Cocoa was once a major minor-bulk commodity. Now it is largely a container business. Are there any prospects for a reverse of this trend?
Like many other commodities, cocoa is now shipped by and large in containers. Breakbulk accounts for only 7% of the 4.5 million tons of cocoa beans transported annually and bulk – “megabulk” in the industry parlance – another 5%, according to statistics provided by Philip Sigley, the chief executive of the London-based industry group Federation of Cocoa Commerce, or FCC.
However, the story of how breakbulk has largely lost out in the cocoa trade is quite unique. It’s a tale of a highly valued, but relatively small niche crop that is caught up in much larger issues of global shipping and trade.
All things being equal, breakbulk works best for shipping cocoa beans. That has to do in large part with exacting standards for moisture content. Moisture of less than 6% makes the beans too brittle, while more than 7.5% greatly increases chances of spoilage. Moisture exceeding 8% is considered grounds for rejecting the shipment.
As the Cocoa Merchants Association of America wrote in its shipping guidelines in late 2015, “cocoa beans characteristically have a propensity to develop condensation and to re-absorb moisture, and to become easily infested while in transit. Experience has shown that the breakbulk method of ocean transport of cocoa beans responds best to this hygroscopic feature of cocoa.”
As a result, the association’s standard shipping contracts until a few years back actually prohibited shipping cocoa beans in containers without explicit permission by the buyer.
But in shipping, all things aren’t equal, and cost trumps just about everything.
“Despite not being the best form of transport, containers are much cheaper than breakbulk or bulk in hold,” said Sigley.
First, some basics: While many countries in Latin America grow cocoa, or cacao trees, two African nations – Ivory Coast and Ghana – account for slightly more than half the world’s production. Cocoa beans remain the domain of small farms, with maybe two to five hectares, each producing one or two tons. According to industry estimates, upwards of 20 million individuals are dependent on the cocoa trade.
“It’s not a large market,” said Sigley. “It’s a specialist market, but it keeps a lot of people employed.”
Bean Bag transit
Jute bags, each holding 62.5 kilos of dried cocoa beans, remain the preferred standard. They “breathe” well and help avoid condensation. “It’s the best method of preserving the quality of cocoa,” said Sigley.
Containerized shipping lines began to pursue cocoa beans transport some half-century back. As incentive, the lines offered LCL/LCL terms. This meant that the carriers would take responsibility for any damages, eliminating any protracted dispute about whether the shippers, lines or even buyers were at fault. “Insurers were happy with that,” said Sigley, since they had recourse.
Fast forward to the early 2000s. The global freight market was firing on all cylinders. With demands for their services on the rise, shipping lines changed the terms offered to cocoa exporters, from assuming responsibility for the shipment to merely providing the container, or FCL/FCL.
That, naturally, didn’t sit well with either exporters or insurers. But by then dependence on containers was too strong to reverse the flow. In part, that was a product of the efficiency, regularity and ease of container transport. It also reflected global trade flows. Containers full of consumer and industrial goods were being shipped to Africa and South America. Rather than ship back empty boxes, shipping lines were happy to charge minimal amounts for cocoa-filled containers. That bargain-basement pricing undercut breakbulk rates considerably.
Bulking up Boxes
Meanwhile, some of the largest agribusiness conglomerates such as Cargill had begun in the 1990s to move cocoa in bulk carriers to Europe, applying grains handling techniques to the bean. That, however, proved of limited use, and for many reasons. It adds complexity to everything from loading and unloading to storage and local transport. What’s more, only the largest factories could accommodate bulk beans. In the US, the FDA looked askance at beans sitting on factory floors, and the practice never took hold.
So saying, some 28% of all cocoa now shipped is bulk, but in containers.
To help minimize the chances of spoilage, the FCC established guidelines for shipping by container. These included the use of corrugated cardboard to line the insides of containers.
Cocoa prices have declined over the past five years, with oversupply from top producer Ivory Coast. With margins steadily eroding, shipping costs are critical. Once again, that favors containers. But consolidation of carriers and alliances has spiked a rise in pricing, could this bag a few more shipments for break bulk?