As the world turns: exporting always has been a tricky proposition, but several new issues are making it even more complicated

Recycling Today, June, 2004 by Dan Sandoval

The export market always has been a lucrative proposition for many savvy recyclers. However, while some scrap dealers have been able to maneuver tonnages between domestic and offshore markets, issues seemed to occasionally crop up. Some of the most widely reported concerns were improper letters of credit that allowed some companies to delay payments; renegotiated prices because of downgrades or rejections; spot shortages of containers; as well as the uncertain customs environments, especially at many Asian ports.

While these issues have not faded away, a host of other issues have cropped up for exporters, especially those hungry to tap into the huge market in China.

EMERGING ISSUES. The biggest concern has been the cost to ship materials to the Pacific Rim, especially China. While the majority of ferrous scrap is shipped via bulk vessels, nonferrous scrap and paper stock are typically shipped in containers.

While the Pacific Rim's demand for recovered fiber has increased, container lines have only recently started trying to push through price increases. According to the Westbound Transpacific Stabilization Agreement (WTSA), a discussion group of major ocean container shipping lines operating in the trade lane from the U.S. in Asia demand for recovered fiber from the U.S. to Asia increased by nearly 30 percent last year.

Further, according in the WTSA, containerized scrap metal shipments, which make up around 5.6 percent of total outbound containers, increased by close to 40 percent last year from the previous year, further reflecting surging demand by Asia.

Earlier this year container shipping lines operating from the United States to Asia were calling for across-the-board restoration of freight rates for recovered fiber. The goal was to reach the minimum rate levels attained last year. Additionally, the WTSA is looking to add $25 per 40-foot container starting July 1.

For scrap metal, principally nonferrous metal, rates were raised by $100 per 40-foot container this past December and an additional $100 per 40-footer in April. Plastic scrap and chemical resin rates also were hiked by $200 per 40-foot container in April.

Despite the call by many container lines to hike freight rates for many scrap commodities, several exporters note that rates for recovered fiber, as well as for other materials, are still fairly stable to slightly soft.

Niels Erich, a spokesman for the WTSA, rebuts this opinion, noting that container lines are looking for freight rates to show some modest improvements through the rest of the year.

However, while the Asian market has helped spur demand, the more recent scaling back of orders from China--the key driver for the surging scrap boom--has lessened demand. The question being bandied about now is how long Chinese buyers will remain out of the market.

According to an analyst at one ship brokering firm in London, the decline in demand (and subsequent pricing) that began in mid-March is more of a correction than any significant decrease in orders.

With this in mind, while more scrap remains in the domestic market this spring, the longer-term trend will be a pick up in offshore orders. This could then lead to a faster flow of material on containers and bulk vessels later this year.

Alan Ratner, president of Metal Management Northeast, Newark, N.J., one of the largest scrap metal recyclers in the United States, notes that, overall, forecasting freight rates is an extremely difficult thing to do. "They are susceptible to the ebbs and flows from Asia."

Many Factors impact freight rates and movement, Ratner adds. These may include congestion at Asian ports and seasonal trends or issues, which could dry up container availability.

A West Coast-based exporter of paper and ferrous scrap notes that in addition to uncertain shipping rates, the Chinese government has begun tightening up its inspections to prevent the dumping of non-recyclable material.

While urban legend in part, there has been word of some container shipments that were far less than what was ordered. International scrutiny focused on some of the hazardous materials that were flowing into developing countries has appeared to cast a greater focus on dealing with the problem.

However, over the past several years, inspections before and after cargo is shipped have become business du jour. This, proponents claim, ensures that the material being shipped overseas meets the standards approved by both parties.

For shipments to China, the most sought-after market, the CCIC North America Inc. (CCICNA) was established in 1990 and has grown to become one of the biggest overseas branches of China National Import and Export Commodities Inspection Corporation. The role of this company is to inspect all shipments destined for China.

STEPS TO TAKE. According to a spokeswoman for CCIC North America, before China can import any goods, a CCIC certificate is required.

To obtain the certificate, a company first must file an application with CCICNA. After receiving the application, CCICNA will then either send out its own inspector or assign a subcontractor to perform the inspection.