Tag: andromeda forwarding

  • Taking Freight

    Taking Freight

    Photo: Transcom Sharaf

    The Covid-19 pandemic continues to disrupt tobacco shipments and storage.

    By Stefanie Rossel

    While the tobacco industry, famed for its resilience, has fared comparatively well during the Covid-19 pandemic, an essential part of the business continues to face challenges: the segment specialized in the shipment and storage of leaf tobacco.

    The outbreak of the coronavirus severely disrupted the global supply chain, leading to a persistent worldwide shortage of containers. As the pandemic spread from Asia, many countries enacted lockdowns, thereby halting economic movements and production. Temporary factory closures caused large numbers of containers to pile up at ports. Carriers reduced the number of vessels to control costs and avoid the erosion of shipping rates. Such moves strangled import and exports. Consequently, empty containers were no longer picked.

    This problem especially affected Asian traders who couldn’t retrieve containers from North America. When Asia’s economy started recovering and China resumed exports even as other countries were still dealing with restrictions, a reduced workforce and minimal production, almost all remaining containers in Asia headed out to Europe and North America, but they failed to return quickly enough for the next shipments.  

    In the U.S., which is also struggling with labor shortages and more complicated customs procedures due to stricter border controls, containers began to pile up. According to Hillebrand Freight Forwarding, out of every 100 containers that arrive in the U.S., only 40 are returning to Asia, with the remainder accumulating in ports and storage facilities.

    A global slowdown in container production due to the Covid-19 pandemic as well as raw material shortages have added to the crisis, as have Covid-19-related port closures. In July 2021, only 36 percent of ships arrived on time, according to Invest Monitor. Unsurprisingly, the costs of transporting goods by container ship have gone through the roof over the past two years.

    Guy Harvey

    Limited Availability, Exploding Rates

    Kyle Kok

    For logistics and storage providers, the situation remains serious. “Our biggest challenge has been obtaining suitable equipment for packing and shipping,” says Guy Harvey, CEO of Transcom Sharaf Group, which is headquartered in Beira, Mozambique. “With reduced vessel callings caused by congestion, slower container turnarounds and reduced imports, it has been a struggle to find enough containers. Some shipping lines prioritized the evacuation of containers to Asia to take advantage of the inflated ocean freight charges and high demand. The increased demand for empty containers also meant empty container free days were drastically reduced and detention charges increased. The reduced vessel callings have made it extremely difficult not to incur demurrage and detention by the time the vessels arrive and sail.”

    Susceptible to pests and diseases, leaf tobacco is a demanding good to transport and store. “The lack of containers has also meant we have had to lower the high standards we set for tobacco grade containers and have had to heavily invest and incur cost upgrading containers ourselves and in partnership with the lines,” Harvey continues. “With fewer vessel callings, shipping has been slower; we have gone from four or eight vessels a month to two at best. Two of the bigger lines have had limited or zero space availability at all to Europe for most of the season due to congestion at their transshipment hubs and overbooking on their European routes. This has meant more pressure has been placed on one shipping line to export the tobacco and reduced competition that affects service delivery and pricing. We have seen transit times to destination more than double as well and often extended dwell times in less-than-satisfactory ports where cross-infestation of tobacco beetle is highly prevalent from past experiences.”

    Kyle Kok, account executive for tobacco at Andromeda Forwarding and Logistics of Rotterdam, Netherlands, hopes that space will free up on vessels by the end of January or in February when the crunch in cargo from the holiday season is out of the way.

    “However, please note that shipowners will not reduce their rates any time soon. What we also have noticed during this pandemic is that many shipowners have their personnel work from home, which does not result into a better productivity, getting answers or even making quick bookings.”

    Lisa Rautenbach, Andromeda’s manager of the tobacco department, estimates that since the beginning of 2020, shipping rates have increased by a factor of five to seven. “But this also differs from which route is being undertaken. For example, cargo to the USA has increased by 530 percent since the beginning of this year.”

    Harvey has seen the cost go up 10-fold on certain routes and in response has reduced orders for shipments to certain destinations. “The limited options and flexibility to some destinations being monopolized by one shipping line has caused costs to spiral,” he says.

    Lisa Rautenbach

    Increased Need for Storage

    Transcom Sharaf and Andromeda Forwarding have been looking for ways to avoid the chaos that currently plagues global supply chains. “We have seen a lot of traditional routes, such as Durban, move back to Beira in some cases and vice versa, where often the decision is based purely on container availability at any given time,” notes Harvey. “Due to the lack of containers in the hinterland, there has been a huge increase in break bulk tobacco to the ports for containerization, which has also led to a bigger and longer storage requirement. We are fortunate that tobacco is a high-value commodity for the region, and as such, we can get some sort of priority on vessel space allocation, but again, it is dependent on container availability.”

    “Vessels remains fully booked as the shortage of containers remains,” observes Andromeda’s director, Bart Brouwerens. “We are looking for all and any options, not only via the regular lines but also via outsiders with smaller vessels, which also want to take part in this market with these high freight rates! Furthermore, Andromeda tries to look at every shipment from every angle, truck/barge/rail connections, etc.”

    To handle the bottlenecks in ports and longer-than-usual storage periods, Andromeda has secured some guaranteed space at certain lines and for certain vessels, Rautenbach explains. But this comes at a price. If forwarders and their clients are unwilling to pay such premiums, shippers may very well delay the shipment or roll the cargo onto another vessel in favor of more profitable cargo.

    Harvey says that Transcom Sharaf has sufficient storage capacity. “But we also had lower-than-average production in the region this year—at the right time for us, fortunately. There have been some tense moments, though; we have had to re-look at the one-third to two-thirds split on container storage space versus warehouse space and will put this into our future development plans now that we have seen how fragile the supply chain can be. We are fortunate to work so closely with our clients and plan openly and accurately on all our movements and timings—without these relationships and the communication lines, the season would have been extremely problematic. We have to forecast months in advance in order to position sufficient empty containers in time.”

    Supply chain disruptions have forced freight-forwarders to reevaluate the amount of space they devote to container storage and warehousing, respectively.

    Uncertain Future

    Just-in-time delivery is virtually impossible nowadays, or available only at premium rates, according to Brouwerens. Andromeda advises its clients to have loading schedules ready as soon as possible in order to reserve space well ahead of the shipping date. “At this stage, we are being forced into a situation that we offer cheap warehousing space in, among other [locations], Antwerp and Dubai and in any city requested via our vast agency network,” he says. “This [is] only because of the unreliability of the services the major shipping lines offer.”

    Brouwerens adds that, regretfully, Andromeda must uphold its credit agreements with its clients strictly as rates are rising considerably. “Shipping lines demand payment either directly or after 14 days,” he says. “If we pay late, shipping lines will cancel the aforesaid 14 days immediately and will fine you with an additional percentage. This all has taken a part of the joy of good communication with lines away, but we, therefore, enjoy extra the good relation we have with our clients and will do so for many years to come.”

    Despite disrupted leaf tobacco deliveries, Harvey expects the big tobacco companies to avoid the experience of the automotive industry, which has been struggling with a shortage of semi-conductors. “Despite the challenges, we have managed to meet our scheduled deliveries fairly well under the circumstances,” he says.

    “I do not see the bigger players being affected or lacking leaf from this region during the current season. However, smaller buyers may definitely face challenges similar to [those of] the automotive industry. Those sourcing from other origins may also be negatively impacted where other commodities may be prioritized above tobacco. Should the situation deteriorate further, there will be an impact on all our customers. If production volumes increase substantially next year, this would also create further disruptions in the current supply chain.”

    Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.
  • Back in Business

    Back in Business

    Photo: Tobacco Reporter archive

    The Uncommitted Tobacco Auction returns as an online marketplace.

    TR Staff Report

    The Uncommitted Tobacco Auction (UTA) is back. Reinvented as an online marketplace, the platform will offer tobacco companies an opportunity to anonymously sell uncommitted non-seller, distressed, substandard, damaged and stocks to the highest bidder.

    Confidentiality and anonymity are desirable in the early stages of a transaction so that buyers don’t favor one supplier over another. When similar types/grades of tobacco are on offer at differing prices, the electronic exchange system soon establishes a “published” market price, with prices escalating in times of shortages and declining in periods of excesses.

    The first UTA was created in 2006 by a group of tobacco veterans looking to inject new dynamism into the tobacco trade. Operating on thin margins, leaf merchants are keen to minimize surplus tobaccos on the balance sheet. Previously, their choice was to either sell excess leaf at a discount or pay for storage while waiting for prices to firm up.

    However, the potential market was limited because of competitive issues—most tobacco dealers would rather not directly sell to or buy from their competitors. In addition, tobacco merchants selling discounted tobaccos want to avoid giving buyers the impression that their “regular” tobaccos are overpriced. The UTA exchange process eliminates these concerns as neither party knows who the sale is made to or where the product comes from—transactions are simply confirmed on a willing-buyer-and-willing-seller basis.

    During the platform’s first iteration, warehouse operator Tabaknatie ran the physical auction at its premises in Antwerp, Belgium, and the UTA team handled the interactions between buyers and sellers. The process was supervised and controlled by trust office FTC, which also handled contracts and invoicing.

    According to initiator Rainer Busch, who also leads NewCo, the first UTA was a success. The initiative, he says, received lots of attention, and numerous traders participated in the platform. “There are many reasons why a seller would want to put damaged or excess stock on the market,” says Busch, adding that the original UTA processed “several million kilos” of tobacco during its existence.

    However, as the UTA gained momentum, Busch’s other business expanded even faster, requiring him to set priorities. With insufficient time to devote to both projects, Busch decided to put the UTA on hold. The first UTA ceased operations in 2009, but the concept clearly struck a chord. Over the following decade, customers continued inquiring about the platform at regular intervals, asking when it would return.

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    Rainer Busch

    Their patience is about to be rewarded. According to Busch, the time is now right for the UTA to make a comeback. The conditions that led to the original UTA—slim trader margins and a desire to avoid surplus tobaccos—persist, and plenty of surplus tobacco remains on traders’ balance sheets. Busch estimates that there is some 155 million kg of uncommitted packaged inventory sitting in warehouses worldwide, including 95 million kg of flue-cured Virginia, 35 million kg of burley, 10 million kg of tobacco byproducts and 15 million kg of other varieties.

    At the same time, technological and societal developments have turbocharged interest in online platforms. The Covid-19 pandemic has forced many activities online, and technology has evolved to handle them smoothly. Online business-to-business interactions have generated considerable efficiencies in many industries, reducing travel expenses and increasing profits. Even the traditionally conservative tobacco industry has become comfortable with online transactions.

    Unlike the first UTA, which featured a physical auction in Antwerp, the new iteration will be an exclusively online marketplace, eliminating the need for traders to send representatives. Bids will be visible to all involved, and multiple buyers can compete for a batch. If the buyer requires product samples, the seller will send two sealed samples to the UTA sampling room at Andromeda Forwarding & Logistics’ facilities in Antwerp. The UTA will forward one sample to the potential buyer and retain the other for mediation in case a dispute arises.

    Alan Rosenthal

    To ensure smooth operations, the new UTA will be managed by Alan Rosenthal in Dubai, who for decades has run a successful online spice trade platform based on the same concept.

    According to Rosenthal, most bulk commodities are similar in that there is a product, specification, packing and price attached to all transactions. Spices and tobaccos tend to thrive in similar climates and are often cultivated in the same geographical areas. The relationships between farmers and buyers in the spice trade are comparable to those between tobacco growers and tobacco buyers, and the industries share many concerns, such as those about pesticide residues.

    Of course, there are also differences between the sectors. Unlike tobacco, which is highly concentrated, the spice industry is characterized by thousands of manufacturers who produce, process, trade or manufacture finished food products around the world. While tobacco is a high value, high volume industry, the number of companies is limited due to the high capital cost of business entry and the enormous expense associated with launching new cigarette brands.

    Rosenthal believes his world spice exchange has enhanced business where dynamic companies are willing to embrace the new technological advances in trading. 

    “The world is moving towards electronic trading, so either willingly or unwillingly we will be pushed into this style of business due to its wide reach and low cost,” he says. “Everyone can see how electronic trading has affected the futures and forex markets. It’s my belief that in a short space of time, the physical movement of bulk commodities will also be done by exchanges and electronically.”

    Currently, Rosenthal’s company is in the developmental phase for an online marketplace for the B2B tea business, where traditional teas auctions still take place. Animal feed is also in developmental stages.

    Busch and Rosenthal believe the tobacco industry, too, stands to benefit greatly from an online marketplace. 

    UTA procedures and requirements will guarantee suppliers’ integrity, and a team of industry experts is on hand to inspect shipments, which will also be handled by Andromeda Forwarding & Logistics. A full report will be generated to satisfy all industry standards.  

    Sellers will pay a one-time registration fee of $2,500. After registration, the seller will enter his stocks on an online platform, which any interested buyer can access. If a buyer is interested, he can request a sample for evaluation. After evaluating the sample, he can make a counter bid online. The seller will be informed by the UTA, and if he accepts the offered price, the sale is confirmed under the terms and conditions set by the UTA.

    Before shipment takes place, the buyer must transfer the money to an escrow account of the UTA. The nominated shipping agent of the UTA will arrange the shipment from FOB origin to CIF destination port. After the arrival and approval of the tobaccos at the destination, the seller will receive his payment. The UTA will deduct its commission from the payment to the seller.

    If the industry interest in the first UTA is any indication, the reinvented platform can look forward to busy times. While it is difficult to predict the volumes that will pass through the new UTA at this stage, Busch says the organization is determined to continually drive up the volumes and create value for the industry.

    For more information on the new UTA, please visit www.utaproducts.com.

  • Coping with Covid

    Coping with Covid

    Photo: Transcom Sharaf

    Accustomed to dealing with unforeseen situations, tobacco storage and logistics companies take the pandemic-related disruptions in stride.

    By George Gay

    During a telephone call on April 10, 2019, Guy Harvey, the CEO of logistics company Transcom Sharaf Group, which is based in Beira, Mozambique, told me that while his business had suffered “a few blows” from Cyclone Idai, it would come out of it stronger than it went in and better equipped to deal with any future extreme weather events (see “After the Storm,” Tobacco Reporter, May 2019). The port was operating, and the infrastructure was there, “so it’s business as usual,” he added.

    It is astonishing how resilient some companies are. For those who need reminding, Cyclone Idai, which struck Malawi, Mozambique and Zimbabwe in the middle of March 2019, was described by the U.N. as one of the worst weather-related disasters in Africa. Other agencies rated it as one of the worst in the Southern Hemisphere.

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    Given what happened two years ago and Transcom’s response to those events, I wasn’t surprised when, at the end of February this year, I was in touch with Harvey again and learned that, while the Covid-19 pandemic too had delivered a few blows to the company’s tobacco business, these had been fended off with judicious changes to normal and planned methods of operation. Nor was I surprised that, in one sense at least, there was a feeling that the business might come out of the pandemic stronger than it went into it.

    As part of an email exchange, and in answer to a question, Harvey told me the pandemic had to some extent disrupted leaf tobacco delivery times on those markets that use Transcom’s facilities. There had been a delay in getting sample test results and, as a consequence, delays in obtaining sales confirmations and shipping instructions, which had resulted in longer-than-usual storage periods of higher volumes, he said. In addition, some destination countries also had higher-than-usual tobacco stocks at ports or storage facilities, the result of their own shutdowns; so they could not accept new-crop tobaccos as soon as would normally have been the case. “A lot more shipments had to be carefully scheduled to limit volume arrival per month, which required careful planning,” said Harvey. “In some cases, financial pressures meant sales were rolled to 2021 completely.”

    Guy Harvey

    Different ways of working

    Meanwhile, Rene Luyten, a director of b-Cat, which, as part of its business activities, works closely with tobacco warehouse and logistic companies, made the point that whereas the pandemic had affected all businesses, this didn’t mean necessarily that business activities were down in all areas; in some cases, it just meant that different ways of working had had to be adopted. Before the pandemic, it was usual to visit customers’ sites, whereas now, some of those “visits” had gone virtual—were being made via video calls, which in most cases worked well. And though some new projects had had to be put on hold last year, the company had been able to send technicians to install its Controlled Atmosphere Chambers, which, for instance, are used by some warehouse operators to control insects in tobacco stocks.

    Rene Luyten

    Harvey pointed out that Transcom had been fortunate in at least one respect because Mozambique had suffered fewer restrictions than other countries in southern Africa and, indeed, than those in much of the rest of the world. The only strict shutdown in Mozambique had occurred in April and May 2020, which was in any case the normal “off season” for tobacco. And while temporary government office closures and restricted working hours had added some documentation delays, the movement of cargo from Transcom’s facilities to and into the port of Beira had hardly been affected.

    By the same token, Luyten considers b-Cat to have been fortunate to operate out of the Netherlands, which has operated a “Smart Lockdown,” thereby allowing the company to operate its factory as normal throughout the pandemic. On the negative side, he said, supplier delivery times had been extended, but even this had not affected b-Cat’s operations materially. One upshot of this business continuity is that, not only has the company been able to retain all its employees, but it is expecting to have to take on additional skilled technicians.

    Due than higher-than-normal tobacco stocks at ports and storage facilities, some shipments had to be carefully scheduled to limit volume arrival per month during the pandemic.

    Premium shipping rates

    While getting tobacco to the port of Beira has been relatively straightforward for Transcom, shipping it out of Beira has presented challenges. During the past three months, some shipping lines have been moving their empty containers to Asia to meet the high demand there, regardless of export contracts already in place, and, in some cases, customers have had to pay higher ocean freight rates than those for which they would have budgeted.

    Bart Brouwerens

    And in this respect, it might be some time until things return to normal. Bart Brouwerens, a director of the Netherlands-based Andromeda Forwarding & Logistics, told me in an email exchange at the beginning of March that rates for containers from the Far East had quadrupled during the past year. Lots of clients were holding shipments in the hope that rates would decrease, Brouwerens said, but “regretfully this is not the case yet.” Vessels were fully booked and, for as long as shipowners were able to attract high levels of freight, they would require their clients to pay premium prices. “I do not foresee any changes to this in the near future,” he added.

    As is suggested above, while for most industries and business sectors the pandemic has been hugely negative overall, some individual businesses, while suffering, have been able to take advantage of new opportunities. Transcom, for instance, has seen an increase in tobacco from Zimbabwe being routed through the Beira corridor because of the strict lockdowns and border closures that have been in place on the more traditional routing to Durban, South Africa. “This is an opportunity for us to show the services we can provide and hopefully grow more market share,” said Harvey. In a similar way, while pandemic-inspired restrictions on travel have been largely negative for a company that values face-to-face meetings and believes they cannot be replaced completely with virtual meetings, it believes also that, in the future, regular conference calls will comprise a useful addition to in-person meetings.

    Despite the pandemic, b-Cat has been able to send technicians to install its controlled atmosphere chambers.

    The importance of face to face

    Luyten seems largely in agreement. He believes that making on-site contacts will remain important (and more fun than remote interactions), but that the travel this involves can be reduced and, indeed, rendered more efficient and effective by augmenting it with video calls, which he sees as being fast and efficient.

    One aspect of b-Cat’s business that lends itself well to such ways of working is its vQm (modified atmosphere) packaging system, which is used mainly in the food industry and which is said to be taking off hugely. Luyten explained that this was a simple and flexible system that didn’t need installation support on-site. The client could operate the system without the physical presence of b-Cat personnel.

    While dispatching tobacco has created challenges for Transcom, so, too, has ensuring receipt of the supplies necessary for conducting its business. Imports of spares and maintenance items from China and South Africa have been a lot slower than pre-pandemic, and the company has had to get used to holding higher stock levels than it would like to do and to planning further ahead. At the same time, it has been challenging getting the overseas contractors needed to work with some of the company’s specialized equipment and new project developments, which means that it has had to put some projects on hold and make alternative plans in respect of others.

    Making a plan

    Despite these setbacks, Transcom has retained and protected all its staff, none of whom had tested positive for Covid-19 by the time of our email exchange. Nevertheless, Harvey was not being complacent. Mozambique was currently facing its highest rates of infections, so preventative measures had been increased accordingly, he said. Transcom had introduced a program of continuous education and awareness, something that it hoped had benefitted society beyond the work environment. Strict sanitary measures had been introduced while the wearing of face masks and social distancing had been made compulsory. In addition, the company had introduced takeaway meals from its canteen according to a rotational shift system and increased the number of work shifts with lower staff numbers per shift. It had cancelled all external, noncritical visits to site for a long period, assessed on a case-to-case basis. Additionally, it had stopped all nonessential staff travel, and, where travel was essential, post-trip, home quarantine had been made a requirement.

    It is a similar situation at b-Cat, where there have been no positive Covid-19 tests among employees, even those who have been travelling. Many precautions had been taken, said Luyten, both by b-Cat and by the clients on behalf of whom b-Cat had been operating. Strict protocols were in place, and all b-Cat’s employees had been provided with personal protective equipment while, at the same time, receiving clear instructions, including those concerning the need to respect the precautions being taken by client companies. Of course, Luyten added, none of this could eliminate completely the risk created by Covid-19, but, so far, maintaining high standards of hygiene and applying common sense had kept employees safe.

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    It is too early to say what will be the full financial impact of the changes that have had to be made because of the pandemic, but this should be clearer by the end of this year. Harvey did say, however, that the pandemic had been a tough pill to swallow given that Transcom was still recovering from the effects of Cyclone Idai. The company had been proactive in business diversification planning and had taken advantage of the extra volume coming through the corridor due to the restrictions in South Africa. “We hope to show our new clients that we are a better alternative and establish long-term relationships with them,” he said.

    So, what about the future? When, if ever, shall we be back to “normal”? Well, Harvey doesn’t think things will ever return to “normal” but that businesses, such as Transcom, will adapt to the “new normal,” perhaps by the end of this year, by which time, it is hoped, vaccination programs will have been rolled out regionally. Certainly, some protocols introduced because of the pandemic will remain in place indefinitely.

    In addressing the question of the future, Luyten put his faith in science and, particularly, in the development of vaccines, though he said that the rollout of such vaccines to everybody was still some way in the future. And even then, he questioned whether life would return to what it was pre-pandemic. In the meantime, he added, it was incumbent on people to make the best of the situation and hope for an end to the loss of family members and friends to Covid-19.

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.