ICE Coffee

by

By Dan Bolton

In 2000 industry leaders organized the Greater Houston Coffee Association with the goal of establishing warehousing capacity sufficient to qualify for a New York Board of Trade (NYBOT) license to store exchange-traded coffee.

Why warehousing?

As Al Hernandez, vice president of Dupuy Storage explains, thousands of ports globally offload coffee but only eight are certified to handle volumes that make possible a global coffee hub. The NYBOT “C” coffee market designation requires sanitary, food-safe operations and financial stability in structures that in Houston in October collectively stored 944,956 60-kilo bags worth $150-$500 million.

Five of the world’s “C” ports are located in the US In 1995 there were only two. New York/New Jersey was the original futures exchange port for the Atlantic seaboard, concentrating roasters that dominated East coast coffee manufacturing.

Twenty years ago New Orleans landed most of the coffee transiting the Gulf of Mexico for brands including Kraft-owned Maxwell House, founded in 1892 and, until the late 1980s, the nation’s best-selling brand.

When the Port of Miami qualified for a NYBOT license in 1996 coffee logistics changed. The amount of coffee warehoused in Miami soared from 82,000 60-kilo bags in 1997 to 1.2 million bags in 2001. Warehouse space expanded to 1.5 million sq. ft. (exchange warehouses today hold about 300,000 bags based on an estimated 1.25 bags per sq. ft.). Docking fees, broker commissions, ancillary support services and profits from locally-based specialty roasters surged with exchange certification which mandated warehouse, drayage, and sampler services.

HOUSTON HAS IT ALL

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Sample Sleuth

Texas imported fewer than 100,000 bags of coffee in 2000. There were only two dedicated coffee warehouses in Houston. NYBOT recommended five food-grade, state-of-the-art warehouses totaling 1 million square feet.

To attract premium warehouses and obtain the coveted designation, Houston first had to repeal an ad valorem tax embedded in the state constitution. The tax, which brought in $300,000 per year, made storage costs prohibitive. The legislature approved an initiative exempting unprocessed coffee and in 2001 it passed with strong public support.

In 2003 NYBOT certified Houston (Harris County) as an exchange port and by 2007 when the Intercontinental Commodity Exchange (ICE) acquired NYBOT, Houston had surpassed New Orleans as the most important coffee port on the Gulf. This led firms like Cadeco Industries to invest in the largest bulk handling facility in the US Warehouse stocks grew to an average 339,000 bags in 2003. In 2006 Maximus acquired the Maxwell House roasting facility in Houston and became the largest integrated coffee plant in the world with a capacity of 2 million pounds a day.

Texas became an important coffee roasting and distribution hub. In 2000 Mother Parkers opened and later expanded a 100,000 sq.ft. coffee plant and distribution center in Fort Worth, the first to be organic certified in North America. The pace quickened in the past 20 years. In 2017 Farmer Bros. opened a 538,000 sq.ft. roastery capable of roasting and packing a half million pounds of coffee a day (28 million pounds a year).

Hernandez said the entire region benefitted as coffee imports shifted to Texas destinations when NYBOT temporarily suspended the coffee handling certifications in New Orleans due to flood damage by Hurricane Katrina in 2005.

Dupuy, a national warehousing operation founded in 1936 in New Orleans, specializes in coffee with warehouses in Jacksonville, Miami, Florida, and Charleston, SC. The company opened a 296,000-sq.-ft. warehouse in Houston in 2007 that includes 24,000 sq. ft. of climate controlled space ideal for storing specialty coffee. The facility recently expanded to 512,000 sq. ft.

Walking through stacks of coffee five pallets high, Hernandez says modern warehouses must be extremely efficient. Supersacks, truck docks, tracking and traceability, and certifications require sophisticated logistics software. “Warehouses also offer more services such as cleaning and blending coffee and bulk packaging,” he says.

Houston recognizes that coffee trades on “slim, slim margins,” says Hernandez. The city greatly benefits from good highways and intermodal rail that connects the region to coffee ports in southern California that receive coffee from Vietnam, now the world’s second-largest coffee exporter. During the past year 1,500 New Panamax ships, carrying 13,000 containers or more, have traversed a widened Panama Canal after a massive upgrade doubled its capacity. Asian coffee now arrives cheaper by ship.

It’s more than just luck and location.

Houston, it seems, has it all.

Exchange Change

The Intercontinental Exchange (ICE) recently changed its rules governing the cost to importers for delivering coffee to southern US coffee ports. Beginning in May 2019, the 125 point penalty ($.0125 per pound) paid by importers to offset the freight cost of delivery (compared to the Port of New York / New Jersey) will be reduced to 50 points ($.005 per pound).  New Orleans, Miami and Port Houston could all see an increase in exchange certified coffee as a result.

New Orleans led the campaign to reduce the penalty beginning in the early 1980s. The decision follows “years of lobbying by local Port officials, politicians, and members of the New Orleans coffee industry,” writes Janet (Colley) Morse, Dupuy Group vp, adding, “This is good news in coffee. Bring on the beans!”

New York and Virginia remain on par. The ports of Bremen/Hamburg and Antwerp will remain deliverable at the penalty of 125 points. The Port of Virginia (Suffolk) was ICE certified in September 2016.