue of The Economist wrote, “more than 7,600 fires had burned over 2.5 million acres of land. The season still has months to run. That fits a long-term trend, for California’s wildfires are getting steadily worse. Blazes in the 2010s burned 6.8 million acres on average, up from 3.3 million acres in the 1990s. The fire season lasts nearly three months longer now than it did in the 1970s. Over the past decade, the state has spent an average of $3.7 billion a year fighting fires. Add the cost of rebuilding, treating casualties and restoration, says Headwaters Economics, a think-tank, and that is perhaps a tenth of the total cost. Although smaller than this year’s, the 2018 fire season was particularly destructive. It killed 100 people and burned tens of thousands of buildings.”

Cal Fire reported the Creek Fire, which started on September 4 in California, has become the largest single wildfire in the state’s history, burning 286,519 acres in Fresno and Madera counties. As of this writing, it is only 32%  contained. The smoke from the fires is so thick that it is blocking the sun, cooling what was supposed to be record-high temperatures for the month of April by about 10 degrees, climate scientists told ABC News.

A “Large Fire” as defined by the National Wildland Coordinating Group, is any wildland fire in timber 100 acres or greater, and 300 acres or greater in grasslands/rangelands, or has an Incident Management Team assigned to it.

PNW corn and soybean shuttle trains primarily originate in the Western Corn Belt destined for export elevators below the dams to be transloaded onto ocean going vessels. AGP Grays Harbor exports a significant amount of soybean meal, distillers’ dried grains and other agricultural products. The corn and soybean shuttle trains from the Plains States to Oregon and Washington are not experiencing any real problems. The railroads seem prepared for fires. BNSF Railway Company’s new release stated:

BNSF’s rail network covers much of the American West, where wildfires are common due to high winds and frequent drought conditions. To combat wildfires, we have water-filled tank cars staged in fire-prone areas across the country.

In Washington State, BNSF has two unique firefighting apparatus in our toolkit: specially equipped trains that represent innovative approaches to tackling fires. The first, the Pasco train, consists of two tank cars, a “fire” car and a caboose that serves as a command center. Thousands of gallons of water are stored in the tank cars, while the fire car contains aqueous firefighting foam. The caboose is equipped with an onboard generator that provides power and can also be used to run work lights, radios, and other emergency equipment.

Meanwhile, the Wishram train’s generators, pipes and pump systems are located under three tank cars. The caboose is equipped with a spray bar and water cannon and serves as the command center when called into service. The Wishram train’s focus is the south-central portion of Washington, including arid Benton County, which has limited road access.

BNSF coordinates closely with local firefighter crews. The caboose transports firefighters to places firetrucks cannot reach and where there are no water sources. Since the train’s tanks carry 30,000 gallons of water compared to a firetruck’s average of 500 gallons, our trains are useful tools for firefighters battling remote blazes.

 

Source: Northwest Interagency Coordination System

 

Source: BNSF

 

Columbia Snake River System

Wheat being transported down the Columbia River is being impacted by the wildfires. The transportation issue is a truck driver’s lack of visibility, which prevents delivery to the inland river elevators. The inland river elevators on the Columbia Snake River System primarily service the various wheat markets, especially important outlet for white wheat and club wheat.

Due to wheat being grown in the Columbia Snake River draw area, any disruption in barge service severely impacts the local wheat market. For example, eight to 10 barges transverse Bonneville Lock and Dam daily, and any delays caused by the fire prevents wheat from being exported. For comparison sake, it should be noted that barges on the Columbia Snake River System are twice as large as barges on the Inland Mississippi River System. Approximately 1,500 short tons versus 3,000 short tons or 300,000 thousand short tons of wheat flowing down the river daily. The extent of the damage done to the local wheat market will depend on how much potential exports were transferred to other countries.

Columbia Snake River Wheat Draw Area with Grain Elevators

Source: Dr. Eric Jessup

 

 

 

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