Freight and Logistics Costs Continue to Outweigh Relief on Raw Material + Production Costs as Vietnam and Indonesia see COVID flare-ups

As coconut manufacturers and importers catch up with continued high demand/low output hangover from the pandemic, logistics factors including continued extremes in freight pricing, limited shipping availability, and US port congestions on arrival continue to be the overwhelming factor on pricing and availability. Below we have provided an update on our products.

Desiccated Coconut

The first half of 2021 saw a rise in costs and delivery times for most of the desiccated coconut products as suppliers scramble to fill their existing contracts and spot purchase needs.  While Filipino and Sri Lankan suppliers show signs of catch-up, freight cost and limited shipping space continue to be the biggest factor, keeping material costs high yet stable.

International freight rates have remained at extreme levels since June, as high as 250% increase YoY from certain origins.  This has caused most suppliers to provide only FOB pricing at this time, with no guarantees of space on vessels or shipment dates.  West Coast ports continue to be the most problematic ports, with not only extreme rates, but also with 2–4-week delays standard on arrival due to congestion and limited trucking availability.

Demand looks to stay high through 2021, with supply limited and pricing stable around 5-year highs, firmly over the $2/lb. mark on Organic Medium and Fine/Macaroon DC. Many non-coconut focused importers are choosing to go ‘off the market’ on desiccated material at this time given the challenges; Some suppliers have also chosen to temporarily go off the market until relief shows, offering only value-add ingredients.

What this means to you:

Buyers should plan to order and have on hand at least 3 months’ inventory at this time. Expect pricing to stay at current extremes through January due to the stable yet high demand, higher shipping costs and continued spot order inventory shortage. Next on the horizon to further compound freight issues is Chinese New Year, which starts in February. In the two months leading up to the holiday, it is common to see GRI’s as importers try to ‘beat the rush’ of exports from China prior to the 3 weeklong holiday.

Organic Coconut Sugar

Due to renewed flare-ups of COVID restrictions for Indonesian manufacturers, 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 USA, up 75-100% from June to August. Forecast is for continued rates at this level through the New Year, if not longer.

Raw material for coconut sugar continues to provide a lag due to a less than optimal harvest paired with the pent-up demand on hold during the pandemic.  This has resulted in minimal availability of safety stock in the US.  In addition, manufacturers have recently warned of potential 2-3% price increases hitting this fall to combat the lower output due to local worker and shut down restrictions. The now extreme limitation of space on shipping containers further exacerbates the problem, causing continued tight supply for the foreseeable future.

Next on the horizon to further compound freight issues is Chinese New Year, which begins in February. In the two months leading up to February, it is common to see GRI’s as importers try to ‘beat the rush’ of outbound volume from China prior to the 3 weeklong holiday.

The US Government’s failure to extend GSP (Generalized System of Preferences) 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 2021.  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 January to do so as there are limited expectations of any price relief, and catalysts for further shipping exacerbations. It is highly recommended to keep 3-4 months of inventory on hand in case of new COVID shutdowns at origin.

Coconut Flour

While demands on Organic Virgin Coconut Oil remain high, organic coconut flour supply is stable from most origins, albeit with extended lead times and premium pricing.  Many suppliers are booking contracts through Q4 at this time, at stable rates. As with all Asian-Pacific supply chains, longer lead times are to be expected with the continued international logistics issues. As a low-cost material, Coconut Flour also remains the hardest hit from freight and logistics increases.

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 Coconut Flour which will remain for the foreseeable future. We encourage able buyers to contract this material through fall, 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, but at a considerable premium.  With the 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 3 months.

Although raw material and production costs have recently shown signs of reprieve on OVCO, freight continues to be the overwhelming factor, counteracting any origin price relief.

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 a minimum of 2 months’ inventory on hand at this time.

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 weight heavily on pricing, keeping costs stable yet high.

Second to Indonesia, Vietnam has been hit hard with freight cost increases, with a 50-70% increase June to September. Like Indonesia, Vietnam is also facing new COVID flare-ups and causing manufacturing restrictions and shutdowns, causing potential for limited stock on these materials over the next 3-4 months. Price increases of 4-6% on the raw materials due to limited output are in effect starting in Q4.

What this means to you:

Coconut Milk/Cream/Water Powder continues to be on the more stable side of the coconut portfolio, albeit at a premium. With the potential for extended shutdowns via the COVID Delta variant, we are advising all buyers to contract, or order needed material through the rest of the year if possible.

Thanks for reading! If you have questions about this market update, please reach out! You can contact us here.