With Demand Increasing for Many Coconut Ingredients, Logistics and Freight Costs Continue to Inflate Pricing
Continued high logistics costs and freight difficulties have been the continued story of 2022, with Indonesia, Vietnam, and the Philippines continuing to be the hardest hit origins. Some hope for improved rates in the 2nd half of 2022 remains, but most likely not until towards the end of the year.
Desiccated Coconut
While Filipino and Sri Lankan suppliers finally show signs of normalization on raw material and production costs, freight cost and limited shipping space paired with high demand continue to be the biggest factors, keeping material costs in the high range through Q2 at the earliest.
International freight rates have remained at extreme levels since June, as high as 250% increase year-over-year from certain origins, and higher since the start of the pandemic if bookings can be received. Most suppliers provide only FOB pricing at this time, with no guarantees of space on vessels or outbound shipment dates. West Coast ports continue to be the most problematic ports, with extreme rates and 3–4-week delays now the standard on arrival due to congestion and limited trucking availability. Most carriers have warned of potential 30+ day rollover delays for all West Coast ports due to high congestion. Slowly but surely, logistics bottlenecks have become equally if not a greater problem on arrival and locally in the USA.
There is some expectation for relaxation of international freight costs in the 2nd half of the year. However, with seasonal demand increases, paired with many importers choosing to tread lightly on speculative inventory due to freight rates at highs, pricing continues to stay firmly around the $2/lb. mark on Organic Medium and Fine/Macaroon DC on stateside inventory for pallet quantities. Many non-coconut-focused importers continue to stay ‘off the market’ on desiccated material at this time given the lead time and pricing challenges.
What this means to you:
Buyers should focus on having enough inventory through May or June if possible when some hope should surface for better logistics rates by the 2nd half of the year. Expect pricing to stay at current levels through this time due to the stable yet high demand, higher shipping costs, and continued spot order inventory shortage.
Organic Coconut Sugar
Continued production limitations due to staffing, paired with a less than optimal harvest, means sugar supply continues to be tight yet stable. As with all imported ingredients from the Asian Pacific, freight costs and delays continue to be the overwhelming factor on pricing and timing of inventory. Indonesia is now taking its turn as the hardest hit origin for freight cost to the USA, up over 100% in the last 8 months. It has only gotten higher since the start of COVID, if space can be found. The forecast is for continued rates at this level through May (at the earliest), with the hope of a slight reprieve by June.
Raw material for coconut sugar continues to lag due to a less than optimal harvest along with the pent-up demand on hold during the pandemic. This has resulted in decreased availability of surplus spot order stock in the US. The serious limitation of space on shipping containers further exacerbates the problem, causing continued tight speculative inventory for the foreseeable future. To make matters worse, the logistics problems have spilled over into the US now, with limited truckers, chassis, and drayage availability on arrival. Please expect delays and limited stock on the West Coast.
As a reminder, the US Government’s failure to extend GSP (Generalized System of Preferences) in 2021 has compounded price increases due to supply chain troubles, resulting in a 5.1% tariff on all imported Coconut Sugar for the foreseeable future.
What this means to you:
Buyers can expect to pay higher prices as demand & shipping costs remain high through May at the earliest. In addition, extended lead times are to be expected, with freight averaging an additional 3-4 weeks to land at stateside warehouses. We advise all buyers capable of pulling or contracting material through May to do so as there are limited expectations of any price relief until June. If possible, it is highly recommended to keep a minimum of 3 months’ inventory on hand in case of any new COVID shutdowns or limitations at the origin.
Coconut Flour
Organic coconut flour supply is stable from most origins, albeit with extended lead times and premium pricing. Suppliers are booking contracts through Q3 2022 at this time, at stable rates. As with all Asian-Pacific supply chains, longer lead times are to be expected due to the international logistics issues and local freight shortages. Coconut flour remains the hardest hit from freight and logistics increases as a low-cost material.
For the first time in a couple of years, it appears that coconut flour has again begun to increase in demand in the market, further limiting stateside stock for spot orders.
The US Government’s failure to extend GSP (Generalized System of Preferences) has also hit all origins on this material, resulting in a steep 9.6% tariff on all imported coconut flour.
What this means to you:
Although pricing is stable, the un-extended GSP along with extreme freight rates have resulted in sharply increased pricing on the low-cost organic coconut flour. This will remain for the foreseeable future (at least through April). We encourage able buyers to contract this material through May, especially at larger volumes. The Coconut Cooperative is offering discounts on this material at 10+ pallet contracts through considerations from its supplier-partners to combat the extreme logistics costs.
Coconut Oil
Like flour, both organic RBD and organic virgin coconut oil production is becoming increasingly stable, albeit at a premium. With the recent legislative bans of palm oils at some origins, local markets have resorted to RBD material to replace a standard industrial ingredient, resulting in a significant demand squeeze on organic RBD coconut oil pricing over the last 6 months. As expected, spot order buyers are faced with a shortage of organic RBD in US-based inventory, resulting in significantly higher prices compared to the last 3-4 years.
Although raw material and production costs have recently shown signs of reprieve on OVCO, freight continues to be the biggest factor, counteracting most of origin price relief. The start of 2022 has brought a compounding of the freight and logistics troubles with further bottlenecks on the domestic US side of the equation.
What this means to you:
Although coconut oil remains on the stable side of the coconut ingredient portfolio, material remains at a considerable premium, especially RBD material. Freight costs and delays continue to force buyers to have no choice but to pay premiums for material, which furthers the market’s bubble. We are recommending that all buyers capable to have inventory levels that will last through April. TCC is currently offering discounts on OVCO orders of over 10 totes, please inquire if interested.
Coconut Milk Powder | Coconut Cream Powder | Coconut Water Powder
The Vietnamese origin coconut milk and water powder supply remain on the stable side of the portfolio. However, as with all other portfolio materials, freight woes weigh heavily on pricing, keeping costs stable yet high.
Second to Indonesia, Vietnam has been hit hard with freight cost increases in the last 8 months, with a nearly 100% increase from July to April. Like Indonesia, parts of Vietnam continue to face COVID flare-ups, causing manufacturing restrictions, and the potential for limited stock of these materials over the next 3-4 months. Expected manufacturing price increases of about 5% on all coconut milk/cream/water powder material due to raw material and production costs are now in effect for 2022.
What this means to you:
Coconut milk/cream/water powder continues to be on the more stable side of the coconut portfolio, although at a premium. With the potential for extended shutdowns because of the COVID variants, we are advising all buyers to contract, or order needed material through May if possible due to high and increasing demand.
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