What is in this article?:
- Cotton flow, identifying bottlenecks, finding solutions
- Nuance and intricacies
- Apples to apples
- Southern Cotton Ginners Association hear of need to improve cotton "flow."
- Details and intricacies of "flow" issues discussed.
Nuance and intricacies
On nuance and intricacies…
“It’s hard to sum these things up in a nice, clean package. There are lots of nuance and regional intricacies and not a one-size-fits-all approach. It’s more complicated than what appears on the surface due to our industry’s diversity.
“The main point, though, is this: we’ve complained about the flow of cotton for at least 40 years. We’ve made improvements but why haven’t we solved the problem. The answer I think may be: we haven’t sent the correct economic signals.
“The cotton industry doesn’t send the needed signal to a warehouse to cause it to perform beyond the minimum standard or a warehouse’s customary outbound volume. Unfortunately, we send a disincentive.”
On incentives and rewards…
“The truth is, the minimum standard is pretty high – 4.5 percent of a warehouse’s registered capacity must be made available for shipment at any given week. The word ‘minimum’ isn’t insubstantial.
“But what happens to warehouses that do more? Well, we penalize warehouses that perform at higher levels than the standard by increasing their cost and lowering their revenue and in turn reward poor performers by letting them continue to collect storage charges.
“I don’t think it will be acceptable to the entire cotton industry to continue raising the minimum standard, as we did the last two decades when addressing flow complaints. Some players just won’t participate.
“The problem is when you penalize the ‘good’ players and reward ‘not-so-good’ players there will be a migration of volume to the ‘not-so-good’ side of the ledger. That’s just common sense because the bales will move to where they’re economically rewarded.
“What do we want? We want U.S. cotton to be more accessible and more economical through service and dependability for the world’s textile mills.
“How to do that through cotton flow? Well, we can move more cotton, quicker, when the market dictates that’s necessary. The market sends economic signals to the shipper and grower that come in loud and clear. For example, when December futures are 10 cents higher than March, the market is telling the shipper ‘turn your cotton into cash now. If you wait, I’ll pay you less and you’ll get to pay additional storage and interest.’ That part of the equation seems to be working.”
On economic signals…
“But where is the economic signal to the warehouse?
“To address that, the idea of adding a ‘second tier’ of an additional percentage of capacity the warehouse will make available for shipment is being considered. While other items are certainly on the table it seems this additional BMAS volume, for a fee, is the main idea in play.
“If this concept works, we’d have a second shipping tier so that when a warehouse is able to ship more than the standard 4.5 percent, it would actually have an incentive to do so. The additional fee associated with this second tier of BMAS would help make more cotton available above and beyond what has been reasonably expected and reward those warehouses able to meet higher demands.
“The shipper wouldn’t have to pay any additional fee unless they first request a warehouse to perform above their current 4.5 percent BMAS standard. If they want or need faster service and the warehouse is in a position to meet extremely high demand – we could have a fee structure that rewards the warehouse for shipping say 6.5 percent or even higher levels. While not free of some cost, this proposed system, if widely utilized, can certainly remove the warehouse component as a major concern of U.S. cotton flow.
“Why not just raise the standard to 6.5 percent? That’s what many industry participants would like to see. We don’t believe that will be economical, on the whole, because every warehouse in the country would be required to increase its trained personnel, equipment and staging space to meet this new standard even though history tells us it will be rarely or sporadically utilized.
“Over the last decade, only a few warehouses on a few occasions have been asked to ship amounts higher than our current standard. So, by raising the standard, we wouldn’t make U.S. cotton more competitive. The net effect is that it will be less competitive by adding costs to the system at every warehouse for the entire year.
“At Staplcotn, we are a large shipper and exporter, as well as a cotton warehouse company. We have the same issues to deal with as other merchandizing firms. We do have flow issues and the shipping community is working hard to be responsive, efficient and economical, doing its job, pointing out inefficiencies and demanding improvements. If we can address flow bottlenecks in a positive way our entire industry will win!”