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Hello friends, coming to you with our final quarterly origin and shipment update of the year as we enter the home stretch of 2021. This report will cover some broad strokes and some details in all the origins in which we work, whether their coffee is on the water, heading to the mill, in harvest, or still looking towards its next flowering.
To summarize, a key factor we’re continuing to see broad and escalating effects from this quarter is the global shipping crisis, which has continued to compound as the holiday season approaches and is not expected to resolve until Q1 2022 at the very soonest. On top of that, the C market has been driven up to levels not seen in a decade since frosts in Brazil drove down harvest estimates. Adding to reduced harvest outlooks in Brazil, Colombia suffered the dual factors of civil unrest and heavy rains leading to a much-reduced harvest, with those shortages putting added upward pressure on prices in Peru as large sourcing groups struggle to cover their contracts. The C market’s meteoric rise, while beneficial to producers, has created sourcing and quality challenges at the cooperative and producer association level across South America. At the nexus of the C market rise and the global shipping crisis we’ve seen another supply and demand issue heat up: labor shortages and space shortages leading to rising costs of doing business in the logistics sector, from ports to trucking to warehousing and beyond. More detail on all of this, in general and origin by origin, below.
Logistics, Port, & Warehouse Updates
We’re in constant conversation with logistics partners domestically and globally, and from what we and they are seeing, the global shipping logistics crisis is still deepening (and further jams expected as the holiday season approaches) with resolution not anticipated until at least Q1 of 2022. Capacity is still down on ships, at ports, and on trucks, labor shortages are a huge issue, and all costs are up. By all accounts, moving coffee from place to place in a timely fashion is as hard as it’s ever been. Below are some comments from some of our logistics and warehousing partners.
The most important domestic USA shipping news is that capacity is still very tight and carriers are struggling with staffing and moving all the cargo they are asked to. As a result, rates are climbing and carriers are being very assertive in charging for all the services they perform. This is expected to continue at least through the first quarter of 2022.
From Continental NJ Warehouse:
The amount of pallets that we ship out on a given day has doubled and we also see the carriers having a hard time keeping up with capacity. No matter how we plan it just seems like there is not enough time to complete everything, and when we do the carriers don’t show because of capacity issues, which leaves us in a bind because now we have a glut of pallets sitting on the floor taking up space, which limits our ability to prepare new pallets to complete orders. Warehouses and carriers are both having labor capacity issues—can’t hire enough people to get all the work done.
From DuPuy Houston Warehouse:
The ports have been extremely congested these past few weeks and it has caused delays on the containers being delivered. Standard freight shipping is the same, the carriers have been good about coming for their daily pickups.
From Continental Annex Warehouse:
- Nearly 200,000 drivers did not come back in to the industry following the lifting of some pandemic and quarantine regulations. The shortage of drivers has created a major logjam at many terminals—the carriers do not have staff in the terminals and are short drivers so this will lead to (and we’ve already seen) increased transit times, damages and freight rates for some lanes have already tripled.
- Some carriers have instituted embargoes and no longer accept freight into some of their own terminals while they attempt to clear the backup.
- The driver situation goes all the way from the port down to local bus drivers—carriers are taking any driver with a clean record but we have seen that there is minimal training, they just throw them out there, often our check-in desk has to instruct them how to properly sign paperwork and handle the pro stickers, etc.
- As for the Port, most ports are working about 3+ weeks behind at this point, so vessels are being held outside the port until the port can schedule the boats in for unloading. As a result of that backup, many goods are not being shipped since there are no empty vessels to go back out.
- The same goes for rail—we have had rail shipments be rescheduled over 7 times because no driver to haul it, so since it doesn’t get brought to our location to unload, there are minimal empties available for new loads. Every delay compounds another aspect of the moving of freight and even though the delays have no real culprit and there is little we can do about it, the detention and demurrage structure of fees is still adhered to—so even though the port cannot give you an appointment to pick up your container for say 6 days, they still begin the count on the free time allowed.
- Ultimately every single company or service involved will have no choice but to review and hike their prices to survive and it is very likely that there will be multiple increases before this all clears out, then for the roaster-buyers, they must pay attention to the increase in transit time, particularly as the holiday seasons begin. If they have room, it would be very wise to get stock in their locations so delays create minimal disruptions and of course, they will have to increase their pricing structure.
- We are directly across from the “receiving” end of the port and the boats keep coming, so we do not expect this to clear for several months.
- SO longer transit times, much higher costs, longer delays for new inbound inventory, more damages/freight mistakes by carriers with unskilled employees… that’s where it is right now. I have been in this business a while and have never seen anything like this before.
If anything, since the last couple of months, the situation has worsened. Domestic trucking rates are through the roof and capacity issues are becoming the norm. We have some warehouses that will email us a couple of days before containers are supposed to arrive at port saying they won’t be able to pick up before the last free day occurs. They are blaming this on slow turnaround times at the port, and fewer drivers on the road. The demand is high, but the supply of truckers and workers is low.
On the west coast vessels are sitting off the pier of Los Angeles/Long Beach and Oakland for as long as 2 weeks. They are taxiing on the water waiting for the longshoremen and the port to clear prior vessels. This is causing a dramatic increase on transit times going to the US West Coast.
Peru, Brazil and Indonesia are the 3 biggest problem areas right now. Container allocations and sea shipping lines not having a regular schedule is making it almost impossible to even ship out of those countries.
Supply, Demand, & The C Market
Even as we’ve covered several aspects of how the global shipping crisis is affecting logistics, these complex dynamics have created interlinked supply and demand issues that we expect to see for months to come. Working backwards, diminished manpower in ports (specifically on the West Coast) has left vessels anchored off the docks for upwards of multiple months. This has led to decreased vessel availability from port of origin to certains destination ports as the vessel carrier lines themselves refuse to have their ships unavailable for months on end. Adding to the mess is a general lack of container availability in ports of origin as well, causing a huge cost increase as exporters battle with each other to get their coffees afloat. We are paying upwards of 50% more per container than we have in year’s past with the vessel carrier lines now holding all of the cards.
Starting in July, we began seeing reports of poor weather in Brazil, the largest producing country of Arabica in the world. Crop estimates came out suggesting the total crop would only be 35 million bags, down from 50 million bags the year prior. During the same period, the Brazilian Real (currency) strengthened against the US dollar, increasing local production costs and adding even more upward pressure on coffee futures. The C market responded with a massive increase against the December 2021 trading month from 159.35 on 7/19 to 196.60 on 7/22. US green coffee stocks are also running low due to port congestion and supply chain disruptions, exacerbating the situation. The C Market held under $2.00/lb through September though immediately broke through that barrier on Friday, 10/1 closing at 204.05.
The C Market has hit near 10 year highs, forcing us to ask how long it will last and to make necessary preparations. Are cost increases across the supply chain here to stay? As we’ve talked about extensively elsewhere, no one works outside the C market entirely, even as our focus has always been on paying prices that are consistent, based on clearly communicated standards, and typically do fall far above the C market especially during its long plunge over the last several years. With that said, when the price skyrockets for undifferentiated coffee, we still need to adjust our pricing to make sure those who benefit from our pricing during low C market years benefit equally during this spike. Considering all that, our acquisitions team made the decision to increase our base price across Peru entering the 2021 harvest. With Colombia in disarray, parchment prices in Peru soared to record levels beginning in June and continuing now as the harvest hits its downward slope. Fortunately, we are well positioned with the coops/producer groups due to strong relationships developed over the years from our base in Lima.
Aside from all the other logistics havoc Covid is causing, it also continues to cause crippling labor shortages at every step of the supply chain. We notice this most acutely at the mills and ports, but even from farmers directly where harvesting with smallholder farmers is often an extended familial procedure.
We’re seeing costs on the supply side increase across the board, which will equate to all roasters, including the largest ones, dealing with their own increased set of costs. While large companies like Starbucks that lock in contracts far in advance haven’t yet been hit by the price rises that smaller and leaner companies are already seeing, even they will eventually be affected by the increase in C market and coffee prices as a cost of goods. Looking at them as a case study, Starbucks’s share price is still sitting more than double where it was in March of 2020 and the company continues to exceed earnings forecasts. Once they reach the point where they need to pass on their increase in cost of goods to the consumer, earnings reports will show us how elastic their customers are, but one way or another, we expect that coffee consumers will see these costs increase even in the large specialty/high-end commodity tier through at least Q1 of 2022 with an impact on consumer prices through 2022. We’re hearing from buyers at larger-midsize companies we work with as well that price rises are either imminent or already happening. So while it may not be an ideal situation, we’re all in it together.
Political instability was one of the hallmarks of Q3 in Peru, but Q4 is looking smoother. In July, the newly elected president, Pedro Castillo, was sworn in. The transition of the new government began with some early turbulence as it faced challenges to consolidate a cabinet of ministers. Due to political instability, the dollar rose against the national currency. Since the first presidential runoff in April 2021, the exchange rate increased by 13%. During this last month, it’s stabilized somewhat. As far as Covid, the vaccination plan has been successful with massive vaccination campaigns in the capital and other cities. Current estimates show over 9.3 million inhabitants fully vaccinated, about 28% of the population.
Coffee season in Peru is at its peak. The harvest is wrapping up in the north, the Selva Central, and parts of the south of the country, while the highest altitude farms in Cusco and Puno are at peak harvest. Our QC and logistics teams are in full swing. The lab crew in Lima cupped through 689 offer samples representing 6,800 bags of exportable coffee thus far, with new samples arriving in the lab each week. We milled our first lots in August, and our first container has already arrived. There are another 12 containers shipping or booked to ship in October.
We were unsure of what to expect on both the volume and the quality fronts as we headed into the 2021 season. Coffee prices in Peru have been on the rise since May, with producers accessing record high upfront prices for wet, unselected parchment. This purchasing system is very different from that of the producer organizations Red Fox works with, where coffees undergo a physical evaluation to make sure they are adequately dried and meet minimum yield requirements, and pricing is based on preset cup quality standards. Also, member producers receive a base payment upfront and receive a second payment at the end of the season once the coffee is sold. With such a competitive local market, we were unsure that producers would have the needed incentive to do all of the work that is required, from selective harvesting through to drying and storing coffee properly, to deliver quality coffee.
Heading into the season, we raised our base price across Peru so that producers would receive more than the local market even in this elevated year, but there was still a risk of producer attrition considering our expectations on the quality front and the fact that not all the payment would be upfront. The sourcing team spent the month of July on the road and we were able to visit nearly all of our supplier partners. During meetings with leadership and members, we reinforced our long-term commitment to these relationships and to ensuring a stable market year after year. For the most part, it felt like we were collectively on the same page, and the quality of the offer samples in the lab confirms that: 79% of the samples we’ve received thus far have been approved. There are certainly a small percentage of producers who are selling their coffee to the local market, but the overall volume delivered and quality of the coffee speaks to the commitment of the producers and groups we work with as well as the strength of the sourcing model.
The ports in Peru have been among the hardest hit by the container shortages. In addition to the exorbitant increase in the cost of a shipping container, it is incredibly difficult to get bookings because the demand is so high: coffee is Peru’s number one agricultural export, and every exporter is trying to move their coffee at the same time. We have worked with our logistics partners to leverage their relationships with the shipping companies and are requesting bookings early and often (we made 59 separate booking requests to obtain bookings for our first 15 containers). While coffee is not moving as quickly or as smoothly as in previous years, it is moving, and our first container has already arrived.
As always our producer relationships are at the front of our minds. These middle-supply-chain challenges have an immediate impact on their lives; delayed shipments directly equate to delayed payments from us to the exporter and thus the producers themselves. On top of that, financing costs multiply for both producer groups and producers themselves as these late payments hang in limbo waiting for shipments to leave Ports of Callao and Paita. We use very strict physical protocols like water activity, GrainPro storage for parchment, physical location for parchment storage, and more, though needless to say delayed shipments are a risk on the quality front as well. We’re doing everything we possibly can to minimize these potential impacts on producers, associations, and quality.
It’s been an arduous calendar year in Colombia, to say the least. Between the pandemic hitting new peaks, political decisions leading to nation-wide protests, 90+ day long port closures, and intense peak harvest season rains, almost everything has gone wrong. The FNC (Colombian Coffee Growers Federation) has entered all producing zones with astronomical prices for both wet, unselected parchment and dry parchment. Because of these high prices for any quality of coffee, strip picking has become the norm across the country, creating a very literal lack of supply of high quality coffee.
After an early August field visit with Aleco, Red Fox quality analyst Fabian moved between Inzá and Nariño for the following seven weeks to complete selection on three full container loads that are now headed to port for shipment to Houston and New Jersey. Our offerings will be in extremely limited supply through the season and sold at a premium dictated by the scenario noted above.
From our dry mill partner in Popayan, Frederic Boppe:
Supply: There is little coffee around, so we can’t yet confirm our estimates regarding the upcoming crop. Nevertheless, here is what we can highlight:
- For the 21/22 crop, we need dry weather, but rains might directly affect the mid-crop (4/22 – 6/22) more than the main crop.
- Our crop size estimate remains 12.55m bags, which is about 5% lower than the 20/21 crop. But, we’ve heard from producers that they expect reductions of about 15% in the southern regions of the country.
- We’ve noticed that due to the high prices and producers’ need for liquidity, producers are picking coffee cherries earlier, which brings quality issues such as inconsistency in the cup, primarily a raw astringency.
- The flow of coffee is relatively normal [with coffee moving from the producing regions into the dry mills at a regular pace—effectively, everyone is desperate to deliver ASAP with prices so high.]
- In Nariño, harvest is finishing and we estimate a reduction of 35% of the production compared to last year. Quality has been affected by the high prices (less care in picking and post-harvest processes). Our work in the field with the producing communities is key, directly with producers, to train and share good practices. We’ll wait to estimate the forecast for the next crop until we see the flowering that will happen in October (delayed compared to 2020/2021).
- In Huila, harvest is starting in the southern area and because of last month’s climate conditions, the harvest is not expected to be concentrated as usual and we will have a constant flow of deliveries up to January/February.
Weather: It has been one of the wettest and cloudiest Augusts in the last 10 years. This is not favorable for next year’s mid crop and is delaying the start of the main crop. As a continuation of last month, we are expecting an increase in rainfall between 10% and 60% during September. This is not expected to be favorable for crop potential as it makes the trees more vulnerable to pests and diseases.
Logistics: The logistics situation keeps worsening: lack of food grade containers, few spaces, cancellation of vessels, increases in freight costs, and more. We estimate that the shipment delay is between one and two months. We expect that things will go back to normal in the early months of 2022. Shipping lines don’t have enough containers to cover the needed bookings, which is causing late cancellations. Shipping lines are not adequately communicating the situation of low availability of containers, so pushing to get accurate information is becoming the heart of the work of our logistic team; we are obtaining bookings but they must be requested well in advance, and sometimes encounter changes in programming even when planned well in advance. Buenaventura, Cartagena and Santa Marta are all facing the same issues.
So far so good with Asorcafé in Inzá and your producers of El Tablon de Gomez in Nariño, the operation is running smoothly.
As we said, the above all comes directly from Popayan-based dry mill partner Frederic Boppe.
Harvest in Rwanda is all but finished with most of the country’s coffee having passed through dry milling by now. Overall, volume from this year’s harvest was down about 20% from last year, and prices were high. NAEB, Rwanda’s National Agricultural Export Development Board, set the minimum price for cherry at 243 FRw (Rwandese Franks, the local currency), but competition among washing stations and traders drove prices over 360 FRw, a new record.
Next year’s crop is off to a promising start with the rainy season having begun in early September, triggering flowering for the next harvest. If current weather patterns continue and flowering can be sustained to full fruit, we can look forward to a good 2022 harvest.
While Rwanda saw a surge in Covid cases through the summer along with the re-introduction of restrictions and curfews in Kigali and other departments, cases have been dropping and restrictions have eased. In September, the country hit the target of fully vaccinating 10% of its population, with over 1 million people fully vaccinated, and was recently commended by the WHO for its vaccine rollout.
Moving coffee out of Rwanda this season has been beyond challenging. Containers are extremely limited and shipping lines are cancelling bookings left and right. In the past, relatively quick routes from Mombasa to the US east coast were widely available, but this year all ocean carriers are routing even East Coast-bound shipments through ports in Asia, due to the high demand for moving cargo in and out of Asian ports. This means longer routes with multiple transshipments and greater chances for cancelled bookings and missed connections in over-capacity ports. Certain shipping lines are holding all US-bound containers without any prior notice, others are instituting “no sail weeks” where all vessel departures for a given route are being cancelled for multiple weeks in a row.
We are pushing tirelessly to get our beautiful Kanzu lots afloat in spite of these conditions, but the arrival and availability in the US for these lots is still unpredictable and will be later than in prior years.
Much like what we saw last year in Ecuador, steady rains, overcast days, and increased humidity over the past nine months have considerably decreased expected volume.
In Northwest Pichincha, this means that the harvest is a few weeks from its usual time period for our long-term partners Arnaud Causse, Hernán Zúñiga, and Andrés Dávalos, Mateo Patino, and Gilda Carrascal at 1600 Estate. Despite these environmental setbacks, we hope to start cupping offer samples soon and get coffees moving from Ecuador to the states during the next quarter.
On the Covid front, in late May President Guillermo Lasso announced a plan to vaccinate 9 million people in 100 days. The country successfully accomplished this goal of 9 million vaccinated people on July 31. With an adult population of nearly 12 million people, Ecuador is currently ahead of the US in percent of population vaccinated. Despite the high vaccination rate, masks are still required in all public spaces, outside and inside. Residents have even been asked to wear masks when driving alone in a car. New cases of Covid-19 are at their lowest since March 2020.
From the current crop, we still have two 50kgs bags of washed Typica from Rocio Zamudio at Continental that arrived in early 2021. This lot is a great option for an East Coast customer looking to fill a small espresso slot.
The rainy season across Mexico the past few months has brought stronger rainfall than the last few years—nothing that will have a negative impact, but rather an indication for a stronger harvest overall, especially in Veracruz. Harvest will begin in early December at lower altitudes.
Ernesto Perez from APG coffees in Veracruz is seeing interest and competition already heating up from multinational traders and expecting prices to be significantly higher than last year, since many large buyers who got lower volumes out of Brazil and expect those conditions to persist through next year will look to Veracruz to secure coffees.
Another condition he’s seeing is a national spot deficit for Mexican commercial roasters who recovered after pandemic slowdowns and see increased demand. They’re now trying to import from other countries to fill the gap and finding that challenging for the same shipping and importing challenges facing the world, so that demand will put a lot of pressure on local supply in the coming harvest. Balancing that, he does expect the harvest to be very good due to the biannual cycle, renovations coming to fruition, and the aforementioned strong rains.
Pepe Arguello from Finca Santa Cruz and Cafeco cooperative in Chiapas (who was going for his second dose of vaccine as he updated us) has also noted that the very strong rains this summer will produce a larger crop this year. One challenge he’s expecting is potential labor shortages in the harvest.
In Mexico Covid news, the Delta variant has swept through Mexico as in the US. Just under 96.8 million vaccine doses have been administered in an almost nine-month-long vaccination rollout after more than 712,000 were given as of Sept. 21, health authorities reported. Almost 62.5 million adults—70% of the eligible population—have received at least one dose. Of that number, 42.2 million are fully vaccinated.
A very significant portion of our internal conversation turns to Ethiopia at this time of year as we begin preparations for the season just out on the horizon. Gathering accurate information is never easy this time of year as cards are often kept close to the chest on the supply side. Pricing has yet to be set with posturing a recurring theme.
As we’re sure many of you are aware, the political situation continues to be tragically messy. Prime Minister Abiy appears to be bent on keeping peacekeepers out of the country, expelling a handful of top U.N. officials at the end of September. Aid trucks are not allowed into the Tigray region either. Violence has been triggered in producing regions, most specifically Jimma and Guji. Hopes of resolution may be nearer in Jimma than Guji. We wait for word from our contacts as to how this will play out as harvest kicks off in the next 5-6 weeks. There is also news of coffee trucks being hijacked en route to the Port of Djibouti.
From our trade partner Eden Kassahun in Addis Ababa:
For the general update, logistics issues continue to be a factor and security is another concern. I hope it will improve when the harvest is closer as many of them would be focused on collecting cherries—especially in Guji and Uraga areas.
While yields are up in Jimma we expect cherry prices to rise as well. Cyclically speaking, we expect a downturn in the southern harvests of Guji and Yirgacheffe. Cherry prices should soar in the more coveted regions as well. We await word from our strategic partners in Uraga, Haro Welabu, Hambela Wamena and Worka in the coming weeks as to what exactly to expect.
Though we’ll be more diligent than ever in moving quickly in regards to selection, shipping, and logistics, we expect this may be the most difficult Ethiopia season on our record when it comes to shipping coffee. Our logistical strategy is now nearly in place and we are ready to push containers out to port as soon as possible come Q1 2022. We’ll have a strong Ethiopia update in place come January to help guide your expectations if not a supplement altogether prior to year end.
In the meantime we currently (as of 9/30/21) have the following uncommitted Ethiopia SPOT positions:
The Annex, CA: 171 bags
Dupuy Houston, TX: 143 bags
Continental Terminals, NJ: 490 bags
These coffees are in excellent condition. We recommend taking a second Ethiopian position if you’re looking to ensure Ethiopian stock through Q1 into early Q2.
With the fly crop now concluded, our partners in Kenya are looking ahead to the imminent main crop. As always, we will look to act quickly on the earlier side of the season and move 2-3 full container loads in Q1 2022.
From our trade partner Kennedy Keya in Nairobi:
Survival is the word! Covid, chaotic logistics, we don’t know what’s next, but we are fine in Nairobi.
The fly crop is coming to an end. It took longer for cherry to ripen and parchment to dry because it has been cold since May—this is our winter. Now, warm weather is returning with some light showers around Nairobi and coffee growing regions. We’re estimating a normal main crop of about 30,000 metric tons. We also expect good quality. Cherry picking will start towards the end of October in areas around Nairobi like Kiambu, Thika, and Muranga. Areas close to the mountain at higher elevation—Nyeri, Kirinyaga, and Embu—will start to pick cherry in November. We will have samples available in January for February shipment.
Logistics continue to be a challenge. It is becoming more difficult to find containers. When you find a vessel, space is an issue. Vessel sailing schedules are far apart. Some shipping lines that had weekly sailings out of Mombasa and Dar es salaam have cut down to only one sailing per month. And at times they decline to load exports citing lack of connecting vessels in Asia or the Middle East. We are adopting a wait and see attitude hoping to see normalcy return.
As we said, the above all comes directly from Nairobe-based trade partner Kennedy Keya.
With good steady rains, our partners in Guatemala are looking forward to a larger harvest for the 2022 crop, but they’re also already expressing fears of another year with migrant labor shortages. “The problem will be when harvest comes along if there will be enough pickers and people to work at the farms,” said an exporter we work with closely. Last harvest, labor shortages were driven by travel restrictions put in place to help stop the spread of Covid while many migrant workers are staying home or seeking opportunities elsewhere.
On that front, Guatemala, Central America’s biggest country with about 18 million residents, has posted nearly 480,000 coronavirus infections and more than 12,000 deaths, according to official data. As of early September, 1.3 million or about 7% of Guatemalans have been fully vaccinated. Although President Alejandro Giammattei proposed a series of measures including more restrictive sheltering in place and curfews to help stop the spread of Covid on September 2, their Congreso de la República refused to pass them.
From the current crop, we currently have two Guatemala lots available: 16 bags from Felipe Martinez’s farm Los Arroyos in Huehuetenango warehoused in CA, and 20 bags from smallholders in the San Jose Poaquil community in Chimaltenango warehoused in NJ.
Get in Touch
As always, if you have any questions, concerns, or thoughts, let us know. We’re here to help.