Demand, credit issues cause export backlog at Vancouver port
Falling demand and problems with letters of credit have led to massive backups in bulk product exports at the Canadian Port of Vancouver.
The backlog, which began three to four weeks ago with wood pulp and has since spread to grain and other commodities, has become so acute that port warehouses are full and port officials are looking to inland areas for storage.
'The mills are still producing at 100 percent ' but only 25 percent of the produced material is being sold,' Dave Bedwell, COSCO Canada executive vice president, told the Canwest News Service. 'So there’s 75 percent that’s being stored, and the mills keep pumping it out while the warehouses are getting full. Shippers are starting to seek outside the Lower Mainland now to find storage.'
While Canada has seen a massive dip in demand for exported pulp products this year — down 12 percent for the year, 40 percent for August and even more in the past several weeks — another major contributor to the backlog, according to shipping officials, is that trustworthy letters of credit are drying up due to the world credit crunch.
'Letters of credit are very, very slow to be opened by the Chinese buyers, and that is causing a little bit of a concern for some of us container guys, because pulp is the number one commodity shipped in containers,' Bedwell told CNS.
Wood pulp shipments make up about 25 percent of the export cargo handled at Vancouver, with roughly 30 percent of this headed to China. Korean buyers of Canadian pulp, which account for 7 percent of Vancouver's total pulp exports, have also begun to express concerns with letters of credit, according to a shipper contacted by CNS.
'For whatever reasons, we’re not seeing orders out of China,' Jim Allan, managing director of Trealmont Chartering Inc., told CNS. Based in Montreal, Trealmont is one of Canada’s largest pulp shipping firms. 'It’s not good at all. It’s quite unnerving or frightening, whatever you want to call it.'
Officials from Canfor Pulp Income Fund, which is the largest North American producer of market pulp, told CNS that a combination of demand drop and credit issues have resulted in a 75 percent decline in orders so far this October, while predicting a 'rush of orders' toward the end of the month. Canfor, which sells more than 10 percent of its pulp to China and deals mainly with European and U.S. buyers, said that declines in demand outside of China have been much smaller. ' Keith Higginbotham