Coffee Shippers Confront Myriad Challenges

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By Hans Niebergall

Shipping touches every link of the coffee supply chain and global economics are wreaking havoc with shipping companies. Oil has never been cheaper nor ships more efficient, but global trade is diminishing amid a glut of container vessels and new port requirements that favor massive hubs. Hubs may quickly offload and load ships but the inter-modal facilities at these super harbors often result in delays.

Last month STiR Tea & Coffee examined North America’s West Coast ports and the rising shipping hubs in Asia. In this issue Hamburg SUD’s Frank Leck, senior sales manager import central Europe, explains from his vantage the challenges facing green coffee shippers.

Hamburg SUD is one of the world’s most important coffee transportation firms. The company operates 127 container ships, employs more than 6,000, and owns 600,000 containers. The company circulated 4.2 million containers last year making it one of the top 10 container lines in the world.

Green coffee is a specialty. Hamburg SUD services South America, Central America, Colombia, and Asia with most of the coffee destined for Hamburg, one of the top coffee ports in the world.

Speaking from his offices in the old port, Leck explains that “coffee or any other product is quite a challenge for any shipping line these days as the break-even point can hardly be reached.”

“There are too many container ships and not enough goods,” he explains. “This is especially true from Asia to Europe and the United States due to the downturn in the Chinese economy,” he said.

Spot rates plummeted in 2015 to the point that the smaller vessels (favored by coffee traders) are too expensive to operate.

Are larger vessels, like the Triple E Class ships, which can hold 18,270 TEU the solution?

Offloading just one these massive ships will fill 30 trains, each a mile long stacked two containers high. At the present time there are only a few ports capable of handling Triple E vessels and even fewer companies can afford them, but Triple E is a very efficient transport. Last June Maersk Line ordered 11 of the second-generation Triple E ships, each with a capacity of 19,630 TEUs. The price tag: $1.8 billion.

The top five shipping firms, ranked by capacity on order, include Maersk, MSC, Evergreen, CMA-CGM, and OOCL.  With the ongoing consolidation of container lines, Leck predicts that at the end of the cycle there might only be 10 shipping firms left worldwide.

South American overload

The largest vessel operated by Hamburg SUD holds 9,600 TEU. Hamburg SUD has the world’s largest capacity of 2,100 reefer (refrigerated) containers.  These ships are nicely matched to the ports of Brazil the largest exporter of coffee in the world and Europe’s top supplier of coffee.

Santos is the main coffee port in Brazil. The port accounts for 71% of the green coffee shipments (handling 81,374 TEU per year) followed by Vitoria which ships 17% of Brazil’s coffee (19,995 TEU), and Rio de Janeiro which accounts for 9% of coffee shipments (10,773 TEU).

“Santos is completely overloaded as it is situated near Sao Paulo handling not only coffee but many other products as well,” observes Leck. “Heavy winds, fog, and the poor hinterland road connections make it very difficult for on-time deliveries. One solution would be to transfer the coffee shipments from trucks to trains. Unfortunately there are only very limited or poorly functioning railroad tracks.” Another challenge in Brazil is unpredictable labor union strikes. Shippers operating their own terminals reduce the risk of strikes but might increase the overall cost, he said.

Central America lacks infrastructure

Roasters ordering shipments from Central America and Colombia encounter different challenges.

   The coffee regions are about 450 to 600 miles (700 to 1,000 km) from the main ports. Trucking coffee from the coffee farms to the ports poses huge security issues. Trucks containing thousands of dollars of coffee are hijacked and in some parts of the region insurrectionists or narcotics dealers require bribes for safe passage.

Although there have been some investments into the infrastructure of the roads in Central America, they are still very modest when compared to European standards. There are no train or river connections to the ports, only roads, which make it extremely challenging, observes Leck. “The existing train connections in Colombia are not reliable and very poorly operated and managed,” he said.

Strategies for the future

“First and foremost the overall shipping expenses have to be reduced,” he said. “This can be accomplished with larger vessels, slow steaming and optimizing the sailing schedules. In addition hub and feeder service has to be improved and the shipping industry has to outsource more processes,” he said.