By Mike Johnston, April 29, 2013, Yakima Herald
The Port of Seattle leadership could do a lot more to influence ocean freight carriers to lower their rates for Central Washington hay products heading to China and other East Asia forage customers, a Kittitas Valley hay processor and shipper says.
Wesco International Inc. President Don Schilling last week told Seattle port commissioners and staff in Ellensburg that the demand for U.S.-grown forage, especially in China, is growing and is expected to keep growing steadily.
“We are being shut out of the world’s biggest market,” Schilling said Wednesday about Washington and Pacific Northwest hay processors paying significantly more to ship out of the Port of Seattle.
Agricultural economists are saying the tight supplies of forage worldwide along with global demand will drive up the price received by alfalfa hay growers, processors and shippers.
Schilling said hay shippers have to try and recover the high freight rate and charge more for their hay.
Buyers in China are more likely to seek lower-priced U.S. alfalfa hay coming out of ports in California, hurting the Pacific Northwest’s hay industry, he said.
But Port of Seattle CEO Tay Yoshitani said the port’s influence on steamship companies is limited. The ocean carriers set the rates to transport containers, not the port.
“Carriers are more responsive to shippers than to the ports,” Yoshitani said.
As many hay shippers as possible coming together to confront carriers about rising Seattle port charges will have more of an effect, he said, than ports acting alone.
Yoshitani said the port would welcome being able to facilitate such a meeting.
Schilling said the huge difference between Seattle and Los Angeles in the cost to ship hay overseas favors growers in south- and middle western states.
Oceangoing steamship companies based at the Seattle port are charging about $1,000 per container for hay going to Japan, but out of the port of Long Beach near Los Angeles, the charge is about $500 per container, Schilling said.
He later added that hay going to Taiwan out of Seattle costs $1,770 per container and about $320 from L.A. Hay coming from Seattle to a northeast China port costs $1,300 per container but only $300 out of Long Beach.
Seattle port officials were in town to share their 25-year plan to increase port business through boosting global imports/exports along with maritime industries, tourism, small businesses and other activity.
To do this, Port Commissioner Tom Albro said it will take the port joining with regional maritime businesses, exporters and agricultural producers, state and local governments, federal agencies and many others to make it happen in the long run.
Albro said the port also wants to know user’s concerns and was in Ellensburg to listen.
“I hear your frustration,” Albro told Schilling.
The port has wide influence with the major media outlets, Schilling said, and with the state Legislature, and could use this influence to spotlight the differential in ocean freight rates.
Rollie Bernth, president of Ward Rugh Inc., another Kittitas Valley hay processor and exporter, said a major factor clouding this year’s hay crop is about a 20 percent drop in the value of the Japanese yen compared to the U.S. This loss of the yen’s buying power, on top of high freight rates, could cause Japanese buyers to look elsewhere for cheaper forage, he said.
Because of the L.A. port’s high volume of import and export business, it has more containers available. Ocean carriers compete among themselves to utilize the containers quickly for exports overseas, allowing for more competitive ocean freight prices.
For the Pacific Northwest hay industry, including in Kittitas County and the Columbia Basin, to compete in the growing China market, Schilling said, might take lowering the price per ton for the hay they offer along with what they pay growers.
“That likely will come right out of the grower’s pocket,” he said.
Schilling later said the nearly $1,000 difference between Seattle and L.A. ports per container for hay going to China means about a $35 per ton difference.
“Maybe it sounds like I’m using too much hyperbole, but if something doesn’t happen to balance the rate difference, if there’s no public and government attention put on this problem, it could permanently distort the hay market,” Schilling said, especially for the growing alfalfa market.
Biggest impact is on alfalfa hay
Mark Anderson, president of Anderson Hay and Grain Co. Inc. based in Ellensburg, said differences in Puget Sound ocean freight shipping rates and those in southern California have the most impact on alfalfa.
Southwestern U.S. farmers can successfully grow and ship alfalfa and are taking advantage of the lower L.A. shipping rates, allowing lower hay prices.
“This is a huge factor for the alfalfa industry up here (in the Pacific Northwest),” Anderson said.
The cost differences have less impact on the Japanese market for timothy hay grown in Kittitas County and the Columbia Basin, he said. The Pacific Northwest can successfully grow timothy hay, whereas there is little grown in the southwest United States, he said.
Japanese and Pacific Rim customers who want timothy hay go to Pacific Northwest growers through the ports of Seattle and Tacoma, and will continue to buy it, Anderson said.
But more price conscious Chinese and Middle East buyers of alfalfa will shop around, Anderson said, and lower-priced alfalfa from Southern California ports, because of cheaper ocean freight rates, will continue to be attractive.
“The Southwest is really seeing the growth potential for alfalfa to China,” Anderson said.
The concern is the Pacific Northwest’s alfalfa industry could be significantly curtailed, he warned. If the difference between ocean freight rates continues to widen, Anderson said it could have a ripple effect on timothy shipment costs in the future, but not at this time.
The biggest concern for timothy hay processors and shippers right now is a weak Japanese yen, he said.