Monday, January 18, 2010


Ocean freight rates are going up. On January 15, all lines imposed an “Emergency Revenue Charge” (ERC) of $320/20’ and $400/40’ across the board. According to a Jan 16 article in the New York Times, the 20 largest steamship lines lost a total of $20 billion in 2009. A tenth of the world's container ships are estimated to be idle, moored offshore. Cargo volume has dropped substantially and rates hit a record low in the past 10 months. This rate increase was initiated by TSA group, which includes almost all major shipping lines. TSA is like a shipping cartel in the market today because they filed this ERC in their common rate tariff and applied it on all standard service contracts without contract shippers’ consent.

The strict new Customs Importer Security Filing (ISF 10+2) regulations will become effective on January 26, 2010. Importers are responsible for the proper and timely filing of the ISF 10+2 documentation. Even though they must rely on overseas shippers for some of the information, the importer alone is subject to penalties and fines of up to $5,000 for each violation.

President Obama issued a proclamation extending the Generalized System of Preferences (GSP) program for one year. GSP allows certain imports from developing countries to enter into the U.S. duty-free.

The dollar has been relatively steady of late. After falling to the extremely low level of 1.50 dollars per euro at the end of 2009, the dollar gained some steam in January and is now steadily hovering at 1.43-1.47. Of the 27 members of the European Union just one, Poland, registered a positive growth performance in 2009. Looking towards the Far East, the US dollar has weakened vs the Thai baht from 36 to 33 baht per dollar over the past year.

After falling dramatically at the end of 2009 from $1500/mton to below $900 in a matter of months, skipjack raw material has quickly turned around, heading in a matter of weeks to $1150, and quickly approaching $1200. Furthermore, another FAD (fish aggregating device) and Philippine regional fishing ban is now going into effect limiting supply. Keep in mind however that strong fishing caused the last FAD ban in 2009 to have a somewhat unexpected result – fish cost went up in anticipation of the ban and El Nino, but then dropped precipitously when fish catch remained strong. All told, the current mix of a low starting price, uncertainty about upcoming supply, the Christmas/Chinese New Year holiday season and a pickup in global demand have combined to stop the skipjack price decline and send pricing upward again – but still not yet to levels seen last year. Yellowfin has been generally trading in a range alongside skipjack, and is currently firm. Tongol catch is limited but should start to improve as the season begins. Albacore has been relatively steady throughout the drama on skipjack; after falling slightly, it’s now trading around $2500/mton. While many read on the internet about the giant 513 pound bluefin tuna that was recently caught and sent to Japan for $177,000, the unfortunate side effect of this is the attention it brings to the non-sustainability of the bluefin species, to the detriment of clouding the true fact that skipjack, the species most used for canning, is very much a healthy and sustainable resource. With recent plant closures, there is no longer any Barry Compliant domestic production of canned light tuna for the military. The only remaining approved tuna option is a pouch pack.

The winter crop in the Far East is coming to an end and Thailand is reporting a normal crop. Raw material fell to a low of about 4.0 baht/kilo at the height of the season, is currently at about 5.0 baht, but is expected to rise to about 6.0 baht before the summer season is fully underway in April/May. Overall world demand remains down primarily due to lower Russian intake. Production costs (tin plate, energy, and shipping) remain on the uptrend. Possible El Nino weather pattern disruptions are still casting a level of uncertainty over 2010 prospects. China, which previously seemed poised to expand their pineapple exports, is not aggressively offering in the export market as much of their production is consumed by their domestic market.

China’s crop started 2-3 weeks later than expected due to the severe cold and overall production is expected to be down 30% or more. The most significantly affected was the Northern region, which accounts for about a third of the total production. Northern production is expected to be down almost 50% as compared to last year, while the Fujian production region is reportedly down 15 to 20%. Indian production is dominated by just one plant, which recently underwent a complete financial overhaul – the result of the extremely low market price in 2009. In Indonesia, heavy rains are delaying the season by as much as 4 months. Overall, lower worldwide supply, raw material selling for almost twice the price level of last year (in China, 6 RMB vs 3.5), coupled with the ongoing U.S. antidumping action have seen dramatic price increases for the new season and predictions by the packers for more increases on the horizon.

The overall new crop results have been positive but the major news in the olive market remains large Queen olives, where the good crop has dramatically increased Spain’s competiveness compared with South America. In olive oil, after somehow successfully managing to “squeeze” the price upward in the second half of 2009 (even with a big crop on the horizon), packers began aggressively offering at the end of 2009, and prices have traded down as expected.

The crop is on-going and is reported to be normal. Weak demand and poor cash flow amongst the Chinese farmers and packers caused pricing to open lower than last year, but the situation appears to be quickly turning around. Higher costs for sugar, tin plate and labor, along with recent significant firming in raw material costs, have many plants reoffering at higher levels. In addition, the strong demand for mandarin “cells” (used for drinks) is reducing the output of broken mandarins – shortages are expected. Spain is reporting a normal crop, but unfortunately nowhere near the lower price levels in China.

Spain is recovering some market share from South America as both Peru and Chile have experienced short crops. Chile’s crop (June through November 2009) was 20-30% off from 2008 due mainly to bad weather and packers there quickly sold out. The larger Peruvian crop has fared even worse – after one of the biggest factories (Camposol) closed its doors last year for lack of profitability, the overall production for the country was brought down significantly. After first expecting a normal season, the crop situation turned worse, and now the remaining packers are sold out, raw material is scarce, and the large players are planning to shut their factories for months at a time in 2010. Spain has been re-entering the picture and increasing exports at prices well above those in South America. Unfortunately, the past few days brought snow and below freezing temperatures in Murcia; packers are reporting that serious damage may have been caused.

The 2009 total global production of tomato products will be up close to 15% compared with 2008. Leading producers are California, China, Italy and Spain accounting for close to 70% of total production. Given the deficit in last season’s supply compared to demand, this seeming bumper crop is expected by the experts to bring worldwide supply/demand into relative balance.

Heavy rains and typhoons affected landings of blue swimming crab in the major producing countries. Average size of crab being caught has been 15-20 pieces per kg. Competition for the raw meat drove the buying prices up 10% and the weak U.S. dollar lowered packers’ margins.

SHRIMP (frozen)
The Vietnam Association of Seafood Producers and Exporters (VASEP) reported that Vietnamese shrimp processors are facing a shrimp shortage, leading to a reduction in production and increase in costs. Prices for small shrimp have increased by 5-10% in the last month and 10-20% for larger sizes. Farmers are short capital and speculation is rising that these shortages could continue well into next year, forcing them to import raw material from Indonesia and India.

SCALLOPS (frozen)
The new fishing year for 2010 will start up again in March. Large sizes are currently shortest.

TILAPIA (frozen)
China remains the largest producer in the frozen tilapia market. China produced 78 percent of imports through July 2009; 172 million pounds out of a total 220. Honduras, Ecuador, Costa Rica and Colombia are the primary sources for fresh tilapia. Industry experts believe that prices are likely to rise by 15 to 25 cents per pound through early 2010, as inventory and production tightens heading into the fall and winter.

SALMON (frozen)
Impacts of the ISA virus on the Chilean salmon industry continue to be felt throughout the area. Of the 400 productive centers in operation today, only 166 are in use while the others are idle. Because of ISA, all production sites have to lie fallow in a coordinated way for a minimum of three months. The total number of Atlantic salmon alive in July 2009 fell up to 60% compared to 2008. Implementation of new sanitary measures in the Chilean salmon industry is improving the performance of the salmon farms and significant potential for salmon production in Chile remains. Production fell in 2009, but should recover in 2011.

CATFISH (frozen)
The USFDA’s Office of Seafood reported that it will no longer allow Chinese firms to get exempted from the current import alert 16-131, which requires automatic detention and inspection of certain Chinese seafood exports. Their rationale was that it was 'too cumbersome' for FDA to comply efficiently with its own rules or to apply its recent Chinese inspection data to assess compliance with agency requirements. The import alert states 'Districts may detain, without physical examination, all shipments of aquacultured catfish, Basa (Pangasius sp), shrimp, dace, and eel from the People's Republic of China (CN), except for the firms identified in the Green List’, but no firms are being added to the green list. In the meantime, the market is firm especially on large sizes and higher prices are imminent.

CALAMARI (frozen)
After extremely good landings in the U.S. during the early fall months, the beginning of the winter has turned out very light. Landings are expected to pick up soon. Overseas, Chinese catching is light, as is Peru and India.