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Wake Up and Haul the Bacon

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Posted by Los Angeles Rams Guy on Monday, June 3, 2013 6:42 AM

If this whole thing comes to fruitition as Greyhounds has broken it down, it may not only open up several opportunities on the intermodal front but I also can't help but wonder if it just may open up an opportunity for the railroads to move these hogs to slaughter to the North Carolina facility.

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Posted by BroadwayLion on Monday, June 3, 2013 7:07 AM

If China stops raising pigs, that should end the flu as we know it.

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Posted by Anonymous on Monday, June 3, 2013 8:19 AM

Speaking only in terms of business and marketing:


 

*

For the time being, China’s weak link in pork production does seem to be the agricultural sector, while their manufacturing sector is more cost effective than ours with many products.  But I don’t see any reason why they cannot bring their ag sector up to the same level of competitiveness as ours, given some time.  Their only limitation is that they can’t keep up with their tremendous economic growth.

So, if China has the competitive advantage in almost everything, why do they want to buy a U.S. pork producer?  Why not just buy the pork?   They have the money for the pork.  Why do they need a U.S. pork producer?  Well one reason could be that they have the competitive advantage in pork production, and they plan to become the world’s biggest pork exporter just like they export everything else.  The only problem is that their food production has a black eye.  Their poor quality is legendary, and food is personal.  Would you eat pork imported from Shuanghui in China?  That is the only obstacle to China being the biggest pork producer/exporter. 

So, what they are buying is not a new source of pork.  What they are buying is the Smithfield brand.  I am referring to the brand reputation, and not just the name and logo.  Once, they buy Smithfield, the company will be a Chinese pork supplier, except it just won’t be based in China.  But even though the company will be the same U.S. pork producer as it was under Smithfield, I suspect it will be stigmatized to a large extent in the eyes of the U.S. market. 

It will be very similar to the stigma of shipping kosher food in a container that once shipped pork, as was previously brought up here.  Nevertheless, some portion of the U.S. pork market will be retained.   And the rest of that market will probably return once it gets used to the idea of a Chinese pork producer that is in the U.S., and seems to not be causing any health problems. 

But pretty soon, there will be pork going in both directions as the stigma against Chinese pork dissipates.  That then opens the door to China becoming the world’s largest pork exporter with most of the pork being produced in China with their competitive advantage.

As it stands now, China cannot open that door to being the world’s largest animal protein provider because their food production reputation stands in the way.  Acquiring a company with a good reputation helps China repair their reputation.  This may indeed by a win, win—   for a while.      

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Posted by PNWRMNM on Monday, June 3, 2013 8:52 AM

Bucyrus,

I think you are close but suggest that what the purchaser is buying in addition to a more secure supply is expertise that they can use to modernize their own production processes.

I doubt that "the public" will stay away from Smithfield products because they are Chinese owned. Six months after the deal is over and out of the news I suspect less than 5% of the population will remember Chinese ownership, and that less than 5% of that 5% would tell you two Smithfield brands other than Smithfield.

To the extent that more pork goes to China as a result of this deal than would otherwise have been the case, pork prices should edge up a bit. That should coax more production out of the industry which will tend to depress prices. On balance I expect no price impact as most likely result, with very modest price increase the other reasonably likely result. Either will probably be swamped by routine volatility and our idiot ethanol policy.

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Posted by John WR on Monday, June 3, 2013 8:56 AM

daveklepper
As a Rabbinical student in an Orthodox Yeshiva, I simply wish to point out that any food container, regardless of what it has been previously used for, can be made Kosher by thorough cleaning under the supervision of a qualified Rabbi.  

Dave,  

Like Greyhounds, I too appreciate your explanation of how items used in food handling may be made Kosher.  But I am a little confused and I hope you will take a follow up question.  

In a previous post the point was make that a Kosher household must have two separate dishpans, one for meat dishes and one for milk dishes as well as two separate sets of cookware for cooking meat and milk dishes.  Yet when it comes to commercial situations, it seems one set of implements and containers will do and this is true even when switching from pork to kosher products.  As I understand it, a refrigerator car may be used to ship pig carcasses, throughly cleaned under the supervision of a qualified Rabbi, and then used to ship Kosher beef.   

So why can't a housewife simply wash her meat dishes, throughly clean her dishpan and then use it for her milk dishes?  Or am I missing something?

John

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Posted by BroadwayLion on Monday, June 3, 2013 9:09 AM

China, like the former Soviet Union has a basic infrastructure problem in agriculture. The farmers do not own the land. They do not own the means of production. Where is the profit for the farmer.

In the USA, Ag is big business with small people (for the most part). The farmer owns his land, he owns his machines, he must borrow the money to grow the crops, and he gets paid once a year.

In China the State owns the land, the machines, and to some extent the farmers them selves. There is little incentive to produce, and things are awkward to say the least. People leave the rural areas for the cities where they can find jobs, not at all unlike the USA in the '30s. But in the USA, those who as remained on the farms owned the land and the equipment. We do have farm subsidies and that is a mixed blessing/curse, but if the farmers make money, and the people in the cities can afford to eat, then I suppose that it is working. Is it working in China? That is yet to be seen.

In the meanwhile, China holds many US Dollars, and there is no better place to use them than in the US. The Japanese got stung big time playing that game. Maybe China can do it better, maybe they cannot, but China is in many ways a perfect fit with the US economy.

So put that on your train and run it out to the west coast.

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Posted by Dakguy201 on Monday, June 3, 2013 9:52 AM

Murphy Siding

     Wouldn't it be more cost effective to ship the grain to China, and do the hog raising and pork processing there? 

To take that course of action may drive up your total costs.  The reason is something called the feed conversion ratio of animals raised for food.  It is an expression of how many pounds of feed are required to obtain a pound of gain in animal weight.  Obviously, the ratio varies with the quality of the feed, but as a generalization it is around 3 to 1 for corn fed pork.  Moreover, that is measuring the total weight gain of the animal, not the chops, roasts or belly portions that are most in demand.

Some offset of that disadvantage occurs in the corn shipment requiring much less stringent shipping methods, but the history of the packing industry in the past half century has been one of moving the plants closer to the producer.  That logic applies to raising the animal close to the source of the feed.

 

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Posted by schlimm on Monday, June 3, 2013 10:02 AM

That all started changing over 30 years ago.  The first beneficiaries of moving to a mixed economy under Deng Xiao Ping were the farmers, who have long-term land use rights (30 year) and decide what to grow.  They also can sub-lease land out to developers or large-scale farming groups for profit  One look at the new houses they built and you'd understand.

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Posted by Murphy Siding on Monday, June 3, 2013 11:48 AM

Dakguy201

Murphy Siding

     Wouldn't it be more cost effective to ship the grain to China, and do the hog raising and pork processing there? 

To take that course of action may drive up your total costs.  The reason is something called the feed conversion ratio of animals raised for food.  It is an expression of how many pounds of feed are required to obtain a pound of gain in animal weight.  Obviously, the ratio varies with the quality of the feed, but as a generalization it is around 3 to 1 for corn fed pork.  Moreover, that is measuring the total weight gain of the animal, not the chops, roasts or belly portions that are most in demand.

Some offset of that disadvantage occurs in the corn shipment requiring much less stringent shipping methods, but the history of the packing industry in the past half century has been one of moving the plants closer to the producer.  That logic applies to raising the animal close to the source of the feed.

 

  I see what you're saying.  It's probably a lot less effort and expense to ship pork chops and weenies, (the finished product)  that to ship grain (the main raw ingredient).

     Raising animals close to the feed- yup, right over the fence in most areas.

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Posted by Anonymous on Monday, June 3, 2013 12:29 PM

The only economic advantage that I can see for China to buy U.S. pork is short term in that they simply don’t have the current supply to keep up with their economic growth.  But they will get the ability to create their own supply soon enough. 

And when they do, there is no way that pork produced in U.S. plants will be able to compete with that produced in Chinese plants, no matter how efficient we think we are.  There is an obvious pattern to China’s competitive advantage taking manufacturing out of the advanced countries.  And there is no way that buying pork from the U.S. fits that pattern.

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Posted by Norm48327 on Monday, June 3, 2013 12:55 PM

News items I have read in the recent past have shown pictures of dead hogs floating in the river through Shanghai. Tells me something may be amiss in their agricultural system.

Norm


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Posted by edblysard on Monday, June 3, 2013 2:18 PM

From an article in this month’s Forbes, KCF and other chicken sellers in China have devalued by 30% and up due to the bird flu scare, most chickens in China are raised on small local rural farms, and KCF was purchasing locally.

As for the floating pigs, the article surmised they were dumped by the local farmers after they died from diseases and such, again most pork products are locally produced in small numbers.

That river is the tap water source for many cities to boot!

The reasons vary, but one of the main ones is that by buying pre-processed products, most of the food chains and markets are in essence buying America’s efficiencies and cleanliness standards which apparently the average Chinese consumer is willing to pay for that.

Also, as was pointed out, the infrastructure to support a large scale agri- business isn’t there, keep in mind until less than 10 years ago, China had almost no “highways or freeways” anywhere close to those in other developed countries.

I just finished watching a Modern Marvels program about infrastructure here and abroad, and part of it concerned itself with freeway design, the story noted that the average Chinese citizen up until the last 10 years or less, have never driven a car, most drivers licenses issued there are less than 5 years old…in some cities, you have to bid money on a lottery system in order to purchase license plates and register an automobile, upwards of twice the cost of some of the new cars being registered!

An American company is working with the Chinese government in designing the highways being built now, and most existing highways, as we comprehend them, are also less than 10 years old.

Remember, these folks used steam up until recently as their major main line railroad motive power

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Posted by Firelock76 on Monday, June 3, 2013 5:41 PM

Thanks for your support Dave!  If yourself or anyone else wants me to post the "little green men"  joke again I'll gladly do so!

La Chaim!  (Did I spell that right?)

Wayne

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Posted by greyhounds on Monday, June 3, 2013 8:11 PM

Los Angeles Rams Guy

If this whole thing comes to fruitition as Greyhounds has broken it down, it may not only open up several opportunities on the intermodal front but I also can't help but wonder if it just may open up an opportunity for the railroads to move these hogs to slaughter to the North Carolina facility.

I doubt it.  If I ever had a "mentor" it was Al Watkins.  Al had been there since near the beginning of intermodal.  He started by working as a North Shore trainman on their intermodal runs between Chicago and Milwaukee.  He then moved to the Erie where he helped write their first intermodal tariff.  Then the C&EI where he helped get intermodal going.  (The C&EI was the route to/from Chicago for the L&N and the MP.)  He was in charge of intermodal pricing at the ICG when I showed up.

He once told me:  "The two most difficult things in the world to transport are ice cream and live animals."  Al knew what he was talking about.

It's best to move livestock as little as possible.  They get stressed and/or hurt.  You can't slaughter a "downer" (animal off its feet) for human consumption.  The stress can cause weight loss and even change the flavor of the meat.  That's why the hog packing plants are centered in and around Iowa.  Iowa has the grain for feed and the room for the hogs.  The live hogs don't have to be moved very far - and that's a big plus.  The large Smithfield plant in North Carolina also draws on locally produced hogs and I don't see that changing.   We kill these animals for meat.  But we do have an obligation to treat them humanely and do the killing as humanely as possible.

As for this deal leading to the importation of Chinese produced pork with Smithfield brands, I don't see that either.  The imported meat would have to be clearly labeled "Smithfield - Product of China".  That would greatly devalue the brand in the US.  The Chinese company didn't pay $4.7 billion for a brand name only to destroy the brand's reputation.

As Ed mentioned, China has a real infrastructure problem.  It's huge population is concentrating along its eastern (Pacific) coast.  Their freight rail and roads are inadequate to handle the load.  It will be far more efficient to use the "Best in the World" US rail freight system to move pork to a port, then put it on a ship that will dock at one of China's huge port cities.

Nobody can see 50-60 years into the future.  But I don't see the probability of significant Chinese meat shipments to the US.  Their population wants a better life.  That better life includes a better diet.  They need all the pork they can get and the more they source pork from here the better off we all are.  The US railroads can well benefit from this, if they do wake up and smell the bacon.

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Posted by Bonas on Monday, June 3, 2013 9:45 PM

All this pork cant be healthy...most livestock is finished by corn and with GMO tainted corn who knows what can go wrong. We already have diebites problems caused by corn and corn syrup and starches

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Posted by John WR on Tuesday, June 4, 2013 8:15 AM

Bonas
All this pork cant be healthy.

True enough, Bonas.  But this website is still about trains.  Any kind of food produced in large quantities has to be moved.  One this railroads are particularly good at is moving heavy bulky loads of stuff.   For example,  corn, wheat and soybeans.  These are basic commodities used all over the world and America raises a lot of them.   Moving them by rail in the US began in the mid 1840's when Britain repealed its corn laws and we began to ship wheat there.  It has been going on ever since and I don't expect it to end.   With China the demand can only increase.  

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Posted by daveklepper on Tuesday, June 4, 2013 9:41 AM

If a housewife wishes to use a glass or stainless steel or silver or copper or highly glazed ceramic dish food implement that has been used for milk to be used for meat or visa versa, she can insure it is clean and then submerge it in boiling water for one hour or take it to a ritiual bath ("Mikvah") and submerge it there.

The same procedure applies for using such food implements during Passover if they have been previously used for meals and other food with bread.

With a restaurant or cafe, inspection by a Mashgiya is required because it is no longer a private matter but a public one.

I am a vegetarian (as well as "Kosher") and there is no meat or meat implements in my apartment.   And I do regularly use the procedure before Passover. 

The exact procedure for a freightcar or truck or airplane interior may be somewhat different.   But wagons hauling food existed in Moses's time, and I am sure the Mashgiyyim (plural) have parallel time-honored procedures.   It is a specialty.

And if someone wishes to operate a Kosher dinner train with a vintage dining car, it should be perfectly practical to do so.   I think one running to Albany from Penn Station and back or from GCT to Poughkeesie could be a winner.   On the return the Rabbi would give a lecture.

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Posted by Andrew Falconer on Tuesday, June 4, 2013 11:36 AM

This will require more refrigerated containers to be put on a ship to China.

What can be hauled back to the USA in the containers that will be sanitary?

Andrew

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Posted by BroadwayLion on Tuesday, June 4, 2013 11:46 AM

Andrew Falconer
What can be hauled back to the USA in the containers that will be sanitary?

Flowers.

China and several other countries ship flowers to the USA because we pay more for these than other people pay for wheat or rice. Farmers USA or China go where the money is, although I presume they ship flowers by air.

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Posted by Anonymous on Tuesday, June 4, 2013 12:06 PM

Just to be clear, I don’t expect China to acquire Smithfield and immediately begin importing Chinese pork to the U.S.  I agree that would be a disaster for their acquisition of Smithfield.  But in the long run, some degradation of the Smithfield brand might be an acceptable price to pay for boosting the Shuanghui brand in China.  

It depends on what China is seeking with the acquisition.  On the face of it, this is China outsourcing pork supply.  At a deeper level, this is China acquiring the technology to improve their own pork production.   At still another level, this is China improving the brand of Shuanghui.  I doubt that outsourcing is in the long range plan of China.   

Short of actually importing Chinese pork, I don’t know how much impact China’s mere acquisition of Smithfield will have on the Smithfield brand.   But it won’t take long to find out.  Just Googling around, I see that the issue of food safety related to the Chinese reputation is an obvious concern voiced about the Smithfield acquisition.  

There are people who say it won’t make any difference because Smithfield will still be operated under the terms of U.S. regulation.  In that sense, it may be a totally unwarranted fear.   But regulation is not the only thing that shapes a company.  Ownership counts too, and people instinctively know that.   Brand is a matter of perception and trust, and reputation is about all a consumer has to go by.  

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Posted by John WR on Tuesday, June 4, 2013 1:14 PM

Thank you again, Dave.   

I can see that two dishpans is a lot simpler than boiling everything for an hour.  If you ever give a lecture on a dinner train or anywhere else in New Jersey let me know and I'll come.  

John

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Posted by edblysard on Tuesday, June 4, 2013 4:22 PM

Not sure if it was made clear in my postings, but China didn’t buy Smithville…

Shuanghui did, and they are a food distributor in China.

Nothing in any of the articles I have read mentions them importing anything into the US.

The sole purpose of their purchase was to secure a steady constant supply of quality pork to distribute to restaurants, food markets and fast food franchises, their three major customers.

Wall Street market analysts, The US Department of Agriculture, Bloomberg Businessweek Magazine, Forbes and oddly, the Chinese Ministry of Agriculture all predict a severe shortage of domestic pork and pork based products within the next year, as well as the current consumer shortage of chicken.

Shuanghui is simply positioning itself to be able to maximize its profits and dominate the supply chain when this shortage occurs.

Certain segments of the Chinese bureaucracy have taken to capitalism quite well, and the importation of American food product there is nothing new.

China has been struggling to feed itself for the last half century.

There are a few of us “older” forum members who remember one of Richard Nixon’s major accomplishments being the opening then “normalization” of trade with China…and most will remember one of the first major items we exported to them was wheat…food if you will.

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Posted by Anonymous on Tuesday, June 4, 2013 5:34 PM

edblysard

Not sure if it was made clear in my postings, but China didn’t buy Smithville…

Shuanghui did, and they are a food distributor in China.

Nothing in any of the articles I have read mentions them importing anything into the US.

I only say that China bought Smithfield as a kind of figure of speech because China is the larger entity that makes the deal unique.  And I realize that nobody involved with the deal has said that Chinese companies intend to export pork to the U.S.  I certainly don’t expect them to do that for a long time, if ever.  If they did it immediately, I don’t think it would work.  What I see as significant is the potential effect on the Smithfield brand simply due to the purchase by a Chinese company.  That will be interesting to watch. 

I remember that there was a recent plan to export U.S. chickens to China, so they could process them, and then export them back to the U.S.  What ever happened with that?

http://money.cnn.com/2006/05/19/news/international/china_chickendeal/

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Posted by BroadwayLion on Tuesday, June 4, 2013 5:44 PM

edblysard
There are a few of us “older” forum members who remember one of Richard Nixon’s major accomplishments being the opening then “normalization” of trade with China…and most will remember one of the first major items we exported to them was wheat…food if you will.

I am not sure when the sift to spending US money overseas occurred, but there was a time when money was not supposed to leave the country at all. If you wanted a boat load of beanie babies from China you went to a US firm called a "factor" and gave them your money. They used it to buy, say pigs, and send the pigs to China in return for your beanie babies.

Somewhere along the line we just started doing the same thing with money, and Japan and China began to get all of our cash.

Correct me if I am wrong, but I do believe that is was how things used to be done long, long ago.

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Posted by edblysard on Tuesday, June 4, 2013 5:51 PM

 

I got it that you got it but not sure others got it…get it?Stick out tongue

The melamine scandal and the new “bird flu” have just about killed all plans to import foodstuffs from there.

 

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Posted by edblysard on Tuesday, June 4, 2013 6:04 PM

I am with Ken on the car loading growth effect…

Cryogenic containers or refrigerated containers from the initial packing plant to LA, boat to China.

Arrives China, emptied, washed, and repacked with pretty much any bagged or packaged product you choose, send the container right back.

With the cyro boxes, no issue at all, with the refrigerated box, you can flip the switch…either way; a box is just a box for the return trip.

While not creating a tremendous uptick in loadings, I can see where both BNSF and UP could build solid “reefer” trains again, and run them at a slightly more premium price.

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Posted by jeffhergert on Tuesday, June 4, 2013 6:32 PM

edblysard

Not sure if it was made clear in my postings, but China didn’t buy Smithville…

Shuanghui did, and they are a food distributor in China.

Nothing in any of the articles I have read mentions them importing anything into the US.

The sole purpose of their purchase was to secure a steady constant supply of quality pork to distribute to restaurants, food markets and fast food franchises, their three major customers.

Wall Street market analysts, The US Department of Agriculture, Bloomberg Businessweek Magazine, Forbes and oddly, the Chinese Ministry of Agriculture all predict a severe shortage of domestic pork and pork based products within the next year, as well as the current consumer shortage of chicken.

Shuanghui is simply positioning itself to be able to maximize its profits and dominate the supply chain when this shortage occurs.

Certain segments of the Chinese bureaucracy have taken to capitalism quite well, and the importation of American food product there is nothing new.

China has been struggling to feed itself for the last half century.

There are a few of us “older” forum members who remember one of Richard Nixon’s major accomplishments being the opening then “normalization” of trade with China…and most will remember one of the first major items we exported to them was wheat…food if you will.

One article in the Des Moines Register mentioned one reason Smithfield was purchased was because of it's brand, but for the Chinese market place.  It seems that some of the domestic Chinese companies have a less than stellar record on quality and an American brand is thought to sell better over there.  So I doubt the Smithfield brands will go away, here or there.  Or that it's a scheme to open the door for importing meat from China.

Another article on "Perfect Foods," those that are supposed to be better for us, says Pork tenderloin is as lean as a skinless chicken ***.

Jeff

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Posted by Anonymous on Tuesday, June 4, 2013 6:47 PM

jeffhergert
One article in the Des Moines Register mentioned one reason Smithfield was purchased was because of it's brand, but for the Chinese market place.  It seems that some of the domestic Chinese companies have a less than stellar record on quality and an American brand is thought to sell better over there. 

That is exactly the point I have been making.  Except, I also believe that there will be a counter effect of using the purchase of Smithfield to boost Shuanghui.  I think it amounts to a balancing of brand capital.  One goes up and the other goes down.  The Chinese market will welcome the Smithfield reputation, and the U.S. market will worry about the Shuanghui reputation.   

It would be entirely different if China simply bought the pork from Smithfield.      

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Posted by greyhounds on Tuesday, June 4, 2013 9:41 PM

Andrew Falconer

This will require more refrigerated containers to be put on a ship to China.

What can be hauled back to the USA in the containers that will be sanitary?

Andrew

The reefers can (and will) come eastward across the Pacific with "dry" loads.  A dry load is freight that does not need refrigeration. 

It's common to put dry loads in refrigerated equipment so the equipment can be returned under revenue load. 

Example:  UPS has a sort facility in Sioux Falls (or they did).  They would use their Martrac reefers in TOFC service to move packages to Sioux Falls from Chicago.  The refrigeration systems would be turned off westbound. 

Once the trailers were made empty out there in meat packer land they'd turn the refrigeration units on and get a load of meat bound for the east coast.  Then the trailers would move in TOFC service with a refrigerated load.  You cannot get to 0 empty, non revenue miles.  But it's best to minimize those miles.

The containers that carry US pork to China will return with bicycles, clocks, lamps, whatever.  Not a problem.

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Posted by jeffhergert on Wednesday, June 5, 2013 12:56 PM

Bucyrus

jeffhergert
One article in the Des Moines Register mentioned one reason Smithfield was purchased was because of it's brand, but for the Chinese market place.  It seems that some of the domestic Chinese companies have a less than stellar record on quality and an American brand is thought to sell better over there. 

That is exactly the point I have been making.  Except, I also believe that there will be a counter effect of using the purchase of Smithfield to boost Shuanghui.  I think it amounts to a balancing of brand capital.  One goes up and the other goes down.  The Chinese market will welcome the Smithfield reputation, and the U.S. market will worry about the Shuanghui reputation.   

It would be entirely different if China simply bought the pork from Smithfield.      

I bet the average consumer won't realize that Smithfield family of brands will be owned by a foreign company.  How many of us would have noticed this if Greyhounds hadn't started this thread?  (Or given it much thought if we had?)  My local media, mostly print, has had a few items on this, but I live in Iowa, hog country.  National media may have had an item when it was first announced, but have they gave much coverage since?

Any back lash that they may get will probably be because of a special interest group using social media (sensationalizing innuendo and half truths) to influence the general population.  This happens from time to time.  It will also be less because they are Chinese owned, but more because they raise hogs in confinements and then slaughter them for food.

Jeff 

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