The Malaysian capital is often visited in a hurry, but visitors who take the time to explore will discover a welcoming city, thanks in part to its friendly specialty cafés. BY TANYA NANETTI SENIOR ONLINE CORRESPONDENT Photos by Tanya Nanetti Kuala Lumpur, the capital...
Conflict in the Red Sea: Why coffee roasters need to prepare for shipping delays
Conflict in the Red Sea: Why coffee roasters need to prepare for shipping delays
Conflict in the Red Sea: Why coffee roasters need to prepare for shipping delays
Conflict in the Red Sea: Why coffee roasters need to prepare for shipping delays
Conflict in the Red Sea: Why coffee roasters need to prepare for shipping delays
Conflict in the Red Sea: Why coffee roasters need to prepare for shipping delays
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Conflict in the Red Sea: Why coffee roasters need to prepare for shipping delays
Like many other industries, conditions in the coffee supply chain can change quickly, and in turn, have a huge impact on all actors and stakeholders. Price volatility is one of the more pertinent – which is influenced by many factors. These include fluctuations in supply and demand, extreme or unexpected weather events, global economic downturn, and social or political unrest.
Additionally, these factors can also affect shipping coffee from producing countries to export markets. We saw this with Covid-19, which caused the freight industry to collapse and shipping companies to massively reduce their capacities. But with demand for coffee only growing during the pandemic, coffee stockpiles soon started to reach record lows.
Most recently, however, conflict in the Red Sea (a narrow inlet of the Indian Ocean in between Africa and Asia) and escalating political tension in the Middle East could have a huge impact on global trade.
“Recent attacks on commercial vessels transiting the Red Sea have already started to disrupt key shipping routes, eroding slack in supply networks, and increasing the likelihood of inflationary bottlenecks,” the World Bank stated in its latest report.
Ultimately, this means the coffee supply chain is highly likely to be affected – so roasters need to best prepare.
I spoke to Betiel Medhanie, East Africa Logistics Manager at Sucafina, to find out how.
You may also like our article on why it becomes more expensive to ship coffee.
What’s happening in the Red Sea?
The current conflict in the Red Sea – which separates the coasts of Egypt, Sudan, and Eritrea from those of Saudi Arabia and Yemen – is incredibly complex and hard to unpack.
In a more immediate sense, it largely stems from Israel’s ongoing war in Gaza, which first started in early October 2023. Since then, over 25,000 Palestinian civilians have tragically been killed. This conflict also has its own long and complicated history dating back to World War One.
In response to Israeli attacks in Gaza, the Houthis – a political and military organisation in Yemen – have started to attack commercial shipping vessels travelling through the Red Sea. Members of the group have also boarded or hijacked cargo ships, although no serious injuries or deaths have been announced so far.
To avoid the conflict as much as possible, shipping companies like Maersk, Hapag-Lloyd, and MSC have halted or rerouted their vessels. According to the Atlantic Council, seven of the ten largest shipping companies have now suspended operations in the Red Sea.
How will the conflict affect global trade?
Simply put, the Red Sea is one the most important trade routes in the world. In a recent article, the Guardian stated about 12% of global trade passes through the Red Sea, including 30% of global container traffic. This equates to billions of dollars of goods passing through this route every year.
So with many freight companies avoiding the Red Sea and rerouting around the Cape of Good Hope (on the southern tip of Africa), total shipping times will increase by a few weeks. Moreover, shipping companies who choose to travel through the conflict zone are also facing higher insurance risk premiums. Either option comes with its own unique challenges and uncertainties.
There have been efforts to stop the attacks on and hijacking of cargo ships, including the formation of the Operation Prosperity Guardian coalition. But as of now, the conflict is still ongoing.
Impact on the coffee supply chain
The vast majority of the world’s coffee supply is transported from producing countries to export markets by cargo ships. This means many green coffee buyers and roasters are sure to be affected by the conflict in the Red Sea – mainly as a result of ensuing delays and higher shipping prices.
“Most carriers have paused service or rerouted vessels from the Bab-el-Mandeb Strait because of the continuing attacks on vessels there,” Betiel says. “Those who have continued service have introduced a war risk surcharge and declared force majeure.”
This is a common clause in contracts which essentially ensures both parties are not liable to fulfil their obligations when an extraordinary event or circumstance occurs beyond their control, including conflict.
“The diversion is causing more traffic in the Suez Canal and in general, we’re seeing transit delays of two to three weeks and slow container turnover,” Betiel explains. “If this continues, we anticipate that reduced capacity could trigger increased rates on top of the already implemented surcharges.”
Drawing comparisons with the pandemic
Shipping delays aren’t an uncommon occurrence in any industry. The last time we saw disruptions this significant, however, was during Covid-19.
With so many businesses forced to close, out-of-home coffee consumption took a huge hit. But this was offset with a simultaneous rise in at-home consumption. In the months following the pandemic as the global economy bounced back, demand for coffee and other consumer goods skyrocketed.
Resultantly, so that businesses could replenish their stocks to normal levels, there was a historic increase in the number of cargo ships coming into ports. What’s more, with social distancing measures in place at the time, port staff had to unload freight at a much slower rate – delaying shipments by weeks.
This led to unprecedented bottlenecks and disruptions across many supply chains, including in the coffee sector.
The problem was exacerbated even further in late March 2021 when the 400 metre-long Ever Given cargo ship blocked the Suez Canal for almost a week. At the time, it was carrying some 18,300 containers. The unintentional blockade also delayed the movement of 369 other ships which were unable to pass through the canal – resulting in an estimated loss of US $15 million per day for affected businesses.
Effectively, container space then became more competitive, which caused shipping prices to rise dramatically. In July 2021, a Bloomberg article stated the price of a single shipping container travelling from Brazil to the US had reached around US $4,000 – double the normal rate. Other reports at the time suggested containers travelling from Shanghai to the Netherlands sold for US $10,000, which is more than a 540% increase.
Roasters (especially smaller ones with less inventory on hand) then had to absorb the costs themselves, or raise their prices and pass them onto the end consumer.
How can coffee roasters best prepare for shipping delays?
In the years since the pandemic, we have seen how the coffee industry has remained resilient and managed to adapt to the ensuing challenges. So given that the scale of the conflict in the Red Sea isn’t as comparable to that of a global pandemic, there’s hope that recent disruptions will be more manageable for roasters and green buyers.
That doesn’t mean, however, that roasters shouldn’t prepare for shipping delays and increased costs as much as they can.
“We suggest that roasters contact their suppliers to review new arrival dates,” Betiel says. “Roasters should expect at least an additional two to three weeks for most shipments to arrive. It’s helpful to subscribe to weekly arrival updates on your importer’s website or with your trader.”
Maintaining green coffee quality will be one of the biggest priorities. The longer it takes coffee to reach its import destination, the more likely it is that quality will drop. Green coffee, however, technically stays fresh for up to a year – so delays of two to three weeks shouldn’t cause too many serious issues.
“Check your inventory levels regularly and estimate your consumption far in advance to account for slower arrival times,” Betiel tells me. “Additionally, check out spot offerings if you need last minute coffee and subscribe to newsletters to receive important information, such as monthly logistics reports.”
Dealing with increased costs
Undoubtedly, there will be financial repercussions of the conflict in the Red Sea and its impact on global trade. And with many coffee businesses still facing higher energy and food costs – tightening already slim profit margins – it’s likely that end consumers will also have to pay more.
It’s a difficult balancing act for roasters. They need to make sure they pay producers fairly for their coffee, while also not passing down too many extra costs to consumers.
Ultimately, communication and transparency are key. Although it’s more difficult than ever to provide customers with accurate timescales and updates, they will only help to strengthen partnerships and relationships.
Logistical issues are certainly a concern, but industry can still be manage them effectively with plenty of preparation.
While it seems that shipping delays will be persistent for another few months at least, roasters and green buyers should strive to remain resilient and adaptable.
Enjoyed this? Then read our article on logistical challenges in the coffee sector.
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