What Roasters Should Know about Ongoing COVID Freight Impacts, Costs, and Congestion
By Jodi Louws
COVID freight impacts continue, and even seem more severe at this time than they did in early 2020.
- We’re seeing export delays, longer shipment times and transshipment delays, container shortages, labor shortages, and increased costs.
- Expectations are that 2021 will continue to present challenges for timely delivery of coffee imports
- Roasters are advised to
- Check their inventory outlooks and book spot coffees to hold over short positions. Our fresh Southern Hemisphere coffees make great winter substitutions for delayed spring and summer arrivals.
- Mitigate future delivery scarcity by contracting high demand coffee in advance.
- Be prepared to be flexible with anticipated arrival dates and get creative with your offering sheets.
For Royal Coffee’s business, our areas of greatest impact center on spot freight rates from Indonesia and India. We also continue to see long delays at transshipment ports, as well, especially in Asia, but even Cartagena (a busy Colombian port sorting Atlantic coffees for Pacific destinations, and vice versa) continues to be impacted.
In normal business, Royal annually renews global service contracts with multiple steamship lines, locking in anticipated freight costs for periods up to one year. These contracts commit the steamship line to a price on each listed route, but they do not commit them to providing space on vessels. When shipping prices rise over our contracted rates, the steamship lines are free to prioritize space for shippers paying higher prices.
In normal years, there is sufficient capacity available at contracted rates. This year, spot freight rates out of Indonesia and India have risen 300% above what we contracted at the beginning of the season. Space is available only 3-4 weeks after requested, and bookings are regularly rolled to the next departure as vessels are overbooked. We are instructing our shippers to ship with whatever line they can get a booking with. At times, we can pay our contracted rate plus an additional “booking security fee,” other times we are committing to spot rates to get a shipment moving. The net result are shipment delays and higher costs.
Many freight rates are renewing on the 1st of January, others will renew in April and May. We expect moderately higher pricing across the globe in the coming months. Unfortunately, rates could be up to four times higher for containers originating in India and Indonesia.
Why is this happening? The general interpretation is that steamship lines over-estimated COVID impacts on shipment volumes and reduced capacity in ways they cannot quickly undo. Shipping patterns in other industries have also altered considerably in ways the steamship lines were not able to anticipate. The sector has been accused of profiting from the price increases, thereby lacking the motivation to accelerate readjustments. Ultimately, the full impact of the pandemic on global economies and shipping patterns is still unfolding.
Additionally, Chinese exports are booming, leading to a huge demand for empty containers in China and causing shortages in other ports. At times we can substitute a 40’ for the standard 20’ box at no extra cost or delay. Other times, we become restricted in our carrier and cost choices when our preferred carriers have no containers available to ship. This may continue to be an issue leading to higher costs and delays as Central American volumes ramp up.
Our truckers working in the Port of Oakland are warning of challenges ahead locally as well. There is a labor shortage related to COVID impacts at the port. This is contributing to congestion during the current shipping season. Our import volume is relatively low at the moment so we’re only seeing a little impact. However, the port will see a boom prior to, and then more significantly after Chinese New Year February 12. This normal congestion is expected to be exasperated by COVID related labor shortages which seem unlikely to resolve by the holiday and will likely bleed over into the beginning of our busy arrival season.
In summary, we are not yet anticipating smooth sailing for our 2021 coffee shipments. We’re doing everything we can to continue to secure timely bookings and mitigate increased expenses, but don’t be surprised by continued delays and higher costs.
Finally, don’t hesitate to contact your trader to discuss, troubleshoot, and quote as we navigate these challenges with you.