The challenge of getting tea from the farm to the cup has always been one of the biggest forces for change in the industry. Pu’er tea cakes (pressed and aged to save space along the Tea Horse Road) were an early response to shipping challenges, and black tea surpassed green tea in popularity for colonial Europe in large part because it held up so much better on long ocean voyages.
Today, we face a new challenge for the tea industry. The response to the COVID-19 pandemic has disrupted the shipping networks we rely upon to move tea across the world in a timely manner. How the tea industry responds to this challenge may shape the future of tea communities and the balance of power between small farmers and big export brokers for years to come.Almost a year ago today, Chinese shipping networks shut down for Lunar New Year. Instead of business as usual after the new year, COVID-19 brought international logistics to a grinding halt. Domestic courier services were cut drastically, air shipping was effectively grounded due to the lack of commercial flights between China and the rest of the world, and ocean shipping struggled to find a new normal.
The first to feel the impact in the tea world were companies shipping small boxes from China direct-to-customers. These packages were essentially grounded “until further notice” with a majority of both commercial and passenger flights cut. Flights still have not been restored to normal, meaning many of these shipments are still losing out for parcels paying higher rates or parcels containing medical supplies and other critical items. Even today, many retail customers feel that ordering direct from China is a risky hit-or-miss business right now, with packages disappearing en route.
From coffee to paper products, importers are reporting on the ways COVID-19 is making international logistics more difficult, and tea is no exception. Air shipping rates have doubled in less than a year, making seasonal teas much more difficult to bring in. Ocean freight hasn’t fared any better. Importers are seeing stiff competition for less-than-container-load bookings due to less sailings, and domestic U.S. trucking costs are up as much as 200 percent for the final leg of the journey.
The tea businesses that are in a position to bring in product without major disruptions are the large import brokers bringing in full container loads. Importers who can book a full container do not have to bid for space in the same way. Full containers can also be shipped through via inland rail to their final destination, avoiding the much higher transfer fees and trucking fees that are a new post-COVID-19 reality in the United States.
This reality is a threat to the growth of the [Chinese] specialty tea industry. The specialty tea industry in the United States has been on the rise, but even as recently as 2018, loose leaf tea made up less than two percent of imported tea. Despite growing market demand for transparently sourced, sustainably produced tea, rising shipping costs in the past year pose a real threat to specialty tea, especially among the smallest shareholders. Instead, the largest importers can leverage their competitive advantage, even if that means supporting plantation farms with poor labor practices, obscured statements of origin, and unsustainable use of chemical pesticides and fertilizers.
The very few companies doing actual direct import from small farms are faced with huge new challenges and expenses in the past year, while the retailers who used to buy from smaller Chinese brokers are now seeing tempting offers from larger commodity tea brokers at lower rates.
How Does the Industry Respond?
The tea industry exists to provide value to its customers and its clients. The customers are the people enjoying the tea; the clients are the people producing it. The supply chain must exist to serve both ends. When new challenges confront us, we cannot ask the customer to either take on the burden of unknown or indefinite delays – or absorb the full cost of shipping’s new realities. Nor can we turn to our partner producers and force them to accommodate with lower prices.
Too often, industry problems are kicked back all the way to the producers. Instead, we need to take the lessons of 2020 and move forward with better solutions and better logistics. After all, what is a tea company at the end of the day except a uniquely tailored logistics solution to get tea from a farm to a cup? This is the challenge of the specialty tea industry. To meet the demonstrated demand for transparently sourced, sustainably produced tea, specialty tea importers must commit to new solutions.
If shipping takes longer, let’s plan further ahead. Instead of buying tea from a broker catalog, work directly with the producers and pre-buy harvests. Reserving whole harvests lets passionate growers focus on their work instead of entering a new season without the security of knowing whether or not they will be able to sell what they make. With Chinese domestic demand down, any sales ahead of harvests give producers the capital they need to work better, investing in their communities while cutting down the time between picking and shipping.
If domestic shipping at origin is restricted and regulations change on a daily basis, then the specialty tea industry needs to find a way to be there in a support role “on the ground” where the tea is grown so that we can help make it happen, even if that means picking up the harvest at the farm and driving it right to the port. Over-reliance on brokers robs the industry of the chance to represent tea from true small family producers. When producers are directly involved with the final reseller, the supply chain gains more robust flexibility. This is because, when farmer cooperatives represent their own work, direct problem-solving is possible. Productive collaboration between the supply chain and the producers builds true resilience against the challenges of domestic shutdowns and changing regulations.
If air shipping is limited and expensive, our industry needs to stop treating it like a commodity and get to know the heroes behind international shipping that make it all happen. Don’t expect a shipment to be advocated for if you don’t have any advocates. Build relationships with shippers, and find people on both ends that you can trust. When you work with the same people for a decade on shipping and build trust, there are few problems that are insurmountable.
If costs are doubled on a per shipment basis, don’t ask customers to pay more or farmers to charge less. Instead, double down: buy more tea to realize better efficiencies per shipment. This disruption to the shipping network is ultimately a temporary problem, and if that means absorbing temporary costs, the specialty tea industry needs to be OK paying more, knowing that it is our responsibility to the supply chain working for both our producers and our customers.
What Are the Opportunities of These Challenges?
In the past, there has been too much room in the supply chain for resellers and brands and not enough room for the actual producers. Low-cost shipping meant that there has been enough inefficiency in the market to allow multiple levels of brokerage and markup. Every time tea is handed off in the supply chain, its origin is one step further obscured from both the customer and the final reseller.
This old-world model is a predatory one. Due to complex land distribution policies in China, farmer land has to be renewed every 60 years as a formality. Unfortunately, this technicality can be exploited. Large brands can compete against the current owners, either directly (by pressuring to “buy out” the current landowner) or indirectly (by making arrangements with local officials to deny lease renewals). This facilitates buying up land to consolidate formerly separate holdings into a factory farm plantation. To maximize profit and return on their investments, this style of operation hires outside workers (migrant labor) and trades quality for higher yields through unsustainable farming practices. These enterprises traditionally sell through brokers to exporters, changing hands again. Import companies buy from the exporters in bulk and warehouse tea in the country of intended sale. Importers sell to retail brands that resell to the customer. Often, specialty tea brands may not even know they are buying tea so many times removed from a farmer. Producers lucky enough not to be forced off their own land may be stuck with commodity pricing, which in turn creates an incentive to increase yields with chemical intervention. The whole model pushes towards a downward spiral to monopolized tea growing.
If there is ever a time to shift models, it is now. Like the innovation of pu’er to solve supply chain problems, this is a chance for an industry reset when we rethink our roles not as brands but as problem-solvers.
The disruption of COVID-19 on the specialty tea industry’s supply chain means increased costs and decreased supply, and that means less room for these layers of markup. When factory farms needed to shut down to comply with government regulations to control the spread of COVID-19, family farms were already a self-contained quarantined unit. Family farms could continue picking their own tea without leaving their own land. Their alternative model offers resilience our industry needs in its supply chains.
Traditional importer-brokers do not provide the transparency that consumers are now demanding from the specialty tea industry. Instead of putting power in the hands of importer-consolidators, we need to be a backbone of support for farmer’s cooperatives and small producers, listening to the problems these farmers face and providing a structure that allows farmers to realize cost savings through a combined logistics chain. This model can provide the transparency consumers demand, ensuring that farmer stories can be shared, that farmer priorities can be honored, and that access to their work can be preserved for tea lovers.
The Cost of Shipping – a Model Comparison
In the “old model,” shipping costs are lower, but markups are higher. In the farmer cooperative model, shipping costs are higher, but markup is lower. Let’s take a look.
The old model is more cost effective in actual shipping cost. Importers can buy whole containers and do not have to rely on seasonal air shipping. This model can save up to $10 in shipping on every $100 worth of tea. Yet, consider markup. Distributor markups range 15 to 30 percent by industry. Multiple middlemen mean more extra hands and compounding mark ups along the way.
Let’s assume we start with $100 of tea at our point of origin. In the old model, this tea may be marked up once by the factory farm or finishing workshop, once by the exporter, and once by the importer before its final markup by a domestic wholesaler. This means that the tea may cost more than double by the time the tea company selling it gets it.
The farmer-cooperative model with consolidated shipping has less hands to pass through and fewer markups along the way. This model might cost an extra $10 for every $100 of tea shipped, but the final seller is getting that $100 worth of tea at $110 cost instead of over $200 cost in the old model.
Does this mean that you’ll see tea at half price? No. Instead, it should mean consumers see tea twice as high in quality under this model. Most small farmers cannot produce tea as cheaply as factory farms. But through hard work on the supply chain, the specialty tea industry has the opportunity to bring these teas to market without letting the final cost spiral out of control. In this way, the industry can serve both the farmer/client and the tea lover/customer.
Getting to this ideal is an arduous path. The deck is stacked against small farmers with big brands coopting small family farming as a buzz-word, hiding tea origins, and making it hard for customers to understand the quality proposition. True representation of small farmers means being in the field, investing in the communities, being there to support new projects and share the full story of the people behind the tea. It model requires investment in offices and staff in the country of origin, cultivating relationships with logistics experts, and a willingness to invest in harvests before they are picked, taking on the risk of more product than you might need all at once and absorbing spikes in shipping costs as part of your role as the supply chain.
Yet, the payoff is worth the work if it leads to a revitalized industry where the majority of every purchase is in the hands of the farmer, not the distributors along the way, and a new era of transparency and access to tea from some of the most passionate and talented growers in the world.
David Duckler is co-owner of Verdant Tea, a collaboration with tea farmer He Qingqing and Shandong-native Ren Weiwei. The partnership was founded over a decade ago to advocate for small family tea farming in China, representing over a dozen farmer families and teaware artists. Verdant Tea believes in transparent sourcing and supporting farmers who champion biodiversity and sustainability through innovative farming, dedicated craft and community leadership. Duckler – with a background in research and translation – has over a decade of experience in tea import and logistics, RTD beverage manufacturing, and consulting for tea and beverage startups. He works to represent small family tea producers across China through Verdant Tea. To learn more about Verdant Tea, visit VerdantTea.com.