How America’s farmers got cut out of the supply chain
By Peter S. Goodmanr
During a normal spring, the sight of orchards bursting with clusters of almonds is a boon throughout California’s Central Valley. Here is money growing on trees.
Not this year.
As Scott Phippen looked out on his orchard on a recent afternoon, he felt a sense of foreboding tinged with rage. His warehouse is stuffed with the leftovers of last year’s harvest — 30 million pounds of almonds. Orders assembled for customers sit in giant white plastic bags and cardboard cartons, awaiting ships that can carry them across the water to Asia, the Middle East and Europe.
The almonds are here, the customers are over there, and the global shipping industry is failing to span the divide.
Every week, Phippen, 67, overseer of his family business, Travaille & Phippen, peers hopefully at a calendar showing confirmed bookings on container vessels sailing to points worldwide from the port of Oakland, 65 miles to the west on San Francisco Bay. Every week, he absorbs all manner of disheartening news: No shipping containers available, no vessel arriving, no space on board.
“My warehouses are already bulging at the seams,” Phippen said. “It scares the crap out of me, because in five months I’m going to get a new crop in the door.”
Beyond a logistical torment, the crisis assailing almond producers is inflicting deep financial consequences, from diminished revenues to higher costs for storage.
Most of the almonds stuck in Phippen’s warehouses have already been purchased by buyers across the water, but he cannot collect payment until they make it onto a ship.
The exasperation of agricultural exporters amounts to the latest chapter of the Great Supply Chain Disruption, the tumultuous reordering of international trade and transportation amid the worst pandemic in a century. At the center of the story is the shipping container: the steel box that revolutionized commerce, allowing unfathomable quantities of goods to be carried around the planet.
Shipping companies — which last year collectively secured profits reaching $190 billion — harvested especially enormous returns on their routes from Chinese ports to the West Coast of the United States.
Traditionally, carriers unload containers arriving from China at the twin ports of Los Angeles and Long Beach, and then ship empties up to Oakland, where they are reloaded with almonds and other agricultural crops.
But in recent months, the carriers have put growing numbers of empty containers back on ships immediately. The companies can make more money sending the valuable containers directly back to Asia, where they are refilled with goods destined for American consumers.
Almond growers like Phippen have been left with limited options to deliver their wares to customers abroad. Throughout California, more than 1.1 billion pounds of almonds from last year’s harvest are sitting in warehouses, a volume roughly one-third larger than this time last year, according to the Almond Alliance of California, an industry trade group.
As the Biden administration contends with public anger over inflation, the president has seized on the shipping industry as a central part of the explanation. President Joe Biden used his State of the Union address to excoriate carriers for mistreatment of “American businesses and consumers,” while vowing a “crackdown.”
But the shipping industry counters that it is being scapegoated for the broad turmoil unleashed by the pandemic amid booming demand for goods produced in Chinese factories, from exercise bikes to kitchenware. Despite floating traffic jams at major ports, a supposed shortage of truck drivers and a dearth of warehouse space, the carriers have managed to move record volumes of cargo.
As an exporter, James Blocker’s job is to move Phippen’s almonds across the ocean. Right now, booking passage on ships is bordering on impossible.
Blocker’s company, Valley Pride, is among the largest exporters of almonds in California.
Every year, California farmers produce more than 3 billion pounds of almonds, or about 80% of the world’s supply. Nearly all those nuts are harvested on more than 6,000 farms in the Central Valley.
In 2013, Blocker, 41, started Valley Pride. The business includes an orchard and a packing plant, but its heart is an enormous sales and distribution operation that buys almonds from growers throughout California and exports them around the world. Last year, Valley Pride sold 140 million pounds of nuts while securing revenues reaching $350 million.
Although Valley Pride is generally compelled to pay its growers no later than a month after an outbound shipment arrives at a port, the company does not itself get paid until the almonds make it to their final destination.
The chaos roiling shipping has widened the time between those two events. That has forced the company to tap its credit line, expanding what it has borrowed to about $8 million from less than $2 million, Blocker said.
In a typical week, Valley Pride dispatches 50 containers full of almonds, the vast majority out of Oakland. In recent weeks, the company has struggled to confirm just five bookings. Even those have tended to be “rolled over,” in shipping parlance — bumped to a later date — when loading day arrived and no containers could be found.
“That’s happening week after week,” Blocker said. “They tell us, ‘We don’t have equipment.’ What I hear is, ‘We do have equipment, but we’re not going to give it to you.’”
Before the pandemic, about 40% of all containers leaving the ports of Los Angeles and Long Beach were loaded with goods and the rest were empty, according to Sea-Intelligence, a shipping consultancy. But over the past year, carriers have shipped more empties back to Asia, with the share of outbound loaded containers dropping to 30% at Long Beach and 21% at the port of Los Angeles.
Carriers have also bypassed Oakland with increasing regularity — something that occurred only about 1% of the time two years ago, according to Sea-Intelligence, yet was happening nearly 25% of the time by late last year.
Meanwhile, carriers have raised shipping rates. In June, Mediterranean Shipping Co. — the world’s largest container carrier — was charging $1,400 to move a 40-foot container from Oakland to Dubai, United Arab Emirates. This month, the carrier raised the fare to $7,700, while refusing to honor previous rates on bookings that had been repeatedly rolled.
Last year, Valley Pride had logged about $100 million in revenue by the end of March. This year, it has tallied half that.
Valley Pride has looked into other route options, such as hauling almonds east to the port of Savannah, Georgia. But the train passage across the country alone could take two weeks.
So Blocker conducted a reconnaissance trip to Houston, where containers are more abundant. He lined up warehouse space and was looking into trucking his cargo there, then shipping out of the Gulf of Mexico.
Trucking to Houston will add $2,800 to the cost of sending a container. His logistics team discovered there were no bookings available from Houston to Dubai until the middle of June. And they entailed “premium” charges of $5,200, more than double the going rate of $2,400.
Still, this seemed worth pursuing. The alternative was staring at bags of almonds stuck in warehouses.
Agricultural exporters are competing for space on ships with enormous importers like Amazon and Walmart. They traditionally incur much higher rates than exporters and can afford to pay the premiums carriers are demanding.
That spread has been widening. Before the pandemic, importers shipping goods from China to the West Coast of the United States paid two to three times as much as American agricultural exporters shipping goods in the opposite direction, according to Freightos, a cargo booking platform. Now importers are paying 10 times as much.
Blocker recently drove 110 miles north to Manteca to visit his most important customer, Phippen.
What they talk about lately is how to get containers onto ships. Phippen’s warehouse is now full of enough almonds to fill 678 containers.
In the busiest months of the year, he needs about 100 containers to handle his usual flow of exports. In January, he shipped 66. In February, 55, and in March, fewer than 50.
He has shelled out $820,000 to buy 3,000 more storage bins for his warehouses. He is spending another $700,000 to build an additional warehouse.
But he cannot shake the suspicion that he has become a rube in a global economy run for the benefit of others.
“There’s a lot of people taking advantage of the situation,” he said. “Somebody’s screwing with us. We’re getting jacked around here.”