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A look behind the bulk coffee revolution.

A bulk material handling revolution, which has been under way in general manufacturing for the past three or four decades in this country, has finally reached green coffee handling. It is a classic confrontation between tradition-steeped green coffee handling practices and modern technology, which in the last 20 or 30 years has already modernized such traditional industries as publishing, broadcasting, communications, manufacturing, transportation, and entertainment.

Palletization and containerization were incremental changes in coffee handling and modest procedural changes accommodated them, but bulk handling of coffee promises to be revolutionary. Following pioneering efforts in Europe, coffee is now being imported here in bulk in plastic-lined standard 20 ft. ocean containers and then directed to silo terminals built to unload and process them or send them onto the larger roasters.

Such a fundamental departure from established practice inevitably will require industry-wide changes. Judging from the casualties of other recent technological revolutions, we would be justified in expecting the demise of the ubiquitous 60 kg and 70 kg jute and grass natural fiber bags, (though one's expectations might well be tempered by the recollection of the successful fending off of the plastic woven bags about 20 years ago by these old fashioned but effective packages, so familiar to generations of longshoremen, freight handlers and coffee men). Once found everywhere - on the wharfs, in the holds of ships, and in piles in the roasting plants - will they really disappear, those reassuring symbols of permanence in a world of bewildering change?

It's hard for us old timers to accept. How do you spot a stain in a bulk container and how do you know what caused it and how do you skim it? Will our successors even know the word "slack," not to mention whether it was caused by a cargo hook or a wharf rat? Will all that hard-earned knowledge and specialized skill be wiped out, made irrelevant and obsolete? Is coffee in bags really going to disappear?

Probably not. For one thing, it is mainly the larger and more advanced coffee producing countries that have the ability to make the conversion to bulk shipping, and that leaves many countries and much coffee in the old fashioned mode, at least for some time. But as long as there is a demand for bulk delivery by the largest roasters, they will get coffee delivered in bulk, whether it is bulked at origin or at a bag-to-bulk conversion terminal in the U.S. Converting bags to bulk in the U.S. prior to delivery to the roaster, preserves the traditional bag procedures, safeguards, and benefits, up to that point. That may reassure those who are concerned about quality control in pure bulk shipments where the last good look at the beans took place in the country of origin.

At a modern coffee silo-terminal, special equipment will take continuous samples as each 20 tons of green coffee beans is dumped, like so much gravel, into a silo pit. Not a tryer in sight! Seriously damaged beans will certainly be detected, but only after that lot of coffee has already been stored in bulk in the silo and thoroughly mixed within itself. In the past, the receiver could satisfy himself as to the quality of the coffee before acceptance and physical delivery was made and before any handling expenses were incurred. Now with bulk, it will all be after the fact, and if there is a rejection by the roaster, someone will have to be responsible for the cost of the dumping, transfer, and silo storage, and for the cost of the ultimate re-delivery (and assuming a buyer can be found for the rejected coffee, that re-delivery may involve putting the coffee into - guess what - 60 kg jute bags, for at this time and for some time to come, most roasters will not be able to receive truckloads of coffee in bulk).

The coffee trade will have to develop new rules to apportion this risk-cost that didn't exist before with bagged coffee. That will be done, of course, in time, for everything can be negotiated and quantified just as everything can be digitalized. That's not a serious argument against bulk, but it is a loose end to be tied up, and it's not an inconsequential one given the razor-thin margins that most dealers work on.

What other transition problems may be out there waiting for actual practice to disclose? The midst of a revolution underway is probably the worst position from which to guess the full and final impact of that revolution, and an old green coffee traffic man is probably the worst choice to do the guessing. Nevertheless, here's what it looks like to me from the middle of the upheaval.

I classify imports of green coffee into two distinct categories. First, there are the direct purchases of the roasters, who buy from the producing countries for their own account, the green coffee that is the raw material for their manufacturing plant, very much as steel or aluminum manufacturers import iron ore or bauxite. They are usually, but not always, the very large firms, but even they probably will not supply 100% of their own needs in this way at all times. They can order it shipped from the foreign country in bulk containers (if the seller can provide this service) in the expectation that it will be delivered straight to their plant or to a bulk silo for prompt re-delivery to the plant.

As a supplemental source of supply, the roaster always can turn to the green coffee dealers (also known as traders or green coffee importers). The coffee owned by these firms comprises the second distinct category of imports. These dealers are world commodities traders selling to roasters and buying and selling to each other as each "reads" the market and supply and demand for a particular coffee. They will normally have "positions," which is to say inventories of unsold coffee, which may be real or may be paper commodity market positions, or contracts with foreign suppliers for specific coffees to be delivered over time.

The "real" coffee they own may be en route to the U.S. aboard a ship, or in a coffee warehouse at a coffee port in the U.S. The dealers are wholesale merchants and commodity speculators. They want to trade, store, finance, and sell their coffee and this can't easily be done except by individual lots - in bags. Since each coffee lot of approximately 20 tons has its own distinct character, it is not fungible, and while it is ideal physically for bulking, commercially it is not feasible for anyone but the final owner (e.g. the roaster) to combine various individual lots into larger lots.

The distinction between roasters and dealers is important to note because, while the roasters' own coffee is usually in the "pipeline" on its way to the plant (whether in a foreign country, aboard ship, or in a coffee terminal warehouse), the dealer's coffee is held for sale to, as yet, unspecified future buyers. There is an exception when the dealer buys specific coffee abroad for a specific roaster or sells coffee to a roaster while it is still afloat or has just landed. It is the storage and unspecified re-sale aspect that is most affected by the advent of importing in bulk.

William Rellstab was vice president of J. Aron & Co. Inc. New Orleans for many years before leaving to become president and ceo of S. Jackson & Son, Inc. and the Jackson-Kearney Group. He retired in 1989 and is presently a consultant for Dupuy Storage and Forwarding Co. in New Orleans.
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Title Annotation:part 1
Author:Rellstab, William F.
Publication:Tea & Coffee Trade Journal
Date:Jul 1, 1993
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