China’s request to review dropping anti-dumping tariffs on DDGS could trigger major global container shipping changes

By Bruce Abbe

Several SSGA container grain exporters, bulk transloaders and other logistics provider members are closely watching the China-U.S. trade talks for possible news that could trigger a resurgence of a leading U.S. export commodity – dried distillers grains with solubles (DDGS) – and with it a major shift in loaded global container shipping flows.

Background rumors emerged from trade circles earlier this month that China was “mulling” an end to its anti-dumping investigation tariffs on U.S. DDGS. Then U.S. Grains Council President & CEO Thomas Sleight confirmed to the news media that, indeed, USGC had asked the Chinese Ministry of Commerce (MOFCOM) to review the existing tariffs on DDGS. A Reuters news story noted a statement from China’s Commerce ministry saying it was investigating the request, and if it met legal requirements, they would decide whether to review the case.

However, a USGC spokesperson noted the request to China came from USGC, not from the U.S. Trade Representative (USTR).

While all those news rumors seem to make the matter pretty speculative at this point, that is the way things are in trade discussions and negotiations. Yet, if China’s DDGS trade tariffs are ended, there likely would be significant change in trade flows for DDGS and similar feed commodities like soybean meal.

MAJOR CONTAINER GRAIN EXPORT COMMODITY

At one point in time, DDGS accounted for just over half of all U.S. shipments of grain commodities in containers. DDGS made for a perfect “back haul” for ocean containers going back to China, in particular, where the lions share of import containers to the U.S. originated bringing in higher value consumer goods manufactured in China – i.e. the “head haul.”

According to USGC statistics, nearly 12.7 million metric tons (MMT) of DDGS were exported from the U.S. in 2015. Over 6.4 MMT went to China.

Then in 2016, China launched anti-dumping and countervailing duty investigations on imports of U.S. DDGS that carried an 80 percent tariff. China’s imports that year plummeted to just over 2.34 MMT. In 2017, China’s DDGS imports dropped to just 371,667 MT. Some slight progress was made that year when China agreed to eliminate its 11 percent value-added tax on DDGS, but kept the steep tariff penalty in place.

In the meantime, U.S. DDGS exporters worked hard – and with some success – to diversify their markets.

Vietnam, Thailand, Mexico and Turkey, in particular, became growth markets for DDGS.  Year-end totals for DDGS exports in 2016 came in at just over 11.3 MMT – below 2015’s total, but not a radical drop.   Prices received for U.S. DDGS exports, however, took a hit.

During this time, China also largely shut down imports of waste paper and scrap metal from the U.S. for recycling, which also were major container cargo freight. The natural container ‘back haul’ to China for ocean container steamship lines took a double hit. Transportation modes also evolved, as Mexico is largely a railcar served market, and Turkey is more of a barge-to-bulk ship served market. The Asian markets tend to be supported by container shipping.

Meanwhile, the U.S./China trade war’s biggest casualty – soybeans – have also been undergoing a strong effort by U.S. exporters to diversify its market. Southeast Asian countries, notably Indonesia and Vietnam, have been growth markets for container shipped whole soybeans and soy meal. Yet, like past experience with DDGS, prices have taken a hit.

‘BACK HAUL’ CHANGES AND CHALLENGES

The Journal of Commerce (JOC) reported (March 5) exports of waste paper to China plunged over 43 percent in 2018, and scrap metal dropped over 83 percent. DDGS container exports plummeted over 61 percent to China, although DDGS container exports to the world that year increased 20 percent, JOC reported, citing its sister agency PIERS data.

SSGA (and its predecessor, the Midwest Shippers Association) grew concerned last year and early this year over reports from shipping industry sources that the steamship lines, even at inland locations, were starting to turn their import containers around immediately and send them back by rail to the ports empty – rather than taking an available load of grain or soy products – because they needed to get the container back to China for the ‘head haul.’

SSGA over the last several months has sought to deliver the message to the ocean container shipping industry that there is strong market growth underway for shipping grain and oilseed food and feed products to Southeast Asia and the Asian Subcontinent markets in particular. More direct container service is needed to serve these markets efficiently with less vessel-to-vessel “transshipments” overseas.

Yet the supply chain challenges are still there.

A Hyundai Merchant Marine (HMM) senior executive told JOC, “(C)arriers are careful about where they ship low-margin commodities because then when the containers are emptied, they must be repositioned, at a cost, to China where most of the exports from the region to the U.S. originate.”

If China – under pressure to increase its imports from the U.S. in the trade negotiations – decides to remove its steep anti-dumping tariff on DDGS, the trade flow picture could take another dramatic shift.

Most U.S. soybeans shipped to China in the past have been whole beans, which were processed into soymeal for livestock and poultry, and soy oil. Yet, DDGS proved to be a strong option as well for feed use.

If China removes the tariff on U.S. DDGS, the shipping and exporting industry will likely see a retooling of that natural back haul for container shipping.

The U.S.-China trade talks, alternately said to be nearly completed and then pushed back until the next negotiators’ meeting, will determine much of the fate for U.S. soybean exports. Regardless, soybeans and soymeal exports will likely continue their growth trend in the new markets. However, China’s decisions hold the key for prospects for recovery in prices for U.S. exports for DDGS, soy and other commodities.

Bruce Abbe is senior director of specialty grains, products and transportation for SSGA. Reach Bruce at 952-253-6231 or drop him a line here.