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Covid-19 restrictions slowed processing but factory output remained steady and warehouse space quickly filled inproducing countries. Ground transport remains severely limited in India and storage at ports globally has forced teaestates to retain unusually high stocks.
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Tea factories had to restrict daily productionand use every available space for storage dueto unreliable ground transport. Local truckingwas often interrupted by pandemic precautionsrestricting movement of drivers. In someregions, tea was moved by train.
In the orderly world of logistics, nothing is going as planned.
It took six days to refloat the 1,300-foot-long, 220,000-ton container ship that ran aground in the Suez Canal. It took another five weeks for hundreds of containers of tea traveling from Dubai, India, Sri Lanka, and Kenya to arrive in Amsterdam, Hamburg, and New Work.
It could have been worse. With its bow and stern wedged in the sand, had the giant ship’s keel buckled at low tide, the $10 billion per day inconvenience would have been catastrophic.
The lesson of the MV Ever Given is that no matter how great the challenge, the goods are getting delivered. But the cost of omni-channel fulfillment are astounding, and on-time arrival remains dubious. The MV Ever Given incident proves that no matter how great the challenge, the goods get delivered. But the costs of omnichannel fulfillment are astounding, and on-time arrival remains dubious. Logistics firm Sea-Intelligence estimates arrival reliability declined below 35% in February and estimated an average delay of 6.72 days for late ships. This marks the sixth month of double-digit, year-on-year declines in vessel performance and the “highest average delay ever,” according to Sea-Intelligence c.e.o. Alan Murphy.
“With continued widespread port congestion, and with carriers still not letting off capacity-wise – especially on the major trades – not even for Chinese New Year, shippers might not see improving schedule reliability anytime soon,” writes Murphy.
Every chain of supply suffered as the pandemic emptied offices, displaced workers, delayed inspections, destroyed perishable inventories, and unbalanced the delicate dance of intermodal transportation. Just-in-time delivery became “just get it here” for the coffee and tea industry.
At Tea Importers, Inc., Andrew Wertheim found that some of his tea was delayed and other shipments diverted during the Suez snafu. “You can bet many vessel owners will file claims but I’m not sure if cargo owners have a claim unless they bought coverage specifically for delays,” he said. Lloyds List confirmed that an estimated 90% of cargo owners were not insured against delays. Van Rees tracked 80 late-arriving containers on 15 of the 350 vessels waiting to transit the canal.
There is no easy fix.
Cynthia Fazekas at Adagio Tea Wholesale writes that, “Getting containers at origin is certainly a ‘roll of the dice’ during the pandemic.” She explains that once loaded into containers, tea and herbs “can be ready but you just can’t get it out of origin either due to labor delays or limited availability through the steamship carriers.”
“Our ETAs are more like best guesses,” she continues. “There have been some instances where the teas were not quite right, so we had to push back for additional samples several times, thus further delaying certain items. Fortunately, our suppliers have been great about sending additional samples when needed.”
“We too experienced delays and disruptions, outrageous shipping rates, and port congestion in sourcing teas,” writes Wertheim, “no one is immune. With this much uncertainty we do the best we can.”
He said that customers adapted to slower transit times. Tea Importers ships hundreds of containers across the Atlantic from Africa, much of it from Rwanda. He said that “Rwanda does a very good job of managing the pandemic, although it too is seeing a spike in cases and deaths recently and re-imposed a lockdown. Fortunately, tea is an essential industry, and we are permitted to operate,” Wertheim explained.
Andrew McNeill, business development director of Seven Cups Fine Chinese Tea, in Tucson, Arizona, a specialty tea importer, advises that “now is a good time to explore high-end offerings. It may seem counter-intuitive in a recession, but I encourage retailers to push products that are unique and truly special and priced as such,” he writes. He offers this advice for retailers buying from domestic wholesalers:
“It’s reasonable for retailers to anticipate price increases this year, particularly on lower-priced tea,” said McNeill. He see “a lot of pressure in this direction” from three trends: see a lot of pressure in this direction from three trends:
1) Increased shipping costs (ocean and air — the result of a vessel shortages). Lower-prices teas — where shipping makes up the bulk of their landed cost — are especially prone to change here;
2) Weakening US dollar, making imports more expensive; and
3) The persistence of the situation also means any inventory a vendor might be holding over from the days of cheaper imports is now depleted.
“Given the reasons above, the traditionally low-cost teas are going to be less of a value,” writes McNeill. “These products are bound to creep up in price (or decline in quality).”
Teas are now available in the new harvest year. Fazekas suggests sellers order as much product as possible to fill likely gaps ahead of time. According to market research firm Euromonitor, out-of-stock products in the No. 1 complaint generate ire among more than 30% of consumers. She said that Adagio is sourcing ingredients domestically “if we absolutely have to but the domestic market is strained too, so throughout the supply chain from raw materials to logistic limitations, everything is more challenging than pretty much ever,” she says.
Shipping direct is perilous
Growers and large-scale blenders with literally tons of idle inventory due to extended lockdowns began selling direct. Volumes are small, but margins are exceptional given the low cost of raw products available to wholesalers. Growers accustomed to delivering large numbers of samples scaled up and transitioned to fulfillment operations with a goal is to be ready to ship any item, any format, from nearly anywhere.
Demand for tea remains solid, exceeding many packaged goods categories. Behavioral shifts diminished brand loyalty and expanded tea availability online, including delivery by grocers, encouraged indulgence. More than half the tea drinkers in the UK reported seeking comfort in tea in this time of dread and loss.
Selling tea directly to consumers is a well-trodden path. New Delhi-based Vahdam India was founded in 2015 by the 23-year-old son of a tea trader determined to squeeze savings within the supply chain and to capture more value at origin. Vahdam’s c.e.o. Bala Sarda’s vision is well suited to the pandemic. Vahdam sources tea from 100 growing regions, offering 175 teas, herbals, and teaware products. An extensive distribution network delivers to 130 countries from a 100,000 sq. ft. packaging facility in Noida with distribution centers in the US and Europe. Sales were $21.5 million in FY2020-21 according to the company and are projected to reach $71 million in FY24. Half that revenue is earned in the US, with 30% from Europe and less than 10% from India.
The financial rewards are lucrative, but Sarda’s direct-delivery model competes in a segment with fast and free delivery expectations. “Consumers dislike paying for shipping,” according to Ken Fenyo, president of Research & Advisory at Coresight Research. “They’re not very tolerant of delays or lack of information.”
“In March 2020, 43% of consumers said they would choose to shop with Amazon over a direct-to-consumer brand because the e-commerce giant offers cheaper or free shipping, while 36% preferred Amazon because it ships faster,” according to Caroline Jansen in “The Implications of Shipping Direct to Consumer.”
The pandemic boosted direct-to-consumer brands at a time when tea retailers were hit hard by lockdowns. As consumers limited the number of trips to physical stores, many shopped online for tea on grocery delivery sites or engaged in tea discovery requiring extensive information previously offered in-person.
Customers shopping for tea online discovered many brands new to the complexities of handling returns, taxes, customs delays, and the high cost of postal delivery, carrier delivery, and airfreight. Direct-to-consumer brands had to ramp up shipping nearly every good sold to customers, including teaware as restaurants and nonessential retailers were forced to shutter stores. Selling online at the beginning of the pandemic forced a shift in focus as increased demand strained the system. Omnichannel fulfillment requires flexibility. DTC retailers may find they can achieve the ultimate level of fulfillment flexibility for only the top 30 or so SKUs.
Fazekas writes that conditions have been “hard on our small business customers who rely on these teas to sustain their business. They may not have the clearest understanding of current supply chain conditions as it affects tea so there’s a fair a bit of frustration. We do our best to explain that it is a confluence of circumstances. Everyone wants to make hay while the sun shines during this time of high tea need, or to at least catch up for whatever they missed when closed during the pandemic, so we totally understand and want to help. When gaps do occur, we suggest similar items or something different if a bestseller is not available.
“So much pivoting!” she exclaims, “Tea sellers are resilient and amazing.”