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Red Sea attacks raise costs for coffee roasters

Updated: Apr 5

The world of logistics has been experiencing a turbulent start to 2024, with the traffic in the Panama Canal being reduced by over a third due to local droughts, as well as the evolving situation in the Suez Canal and Bab Al-Mandab Strait.

As the Red Sea attacks continue they have caused a significant increase in shipping costs for European coffee roasters. The container freight rates have increased by about 150% on the Asia-Europe route, and many coffee bean deliveries from top producers such as Vietnam and Indonesia have been delayed due to ships taking a detour through the Cape of Good Hope.

As a result, roasters are now looking for substitute beans from places like Brazil and Uganda, which is leading to higher prices in these regions and ultimately causing more expenses for the roasters.

Map showing Suez Canal and alternative Cape routes
As attacks on shipping vessels continue in the Red Sea it is having a significant impact on the coffee industry.

What is happening in the Suez and Bab Al-Mandab Strait?

There has been an increase in geopolitical tensions in the region following the conflict in Israel, and an organisation based in Yemen is attacking commercial vessels that may be heading towards Israeli ports.

The control of almost all shipping between the Indian Ocean and the Mediterranean Sea via the Suez Canal is largely dependent on the Bab el Mandeb, a small geographical chokepoint located in the Red Sea. This tiny location has a significant impact on world affairs due to its outsized influence.

Due to the danger posed to vessels, cargo, and human life, around 90% of all commercial vessels are now taking the longer route around the African continent, via the Cape of Good Hope.

It is no simple task to reroute around the Cape. Even if vessels were to go full steam around the Cape without any other stops, it would take over 7 days. However, the reality is very different. Due affect to the extended journey, vessels will inevitably stop for fuel and often drop containers off at local ports. Some vessels may go to northern Europe routings, while others may go to southern Mediterranean Sea routings.

All of this adds time and cost, not to mention the additional costs of financing and insurance for these extended journeys. The re-routing around the Cape will likely add over 14 days to the journey time. The longer goods are afloat, the longer they are using containers, which will cause shortages in origin. Once the goods reach their destination and are unloaded, they will need to go back the same way, to get containers back to where they are needed, the delays are doubled. The availability of containers and the cost of shipping from the starting point to the end point are both influenced by these factors.

Shipping Containers

What does this mean for coffee and shipments?

The Vietnam Robusta crop is facing some logistical challenges, including delays in container availability and rising freight rates. Traditionally, shipments from Vietnam would pass through the Suez Canal, but this route is currently experiencing issues. Uganda, another large producer of Robusta coffee, is also struggling to ship their goods out of Mombasa, with vessels often bypassing these ports and sailing around the Cape of Good Hope instead. Brazil's Robusta Conilon has only just begun until March. As a result of these challenges, roasters are currently experiencing difficulty finding coffee to cover their short-term needs. The market is aware of this situation, which has been ongoing since the start of the COVID-19 pandemic.

With supply disruptions, roasters who typically operate on a first-in-first-out basis are now looking to purchase coffees on the spot market to tide them over for a few weeks.

Man holding green coffee beans from a hessian sack of beans

Recent figures show that European coffee (non-certified) stocks are at their lowest levels since 2000, with just 7-8 weeks of coffee stocks available. Even if the issues with the Suez Canal and Bab al-Mandab are resolved promptly, it will still take several weeks to reroute the vessels back into the Suez route. Once a more stable supply of coffee arrives, most of it will go towards fulfilling immediate contracts. It could be several weeks before coffee stocks begin to be replenished.

For the next few months, the coffee market will face a challenge with the availability of coffee. Though coffee can be bought and shipped from its origin without difficulty, there is a problem with coffee stocks in South and Central America stacking up in the wrong location. Coffee suppliers further down in the supply chain are hesitant to increase their inventories due to the costs and risks involved. This results in future spot availabilities being irregular.

Robusta coffee prices hit an all-time high of £3,812 per metric tonne on April 3rd 2024.

Due to a combination of factors, This price increase makes robusta now more expensive than many arabicas.

The first factor is the Red Sea problem, explained above. The second factor is the weather problems in Vietnam, affecting the current crop, and concerns that dry weather may prompt water shortages for irrigation affecting the output for next season’s crop.

Vietnam is the world’s biggest producer of robusta coffee and industry observers believe that if this trend continues, it may fundamentally alter the balance of the relationship between arabica and robusta coffees, and how they are viewed and used by roasters everywhere.

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