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Update on San Francisco's exchange point designation.

There's a new exchange point on the map. The transportation and warehousing of coffee has recently experienced some exciting events here on the West Coast. The biggest news is San Francisco's recent designation as an exchange point, along with the licensing of warehouses for storage and handling of coffee for the Coffee, Sugar & Cocoa Exchange, Inc.

There are three exchange ports in the U.S.: New York, New Orleans and San Francisco. Of these, San Francisco currently ranks third in terms of the volume of coffee handled. The recent move to designate San Francisco and Oakland as exchange points allows the coffee industry to broker (sell in bulk directly) through San Francisco and Oakland, and promises to increase the quantity of coffee coming through the Port of San Francisco.

According to John Neudecker with the Port of San Francisco, "Prior to this designation, all the coffee which was delivered through San Francisco was purchased directly from suppliers in foreign countries. Now, there is another place from which coffee can be bought, the Exchange warehouses." The Port now hopes to provide substantial enticement of its own for this potential increase in coffee business. Neudecker explains, "We are definitely going to concentrate more of our marketing resources on the Latin American market."

Currently, seven of the eight steamship lines which call in the Bay area call in at the port of San Francisco. Neudecker maintains that these relationships will remain integral to the Port, "We look forward to providing better and better service to these steamship lines. On the facilities side we have covered storage available at our container terminals. Additionally, we even have a warehouse company dedicated to the handling of coffee directly on the port, and we are talking to other warehouses about their offering similar services. We also have specialized programs such as an overweight program, which allows heavy containers to move smoothly around the port from facility to facility. Furthermore, a lot of the support services for the coffee industry are on the San Francisco peninsula, close to our port. These include roasters, re-baggers, and weigh-masters."

As Neudecker and others in the industry indicated, it is also true that carriers are looking at the Latin American market more closely. Aided by the North American free trade pact, the exchange point designation for San Francisco suggests great opportunities for those in the transportation industry.

Neudecker estimates that, "Most of the steamship lines coming into this Port today are running transpacific. About 30% of cargo is going to South America, so this is a small market compared to that going to the Far East and Australia." The rule of the trade of course is that you put ships where the cargo is. If people have ships in unprofitable trade routes, they may re-deploy them, and by all the indications, coffee and San Francisco seem to be a positive alternative. While New Orleans has the advantage of geographic location in serving South America, the West Coast and hence San Francisco has the consumer market, especially for coffee. With the exchange point designation, coffee which is destined for the consumer market of the coffee-thirsty West Coast can now be shipped more economically via the longer sea voyage to San Francisco. Importers can thus avoid the expensive land freight costs of railroad or truck transportation from New Orleans to West Coast points.

Although there was no specific confirmation, at least one major steamship line has approached re-routing to include the San Francisco stop since its designation as an exchange point. Mike Kallock of Harold King & Co., advises that the industry will, however, have to wait and see how utilized the delivery point is before steamlines react. Chances are that we will probably see more charter vessels for major players bringing in 50-60,000 bags. "The only way to beat the freight rates," Kallock points out, "is by bringing in entire shiploads." Steamlines can react to this movement in one of two ways: either they will raise rates to make up for lost volume to charter vessels, or they will lower rates to become competitive.

Will rates in the transportation end of the coffee industry respond at all to the increased volume? Probably not. Without exception, members of the industry agreed with Dave Weber of The Annex who surmised that "Transportation costs are at a fair stable level, and they've been there for a number of years." Cathy Selbig of the Chipman Corp. added, "Unfortunately, as far as this side of the industry is concerned, the labor force requires pay increases not decreases, and the costs of operating such as fuel and rent have gone up not down. Consequently, there is little chance that the price of transportation and warehousing is going to decrease."

A hesitant optimism

The recognition of San Francisco as a destination point is, according to some in the transportation industry, overdue. Selbig of Chipman is excited by the designation, "The Coffee, Sugar, and Cocoa Exchange will probably find the San Francisco market is much bigger than anyone realized. This is really positive news for importers and brokers." She believes that those industry members who take advantage of the new designation will find that it works to their advantage.

To many in the industry however, this optimism is tempered with caution. Most believe that the impact of San Francisco's designation will probably not be significant for the next couple of years. While the industry is projecting that an additional 400,000 bags will come into the West Coast as a result of San Francisco's designation, Dave Weber of The Annex responds to this prediction with some trepidation. "I don't foresee this happening in the next year. I believe 400,000 bags is a realistic long term number, but when it will happen nobody knows." He agrees that the move is an exciting one but insists that the long term picture is the rosier one, "As a warehouse person and trucker I don't anticipate a major influx of coffee overnight. While this exchange point is going to help everybody in the industry on the West Coast, it's going to be slow growth."

While it makes sense that the volume of coffee coming into the Bay Area will increase as a direct result of the exchange point designation, questions about how much, and more particularly from where remain. One possible scenario is the movement of coffee from the Port of Laredo via railroad into San Francisco or Oakland. This option is a feasible one as the amount of coffee you can get in a boxcar is significant, and this alternate route is as cost-effective as shipping containerized cargo directly to the West Coast.

Saving money, always a priority for any business, is an increasingly important consideration in today's financial atmosphere. Money for transportation and warehousing costs is not easily obtainable. As a general rule, people are less optimistic and hence less willing to wait on the market. Everyone is having to watch expenses carefully, and the cost of storing coffee eats into an already low profit margin for most importers and brokers. As a result, the large inventories of unsold coffee which existed a few years ago are no longer present. What many in the industry hope to see accomplished by the presence of the exchange is an increase in the amount of coffee at hand. Knowing that there is another customer in the form of the Exchange, importers can feel somewhat more secure about bringing in coffee. Further, with the option to sell to the Exchange the chances of being left holding onto excess coffee in warehouses is significantly decreased.

Successful warehousing in Latte town

Another big news item in the transportation and storage of coffee has been the opening of coffee warehouse facilities in Seattle by the Chipman Corp. Chipman already operated a warehouse in the area but the need for coffee people in the Pacific Northwest was tremendous. Approached by Dave Olsen at Starbucks, Chipman was soon convinced that a hole in coffee warehousing existed that simply needed to be filled. Chipman's Seattle warehouse has been open for a little almost a year and by all accounts is a success.

Cathy Selbig of Chipman points out that there are numerous advantages to the Northwest coffee industry in having a facility so close at hand, "One of the greatest advantages is convenience, the fact that inventory is readily available for roasters. Our new Seattle warehouse, as well as our recently opened facilities in Portland also cut down on the freight costs as well, particularly land transportation. Containers can now be taken directly to the Port of Tacoma or the Port of Seattle."

Dave Olsen at Starbucks agrees, "The primary savings in using the Seattle facility comes from the fact that I can get coffee basically ex-warehouse Seattle without paying surface transportation from somewhere else. It's a cross-town move, and a luxury that roasters in the Bay Area, and to a limited extent elsewhere on the West Coast, have enjoyed for years."

The convenience of coffee at hand provides flexibility for roasters such as Starbucks, but also provides importers with increased options. If the coffee they have brought in is unsold there is the option to sell to any roaster in the area needing that particular coffee. Like the similar scenario which exists in the Bay Area with the Exchange, the increase in options provides a safety net for a market understandably reluctant to take unnecessary chances.

What the exchange point designation of San Francisco and the promising expansion of coffee warehousing into new markets both mean is that the transportation and storage industry is attaining new levels of sophistication in being able to service the West Coast coffee industry. Although no one is quite willing to indulge in optimistic predictions, there is a definite under-current of excitement at the prospects held forth with these latest developments.
COPYRIGHT 1992 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:coffee imports
Author:Moore, Wendy Rasmussen
Publication:Tea & Coffee Trade Journal
Date:May 1, 1992
Previous Article:International Coffee Agreement: rest in peace.
Next Article:Continental Terminals: not just any warehouse.

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