Latin America’s shifting perishables trade
Increased volumes of fresh fruits and produce destined to Asia, reshaping air freight.
South American exporters of perishables have long been suppliers to the U.S. market, but they have more recently begun to extend their supply chains for delivering these commodities to new markets across Asia.
While shipping fruit, such as blueberries and cherries, from Chile to Asia is not yet a full-blown trend, freight forwarders specializing in these goods have started seeing a general movement away from the United States toward China and other Asian countries. This is being spurred by the emergence of Mexico as an agricultural supplier to the United States, taking away some of that traditional market share from South America.
“You’re going to see the Asia guys looking for the product or the guys like Chile, Peru, Argentina, Brazil seeing Mexico taking a little bit more of the U.S. market, which is forcing them to find markets for their product,” said Chris Connell, president of Los Angeles-based Commodity Forwarders. “Asia becomes this unknown customer that they’re going to be trying to get to. We definitely see a good trend going to Asia.”
Taking Chile fruit as an example, according to the Inter-American Development Bank, the country exported $1.3 billion worth of product to the United States in 2013, up from $1.1 billion in 2012. This is a significant amount of trade, which will likely continue. And while Chile’s exports to China are growing — the bank reported $373.3 million in trade last year, after seeing $273.4 million in trade in 2012 — the South American country’s status as a top exporter of fruit to the United States seems secure for now.
In other parts of South America, fruit trade with the United States fell from 2012 to 2013 — Brazil was down to $104.7 million from $144.6 million, and Argentina saw a drop to $119.8 million from $128.9 million .
According to the U.S. Census Bureau, total U.S. imports from Central and South America totaled a little more than $50.6 million for the first four months of 2014. The result is a little more than $2 million less than at the same point in 2013.
South America’s perishable trade with Asia is also increasing because many of those countries have free trade agreements with Asian countries.
“The U.S. still has not signed an active free trade agreement in quite a long time into the Asia market,” Connell said. “There are some advantages the free trade agreements that are coming into place between Latin and Asian countries.”
On the export side, Neel Shah of forwarder Able Freight said the regulatory tug-of-war between China and the United States will also benefit the Latin American countries, which will ramp up their exports of perishables to Asia. Some Latin American countries will have an easier time with import laws into Asia than the United States because of what Shah sees as a regulatory quid-pro-quo between the two countries.
Shah noted large American shippers that want better perishables access to the Asian market are simply setting up shop in other countries and sending direct exports into the region from those new locations. This means Asian consumers are still getting U.S.-branded products, but the goods aren’t necessarily being grown in America, he said.
Shah said demand for U.S. products overall, however, is on the upswing worldwide. Consumers in the Middle East, Europe and Australia are all clamoring for American perishables, he added.
Able Freight experienced a solid start to 2014, with increased export activity leading to a strong January and February. While weather and geopolitical issues can dampen exports, Shah said demand for American perishables remains “very healthy.”
While Shah sees Latin America using its “ideal growing conditions … to expand their share of the global perishable market,” he said transportation infrastructure challenges remain for the region. Latin America lacks an efficient road-feeder system, and crime makes moving goods to the airport risky, in some cases.
“They’ve got to get their arms around those kind of things,” Shah said. “If you can’t get crime and security under control, that will eventually stunt growth of all products.”
Products from Mexico will continue to replace the downturn in imports from Latin America. Mexican growers are starting to produce some of the goods that historically came in by sea or air from Latin America, and since these goods can come across the border by truck, this trend is bringing cheaper perishables to consumers.
“Mexico itself is growing more varieties [of fruits and vegetables] that are looked upon favorably by the United States. As Mexico puts their products with less risk into the U.S. market, that will force the Latin countries to try to get product into other markets,” Connell said. “I would say there’s a long-term focus that Mexico will create more competition for the U.S. market.”
Chasing Air Transport. Traditionally, perishables from South America have been shipped by air, but modal shift has crept into the market, and Ximena Villa Garcia, Commodity Forwarders’ regional manager of Latin America, noted South American exporters are adjusting shipping schedules to Asia to load perishables onto oceangoing vessels to China more quickly.
“The ocean carriers in Latin America are trying to create shorter routes to Asia. Ocean carriers are starting to get really aggressive on routes,” she said.
Connell said in the past 10 years, he’s measured a slight shift toward vessels packed with blueberries and other fruit going to U.S. importers. These shipments would have historically been routed on all-cargo aircraft, but ocean carriers have focused on technological improvements that make sea transport a cheaper option. Connell said blueberries are now “put to sleep” during a vessel voyage by enhanced cool-chain processes and reach the United States ready for market.
While air transport is still used prominently for Peruvian asparagus, Chilean stone fruit and products from Argentina, the quest for lower priced transits has increasingly driven shippers from air freight.
Shah said large volumes of perishables continue to move out of South America on sea-air routings. But he warned that air carriers have to continue to provide value or shippers will cut them out of the transport picture.
For now, “I think the products that have traditionally gone by sea continue to go by sea. But you always have to be on guard for that,” he said.
Air cargo is inherently more expensive, but it has also experienced a bit of a capacity crunch due to a lack of all-cargo planes. While Connell said there is more passenger lift heading in and out of Latin America than ever before, freighters to the region have been phased out because they guzzle too much fuel and lead to trade imbalances, or in other words planes flying full in one direction and empty in the other.
“Having access to passenger lift has probably helped fight the tide of modal shift, but clearly, the ocean guys have gotten their act together, and there’s more product going by boat than ever before, particularly on the blueberry side,” Connell said.
Perishable exports into the United States are also getting more expensive because of new regulations. While Connell said the regulatory landscape doesn’t shift that often, a new rule that required fumigation of blueberries from Chile, which was imposed after the busy season last year, left importers scrambling to find ways to comply and still get goods into the United States.
“The regulation coming in to require fumigation on the inbound [blueberries] really caught the Chileans and the U.S. importers flatfooted,” he said. “Now they’ve basically had a full year to prepare for this coming season, and there will be better plans put in place to react to the regulation change.”
Part of the problem at the start of the regulation’s implementation was a lack of fumigation facilities in Chile dedicated to blueberries, so this created a bottleneck of supply and drove prices up. While this bottleneck should be eliminated this coming season, prices will still be higher than they have been in the past because of the extra fumigation step, Connell said.
To stem the tide of ocean transportation and bring air transport of perishables back to prominence, Latin American governments are investing in airport cargo facilities, especially those dedicated to cool-chain activities. Connell noted investments at the airports in Kito, Ecuador; Lima, Peru; and Bogota, Colombia, are leading the way toward a revival of air transport of perishables.
“It’s a positive example that airports in Latin America are looking at improving their infrastructure to either rebuild perishable traffic or to maintain perishable traffic versus a better invested sea freight mechanism over the past 10 years,” Connell said. “They realize they need to invest in cool-chain infrastructure to promote air cargo of agricultural goods more so than they have done.”
This article was published in the July 2014 issue of American Shipper.