Thinking Through the Alternative of Shipping Flowers By Sea
by Santiago Cock-Rada, Liberty Blooms
Flower imports from South America are facing a period of unprecedented pressure given the unwillingness of cargo airlines to assign an adequate level of lift capacity to Miami bound routes at competitive rates. This situation is forcing the industry to look at maritime shipping in refrigerated containers as an apparently cheaper alternative, especially for the peak industry holidays. There are, however, many “wrinkles to iron out” when taking a closer look at this option. These include:
- Loss of custom assortments and greater risk by sending unsold product: Growers will only have standing orders (which are becoming scarcer) on hand by the time they reach the deadline to ship via sea container. They will either decide to take the huge risk of shipping out large amounts of unsold product packed in a solid color and in farm-fixed assortments like in the old days (generating much shrink for customers), or decide to wait to have more orders on hand and stick to regular air shipping. Would growers and customers be willing to sacrifice service in terms of last minute additions and changes or custom assortments for the possible savings in freight?
- Growers lose the option to bail out before harvesting to minimize their loss on unsold product: Currently, with air shipments, growers have until very late in the process to decide whether it is worth it to harvest unsold product to minimize their loss on any product with a very low chance of being sold. With sea shipments, they are forced to make that decision very early, with much less knowledge of whether the product can be sold; thus being forced to harvest and process the entire production and suffer a bigger loss in case they are not able to place the product.
- Harvest timing dilemma for the holidays: Growers who time their holiday flowering to be ready to ship via sea container and are faced with low levels of pre-books will not be able to store their excess product to wait to be air freighted during the holiday. If they decide to fly that early holiday crop instead, they will be flooding the market just before the holiday and pretty much ruin prices for the holiday for everyone.
- Growers lose vertical integration: Growers who funnel their product through Miami and, by doing this, sustain enough bargaining power to sell DDP Miami will be forced to sell FOB farm because customers will have more bargaining power. They will therefore take a considerable hit on revenues and surrender their margin on logistics costs, which can be as much as 30% of their business model.
- How much of an increase in working capital?: Having much more product in the pipeline at sea translates into more inventories tying up additional working capital. Who will end up assuming this extra financial load?
- Is preservation technology ready to support longer lead times?: Only some specific varieties of each type of flower that undergo a special prepacking and loading protocol have been proven to withstand the much longer storage time involved. Controlled atmosphere technology and other alternatives are still not ready to ensure any variety can withstand the longer storage time seamlessly.
- Risk of severe cold chain interruptions and late arrival of product: Untrained inspection personnel and lack of them, along with improper inspection installations at ports (both at origin and destination) as well as failure of refrigeration units on containers and even corrupt government officials may easily jeopardize the continuity of the cold chain or make you miss your delivery window. Will the learning curve to reduce these risks be too expensive?
- Risk of facing no turning back to airfreight: If airlines are forced to reduce frequency or stop service on certain routes altogether due to competition from sea freight, will they be capable or willing to reestablish service in case we need to go back to air freight. We could end up being stuck in the very worst scenario.
- Airlines may not be willing to increase their fleet during holidays: If airlines lose much of their regular non-holiday business to sea freight, will they be willing to lease more airplanes for the holidays? The airlines could face the risk of suffering big losses if they don’t fill those extra planes. This would exacerbate points 3 and 8.
- Risk of road blocks getting to ports of origin: In Colombia specifically, the roads that lead to any port are in bad shape, and are very vulnerable to landslides, floods and bridge failures; aside from the fact that they go through regions of high conflict and protesting due to clashes of authorities with guerrillas, illegal miners and cocaine producers. You risk suffering a huge loss if a sudden road block makes you miss the deadline to get to port and miss the ship. In fact, some have already sadly experienced having to give away or dump container loads of flowers mid-way to or at ports of origin because of road blocks.
- Greater risk of drug contamination: The more complex interphases of modes of transportation involved in sea container shipping make that whole process much more vulnerable to having drugs smuggled into a shipment. Being involved in a drug trafficking investigation is definitely not a risk you want to take.
- Lack of capacity to distribute high volumes under proper cold chain once cleared at ports other than Miami: This is the main hurdle for those that have tried shipping product to ports other than Miami. Can volume at any port get to the point of receiving enough flower containers continuously to invest in developing the capacity to properly and competitively distribute the product? Many startups have failed because of this expensive endeavor. Transporting by sea to Europe, UK, Japan and even Australia has been possible because all containers get to only one port in each case. In the US, dispersing the volume to different ports works against reaching the scale needed to competitively handle the operation in any one port.
- Open the door to competition from Asia and Africa for South American growers?: Will developing the technology to seamlessly transport flowers via sea container back-fire at the South Americans by opening the path for Africans and South Asians to penetrate the U.S. and become a real threat?
The obvious question that arises from these considerations is: Do the hidden costs of all these risks compensate for the difference in freight rate between air and sea transportation? I guess we will soon see how all these factors play out since the market forces are certainly shoving us to seriously consider sea container shipping.
Be sure to share your thoughts or comments below!