The cost of shipping tea and coffee has declined to pre-pandemic rates as containers become more plentiful and prices dip to $850 TEU.
The decline in shipping rates is due to slowing customer demand, but executives of major shipping and air freight companies cite an increase in long-term contracts that signals an end to “the gloom and doom," according to a report by Bloomberg News.
Container contract rates are near 2019 levels, and depleted tea inventories are increasing trade as the year progresses.
Drewry’s composite World Container Index (WCI) was $1,719 per 40ft container (FEU) on May 18, down 78% compared to the same period in 2022.
According to Drewry, at the height of the pandemic, spot rates for 40-foot containers loaded with tea traveling from Shanghai to Los Angeles surged to $12,172. The cost of transporting tea spiked again when the WCI rose to $10,377 in September 2021.
Drewry reports that rates are now 36% lower than the 10-year average of $2,688 per 40ft container and falling. According to Horti Daily, in April Westbound contracts from India terminating in London or Rotterdam were $850 per 20-foot container and $950 per 40-foot container. Rates for Chinese tea shipped from Shanghai to Los Angeles were $1,027.
FreightWays writes that container rates have been falling for months but “have not hit bottom.” Spot indexes are not plummeting like in the second half of 2022, but they're still inching downward week after week. “The market bottom is proving elusive as transport capacity continues to exceed demand,“ writes Freightways, adding, "Different spot indexes post different rate assessments, but the directional trends are generally the same."
War risk insurance premiums
The exception is Black Sea routes disrupted by hostilities following the Russian invasion of Ukraine. Ports in Bulgaria, Romania, Ukraine, Russia, and Georgia offloaded significant quantities of bulk tea grown in India, Africa, and Sri Lanka as well as re-exports from Dubai, UAE before the February 2022 invasion.
Reuters reports that the cost of hiring ships to transport commodities in the Black Sea has risen by more than 20% since the start of the year, “reflecting higher war risk insurance rates.” According to Lloyd's of London, policies for ships transiting the Black Sea and the Sea of Azov must be renewed every seven days, which insures 90% of the war risk market. Premiums for shipments to Russia could easily rise by 50% from the end of last year to reflect the increased cost of capital from not being reinsured, according to Reuters.
Tea is now routed to Turkey and Georgian ports and has begun arriving from ports as distant as Vladivostok, where Vietnam landed 10,000 metric tons of black tea in 2022.
Russia grants China access to Vladivostok port
In May, Russia opened the port of Vladivostok to China for the first time in 163 years. As noted in The Eurasian Times, the seaport, formerly a part of China, was known as Haishenwai until it was ceded to Russia in 1860. The port offers an alternative to Baltic transport. During the first four months of 2023, Russia's bilateral trade with China, including tea, increased by 41.3% to $73 billion, according to the General Administration of Customs China (GACC).
See: Vietnam’s Tea Exports Rise in 2022
In late 2022, the average price for shipping a TEU to the EU from India was around $1,500. The average composite index for the year-to-date is $1,868 per FEU, which is $820 lower than the 10-year average of $2,688. While the WCI is 36% lower, indicating a return to more normal prices, rates remain 21% higher than average 2019 (pre-pandemic) rates of $1,420.