By Jodi Louws with Charlie Habegger and Bob Fulmer
Global shipping delays and costs are still rising. Since October, we’ve seen consumer spending propel Chinese exports to epic highs. The TransPacific trade has been a vacuum drawing on the global supply of containers and vessel services. This demand, combined with COVID-related labor shortages, congestion, and delays at global ports, have triggered spot freight rates on TransPacific lanes to triple or quadruple. Meanwhile, service reliability is low. According to research firm Sea-Intelligence ApS, only 45% of global shipments are arriving on schedule.
Disruptions to shipping capacity and timing always have some effect on coffee availability and price. This article is an explanation of one foreseen variable in 2021 global coffee price volatility: namely, that COVID’s effect on global shipping will likely impact the cost of green coffee by a degree, as well as continue to cause supply chain delays. Please read on for up-to-date coverage of global disruptions in shipping. As always, if you have any questions about specific coffees, please contact your trader or email firstname.lastname@example.org.
The intense demand from China for empty containers has sucked up supplies from Central and Latin America. Container shortages in ports such as Puerto Cortes, Honduras, and Caldera, Costa Rica, cause shipping delays. Generally, the carriers offering the lowest rates run out of containers first. The remaining lines quickly run out of space and shippers turn to higher cost carriers or spot rates to get their shipments out. In this way, Central and Latin American costs and delays are rising simultaneously.
Established shippers, Royal Coffee included, use service contracts with carriers to lock in annual rates and forward pricing. In typical years, spot freight rates might align at a moderate premium to annual contract rates. Since October 2020, however, spot rates on some lanes have exploded, disconnecting from the usual continuity with annual contracts. Annual contracts are under renewal this spring, and the high spot market prices are setting a higher benchmark for the annualized rates. Asia Pacific spot rates are up 300-400%, and global contracts are up 30-50% overall.
In typical years, we expect the steamship lines to reserve most of their capacity for contracted shippers shipping to forecast, with the remaining capacity filled by variable shippers booking on spot quotes. In Asia now, demand for bookings (mostly from contracted shippers exceeding their forecasts) is overwhelming this system. Even shippers with annual contracts are turning to the spot market to fiercely compete for premium space.
This situation is affecting coffee shipments around the globe. From Indonesia and India to the US Pacific Coast, shipments are delayed 4 weeks or more, often citing “lack of space on connecting vessels.” This essentially means steamship lines have reduced volumes from smaller ports such as Belawan, Indonesia, in favor of greater volumes from China.
From Belawan, shipments to US West Coast destinations are favored for more quickly returning containers back to China. Indonesian shipments for the East Coast and inland destinations are exceptionally hard to book. We have seen delays exceeding 8 weeks.
African coffees headed to the US West Coast transship in Asia and will see higher costs and greater delays this spring as a result.
Royal is tracking all scheduled shipments weekly and updating any shipment delays from origin. Adding to delayed ETAs is congestion at US ports, which is unfortunately also at a record high. The consumer goods boom has increased imports at Port of Los Angeles by 23%, and 26% at the Port of Long Beach. At the same time large numbers of the workforce are out of service due to COVID infection or quarantine. Mid–February there were over 20 containerships at anchor in San Pedro Bay, down from a high of 40 containerships February 1. These delays are adding 4-15 days to many ETAs for Royal Coffee shipments into Oakland.
As shippers and carriers try to manage delays in LA, more ships and cargos have been directed to Oakland and Seattle. At times congestion in Oakland causes ships to delay at anchor in San Francisco Bay. Projections that retail goods will continue to set import records through mid-year indicate that delays and increased costs will continue to impact green coffee imports.
3 Takeaways for Green Coffee Buyers and Roasters
From our cofounder, Bob Fulmer.
- The cost of freight is built into cost of green. Right now rates seem to have climbed at least 10 cents per pound. 20 cent conversions are now 30 cents, which is a new high, so coffee will cost a bit more regardless of producer selling prices.
- Many ETA dates are being updated with arrivals two to four weeks later than expected. This is bound to upset roasters caught short. The options of replacement to cover any gaps in coverage might be limited, and the coffee available on the spot might not be the same as the delayed arrivals. They need to embrace flexibility. This past year has probably been good practice.
- Potentially the most disappointing effect of long delays will be the impact to coffee quality. We have already received Sumatra that have aged prematurely. GrainPro bags can offer only so much protection. Expect some roaster disappointment.