- Shipping carriers rejected U.S. agricultural export containers worth hundreds of millions of dollars during October and November, instead sending empty containers back to China to be filled with more profitable Chinese exports.
- The refusals come during the peak season for agriculture exports.
- While U.S. agricultural exports run continuously for 12 months, the months of November through March are critical.
- The Federal Maritime Commission launched an investigation into the matter and is reviewing the trade data to see whether the carriers refusing U.S. export cargo was a violation of the Shipping Act.
Shipping carriers rejected U.S. agricultural export containers worth hundreds of millions of dollars during October and November, instead sending empty containers to China to be filled with more profitable Chinese exports, a CNBC investigation found.
The Federal Maritime Commission has received petitions from U.S. agricultural exporters warning that the delays in trade not only threaten profits but the reputation of the industry.
The commission, in turn, launched an investigation and is reviewing the trade data out of key ports in California, New York and New Jersey to see whether the carriers' refusal to load U.S. export cargo was a violation of the Shipping Act.
The act makes it unlawful for carriers to "unreasonably refuse to deal or negotiate," "boycott or take any other concerted action resulting in an unreasonable refusal to deal," or "engage in conduct that unreasonably restricts the use of intermodal services."
The export container refusals came as U.S. agriculture exports were entering their peak season. While the exports run continuously for 12 months, the months of November through March are critical because they follow the harvest of the crops.
Based on the orders completed during this window, agriculture producers have more clarity in planning for the upcoming harvest. During the winter months, farmers and producers meet with banks to secure funds for the next cycle.
There's also the threat of the Brazilian harvest, which comes in February. The biggest lesson learned by the agriculture sector during the U.S. trade war with China is that no contracts are sacred – they can always be deferred to another season or canceled altogether.
Carriers rejected an estimated 177,938 containers known as TEUs (20-foot equivalent units) in October and November, according to analysis of data compiled from the Census Bureau and the ports of Los Angeles, Long Beach, California, and New York and New Jersey.
In mid-October, carriers notified agricultural exporters that they would prioritize empty export containers over agricultural exports. They also said they would increase prices on U.S. agricultural exports if the commodities were transported.
According to port trade data, the total export container deficit for the ports of Long Beach and Los Angeles was 136,392 TEUs. An estimated 41,546 TEUs were denied out of the Port of New York and New Jersey. The total value lost export trade from those ports is $632 million.
To calculate the value in the potential lost trade as a result of the rejection of agricultural exports, CNBC used the Port of Los Angeles containerized agricultural export price for soybeans/oilseeds/grains, which can be found on the U.S. Census, USA Trade Online site. The value of this export is $3,552 a TEU.
That tally was calculated by taking the difference between the actual empty exports in 2020 vs. the 2019 share of export empties.
"These estimated TEUs are the empty exports that should have been filled in 2020," said John Martin, manager of the economic and transportation consulting firm Martin Associates, who verified CNBC's findings. "This formula shows you the increased ratio of empty export containers to total exports. This data suggests particularly the Los Angeles, Long Beach argument that empty export containers were being moved as quickly possible, leaving U.S. export cargo on the docks."
When reviewing the import and export data from January 2020 to November, CNBC found the pattern of this growing U.S. export container deficit started as early as June for Los Angeles, July for Long Beach, and August for New York and New Jersey.
From July through November, a total of 297,997 TEUs were denied out of the ports of Los Angeles, Long Beach, and New York and New Jersey a container deficit value of $1.1 billion.
"Compared to the same months in the previous time periods, there is a clear increase in the ratio of empty export containers to total exports," said Martin. "This underscores our continued dependency on China."
Three in 4 containers from the U.S. to Asia are "going back empty," according to Redwood Logistics CEO Mark Yeager, who supported the findings of CNBC's analysis. "The reason for this is the Chinese are being so aggressive about trying to get empty containers back ... that it's hard to get a container for U.S. exporters."
CNBC shared its data with the ports of Los Angeles, Long Beach, and New York and New Jersey.
"American farmers and agricultural exporters should not have to search for containers to get their goods to market," said Gene Seroka, executive director of the Port of Los Angeles. "We need a cohesive U.S. export policy that addresses a range of issues, including container accessibility for our agricultural markets throughout the country."
The Federal Maritime Commission's Carl Bentzel, along with fellow commissioner Daniel Maffei, sent a letter in December to the World Shipping Council saying the refusal of U.S. exports by major ocean carriers could be a violation of the U.S. Shipping Act.
"This data and the impact on our economy is potentially very troubling, but unfortunately not altogether surprising," Bentzel told CNBC. "These numbers track pretty consistently with the complaints that we have been receiving consistently at the FMC for the last four or five months. My fellow commissioners and I have been forwarding these complaints to our enforcement office, and to the ongoing Commission Fact Finding-29, and they are currently evaluating and assessing the claims for potential enforcement."
The Fact Finding 29 is an investigation, authorized in March, intended to identify actions in the international ocean transportation supply chain and operations that would create disruptions to the flow of international trade. The investigation expanded in November to include the container return and container availability for U.S. export cargo, as well as the charges in storage and late fees carriers are charging exporters.
But carriers like Germany's Hapag-Lloyd told CNBC they are indeed moving agriculture exports.
Uffe Ostergaard, president of Hapag-Lloyd's American operations, said the company has seen agriculture shippers cancel or not show up with about 40% of bookings placed.
"This is in line with historical averages, but you would expect that those cancellations would decrease if there were real space or equipment restrictions," he said. "On the topic of Agri exports from the U.S., Hapag Lloyd has continued to serve the shippers without interruption as has the broader container carrier industry. ... We work closely with the shippers who generally understand the current challenges very well and try to adjust their supply chains accordingly."
A representative for Evergreen Line said it has been working with Federal Maritime Commission officials on their investigation.
"As stated previously, there are numerous factors that have contributed to congestion at the ports mentioned and we continue to work with FMC officials as they investigate concerns," said Michael Vooss, of Vooss Hanemann Associates, on behalf of the carrier. "Although global conditions during this past year may have periodically challenged movement within the supply chain, our priority has remained in servicing customers across our trade lanes for both inbound and outbound cargo, allowing the flow of commerce to move as swiftly and reliably as possible."
Maersk corporate communications declined to comment, citing the company's quiet period for earnings. Request for comments by CMA CGM S.A., Cosco Shipping and ZIM Integrated Shipping Services were not returned.
While agricultural export volume for 2020 was larger than 2019 because of the U.S. Phase One trade agreement with China, the purchases were short of targets. According to the Peterson Institute for International Economics, China imported $100 billion of the U.S. goods agreed to in the deal — roughly 58% of the targeted $173.1 billion. An export is not official until it is transported and processed in the country of destination. The increase in agricultural exports, though, pales in comparison to the increased ration of empty export containers.
"The number of hands that touch ag exports or any U.S. exports for that matter is in the millions," said Peter Friedmann, executive director of the Agriculture Transportation Coalition. "From the farm, processing, storage, to transportation, the amount of jobs that are in this production and supply chain is tremendous."
America's farms contributed $136.1 billion in 2019 to the GDP, about 0.6%, according to the U.S. Department of Agriculture. Agriculture, food, and related industries contributed $1.109 trillion to the U.S. gross domestic product in 2019, a 5.2 percent share.
"Just when you think America's ag industry can start running full throttle, this export transportation discrimination starts," said Friedmann.
American farmers say they are now tangled in a new battle — having to contend with the growing web of export rejection or delays eating into their profits.
Bob Sinner, president of SB&B Foods, a major American soybean exporter, provided CNBC with some of the details carriers told him regarding rejection or delay of his exports.
As of early January, Sinner, who is also chairman of the Specialty Soya and Grains Alliance, said that 30% to 40% of his company's total exports have either been delayed or canceled.
"Not only does customer service deny the booking, but then they try to 'pass the buck' to their sales rep stating that they are honoring our account allocation plan which is not true," said Sinner. "Then, their sales rep says the customer service information is not accurate and that he is looking into it, but we have yet to have anything from our sales rep getting this straightened out. Then the same customer service guy comes back with a statement trying to put the blame on us by stating that our booking cancellation has been accepted. These carriers are getting good at not taking any blame and attempting to put all of the blame on the shipper."
He added: "This goes beyond trade. This is also about food security. Our soybeans are food grade. We ship between 690-700 bags in a single container. Each bag makes approximately 275 pieces of tofu. That's a lot of mouths we feed."
The denial of trade recently forced Sinner to send through air freight 6 metric ton bags to his customers in north Asia to meet their needs.
The denial and delay of agricultural exports can also be tracked by truck.
Containers are piling up in the yard of Knight Port Logistics, which transports cotton, scrap paper, scrap plastic and scrap metal, according to the company's director of exports, Kyle Layne.
"Cotton exports are being rolled over for weeks and you can't find export bookings for scrap metal and scrap plastic exports," said Layne. "These containers are on chassis which is adding to the chassis shortage."
Record Chinese import volumes in Los Angeles and Long Beach, coupled with the slowdown out of Los Angeles in moving containers off vessels, have added to the empty export problem.
"We have had to sit on containers for months," said Layne. "Right now, we have over 600 total containers in our possession and about half of them are currently sitting in our yard just a few miles from port." At most, in a normal trade environment, there are 100 to 150 containers, he said.
"The loaded containers are mostly U.S. exports that we are trying to still turn in to the port," he added.
Layne said the problem facing the return of these U.S. exports is the lack of appointments at the terminal, which coordinates with the carriers in loading the exports.
"The ratio of our import/export business is typically 70/30. Now it's 90/10," he said. "Exports are down around 30% for us for the end of 2020. We have seen a 15% decrease in exports volume. It is easier for us to get an empty container into the Los Angeles terminal than a U.S. export."
—CNBC's Weizhen Tan contributed to this report.