Shipping Woes and an Update on Tea Production Amidst the Pandemic

Despite the obvious impacts of COVID-19, freight rates have been shamelessly exploited by shipping lines, with trans-pacific rates more than doubling and transit times increasing significantly. (Photo by: Ui Inter / Bigstock.com)

In October 2020, we reported on the impact of COVID-19 on the tea industry and, at that time, right on the heels of the Assam and Darjeeling seasons, it was right that the focus be on the impact of these important seasonal productions. However, here we are in February 2021, a New Year – origins (with a dormancy period) out of production and, yes, COVID-19 still going strong. So, time for a World Tea News update.

Firstly, COVID has (as expected) tragically continued on its grisly path with active cases up 400 percent since September. So, let’s look at what impact this continues to have on the global tea industry.

Less Container Space, Unless…
As we celebrate with our Chinese friends their lunar New Year (Feb. 12, 2021), it is apt to mention that it’s the year of the Ox/Bull, something that the shipping companies have taken to heart with the current meteoric rises in container rates (If, that is, you can get a booking anywhere in Asia).

The same combination of reduced industrial output, lower industrial raw material requirements and a rapid increase in e-commerce (particularly from China) has led the industry awry. With imbalanced trade routes, the result has been the cancellation of many sailings to avoid dead space voyages. The outcome is less container space available, particularly on Asian routes, and lower container availability and positioning, unless you are willing to pay.

Despite the above, obvious, impacts of COVID-19, freight rates have been shamelessly exploited by shipping lines, with trans-pacific rates more than doubling and transit times increasing significantly; not just because of the wait for suitable containers and carriers, but also because of increased trans-shipment points, as lines aggregate partial ship loads in hubs, before main ocean passages.

Shipping Lines Recognize Opportunity
A troubling facet of this freight issue is the “collaborative” spirit between shipping lines, who are fast recognizing the benefits of dialogue. This has the potential to deliver inflated freight rates long after the raison d’etre has gone.

What is troubling for many exporters/importers are contracts, usually made on CIF/DDP bases, leaving them holding the baby that are these increases. It is a moot point whether or not the COVID impact can be labeled “Force majeure” or indeed whether it is necessary; we can all hope for a little humanity in negotiations on these issues of ransom by shipping line.

The reality is that – bar the most valuable teas – freight is now approaching 20 percent of the value of the cargo, an unsustainable position going forward. However, do not expect the shipping lines to react quickly when economies fire up again – as they say, “Up like a rocket and down like a feather.” We will be fed on… for a while yet.

If we feel sorry for ourselves in the tea industry, bear a thought for a particular desiccated coconut buyer who was told that his January 2020 rate of $2,000/40’FCL was now $16,000.

Inland transport is similarly affected. The long-distance driver has been affected by COVID and scarcity of fit drivers – and trucks in the right place with reciprocal route haulage deals – are rare. All this points to delays and increased rates, not made any easier by high oil prices and making life just a little bit tougher, especially for voluminous cargo such as packaged tea.

Tea Production Today
From a tea production perspective, everything is relatively calm and, luckily, rural tea-growing populations have been spared most of the COVID impact experienced by densely populated urban centers; thus, production has continued unabated. Of course, North India is in deficit, courtesy of the all-India lockdown which, as previously reported, played havoc with the first and second flush. By the time May 2020 was over, North India was already 120MMkgs behind, from which it never recovered. Further analysis shows that the brunt of this gap came at the expense of orthodox manufacture (-38 percent), as domestic consumption of CTC (-10 percent) increased by demand from internal packers. Last report had domestic sales of trusted brands up 6 percent with Levers, Tata and others doing well.

Meanwhile, across the Indian ocean, East Africa (read “Kenya”) continued to register bumper harvests and closed the year with record breaking numbers and a subsequently lower market again. However, news that the South African variant is in Malawi, with several estate managers ill, means that we are definitely not out of the woods.

Without belaboring the point, to date, global markets have been largely unaffected by COVID-19, other than India.

Blowing Hot and Cold (or Shall We Say, “Iced”?)
On the sales side, tea has been impacted with sales delightfully strong in retail channels – predominantly e-commerce and grocery – while HORECA (the Dutch-language term for the food service and hotel industries), globally, continues to be decimated by lockdowns, curfews and other impositions to free movement of people and bricks and mortar enterprises.

In the United States, this manifests itself as higher than average iced tea inventories and this must have some impact on import volumes, into the United States, as the year goes on; it’s just really hard to quantify. If we look at dine in traffic, it’s down approximately 50 percent for the last 10 months – this has to be significant. Yes, drive thru/carryout/delivery is up but fresh-brewed iced tea and free refills, of this, do not work as well in these channels, hence sales will be lower. This at a time when, for Argentina, the crop is down and there is no uptick in price to compensate.

In China, we wait to see what the travel restrictions on the New Year and holiday rush “Chunyun” will mean for tea sales and consumption. A usual gift at this time of year, with an expectation of a 70 percent reduction on normal travel, we can expect some negative impact here.

 Longjing Village in Hangzhou, China. (Photo by: Giem4289 / Bigstock.com)

A Bright Spot: Hot Tea
Finishing on a more optimistic note, as hinted above, hot tea has been a winner during the COVID-19 era, with retail sales posting good gains globally. We can only hope that this “enthusiasm” for tea remains a silver lining that lasts long after this dreadful virus has been contained, to a point that normal life and commerce can once again be enjoyed.


World Tea News writer/contributor John Snell, NMTeaB Consultancy, has spent more than 35 years in the tea industry, working with everyone from global brand leaders (Tetley) to traders (Van Rees) and private label packers (Keith Spicers Ltd, UK, and Mother Parkers Tea and Coffee Inc.).  His day job is now consulting for those that "do not want to spend 35 years trying," in his words, and work ranges from product development and GTM strategies to international development projects. Snell has spent the last 27 years in North America, where he has been an active member of the trade, sitting on the board of the Tea Association of the USA and as a regular speaker at the North American Tea Conferences. He sits on the Canadian Tea Association’s grading panel and is a contributor to trade publications. If you ask him what “floats his boat” (a relevant analogy given his earlier days in the Royal Navy), it is always about empowering others to arrive at responsibly derived beverage solutions that deliver outstanding results for the companies he works for. He is clear that sustainably sourced and produced products are more profitable. To learn more, visit nmteab.com.