Richard Williams, Falcon Coffees Asia, Managing Director
Southeast Asian roasters are very good at importing coffees themselves. More out of necessity than anything else. At Falcon Coffees Asia, we speak to many roasters across the region, and learned that many began to do this because there was no other way to get access to good coffees. Even with the increased number of importers in the region, many roasters have sustained self-reliance.
This is exceedingly rare in the specialty coffee world. Despite the high number of roasters across Europe, North America and Australasia claiming some kind of direct trade model almost all of them (your favourite roaster included) utilise importers and traders in some way to help them get their coffee from origin to roastery door. There are some fundamental business reasons for this.
1. Coffee is a high value product that requires large amounts of cash. Having this cash tied up for long periods is not efficient. Using this cash to grow your business is usually a preferred use.
2. International shipping standards mean shipping small volume (less than a container or 19 tons) is inefficient.
3. Importing agricultural products to most countries requires specific knowledge, documentation, and systematic controls.
4. The use of equity should be carefully evaluated. As a business owner any equity you have put at risk should in theory provide a return. Many businesses use 20% return as a benchmark. Below this and you would be better off putting your money into a diversified ETF investment fund or a high yield term deposit where it will be much safer and offer you between 8-12% return.
But finance is not the only reason people get into business, especially in the specialty coffee industry. We’re a passionate community of people that often have other reasons to pursue success in the industry. But the best, most sustainable way for you to pursue your passion in this business is to do it profitably. So good financial understanding and discipline is crucial.
How trading companies are structured
Trading companies usually have a very specific structure to allow them to provide value to their clients. In other words, they need to find a way to be more efficient at certain tasks than their clients to provide a service and make that service profitable. Here’s how a trading company might typically be structured:
1. Trading companies have low equity but utilise large finance lines at low interest rates.
2. They build teams of efficient experts with well executed systems for managing logistics, quality control, certifications, and payment.
3. They live every day in the world of pricing and market knowledge. Traders will know the value of various products intimately, helping to provide insight into the price being paid.
4. They know the best way to transport coffee. A change of port or a different route can save time and money.
5. Access to cheap freight. Traders book their freight a year in advance with shipping lines often giving us much cheaper rates that what can be achieved on the spot market.
With all this in mind, let’s compare the model a specialty roaster might use to import small volumes of coffee on their own against using an importer to manage it.
As an example, let’s assume you’re importing 50 bags of a Colombian coffee worth 350c/lb FOB. Different traders will have different interest rates, I’ve used 12% as this seems to be about the average being charged in the specialty industry right now. For interest on “self-import”, I have used the 20% return on equity number. On the self-import calculation replacing the trader margin I’ve included opportunity cost. This is just the time spent by the roaster and their staff managing the import of one container. I haven’t included the potential return on the other activities that person may do during that period which has the potential to drastically increase this number.
The margin a trader charges a roaster will be based on the amount of risk they are taking and the volume of coffee that roaster is moving. Larger volumes incur lower charges and higher risk trades will incur higher margins.
The following breakdowns come from real costing sheets we use every day to price business. Despite that, there are many variables that can change costings one way or the other. These costings are representative of most conditions a trader or roaster is likely to find during the shipping and import of coffee. (I have not included any Duty or VAT charges as these vary greatly by import country).
Figure 1
Is the total cost you would expect to pay a trader to import your coffee. Total uplift is all costs above FOB pricing expressed in USD/kg.
Coffee imported by a trader (50 bags):
| TOTALS | COST C/LB | AS A % |
|---|---|---|
| Coffee Cost FOB | 350.00 | 79.7% |
| Financing Costs | 13.81 | 3.1% |
| Handling | 29.14 | 6.7% |
| Freight Costs | 25.95 | 5.9% |
| Trader Margin | 20.00 | 4.6% |
| Total | 438.89 | 100% |
Total Uplift $2.09/kg
Figure 2
Is the total cost you would expect to pay if you imported the coffee yourself and included the cost of your money and opportunity cost. Total uplift is all costs above FOB pricing expressed in USD/kg.
Coffee imported by roaster:
| TOTALS | COST C/LB | AS A % |
|---|---|---|
| Coffee Cost FOB | 350.00 | 78.7% |
| Financing Costs | 31.64 | 7.1% |
| Handling | 29.14 | 6.6% |
| Freight Costs | 25.95 | 5.8% |
| Opportunity Cost | 7.94 | 1.8% |
| Total | 444.67 | 100% |
Total Uplift $2.09/kg
Figure 3
Is the cost should you consolidate your coffee into a container that an importer is already moving from origin. This is where the real savings start to show up as it slashes the portion of the freight you pay because the trader is spreading that cost across the full container capacity. Total uplift is all costs above FOB pricing expressed in USD/kg.
Coffee imported by a trader in a consolidated container:
| TOTALS | COST C/LB | AS A % |
|---|---|---|
| Coffee Cost FOB | 350.00 | 79.7% |
| Financing Costs | 13.81 | 3.5% |
| Handling | 5.45 | 1.4% |
| Freight Costs | 4.72 | 1.2% |
| Trader Margin | 20.00 | 5.1% |
| Total | 393.97 | 100% |
Total Uplift $0.97/kg
It will not always be true that working through a trader or importer will be cheaper. In some instances, it may cost more. Every case is different, and each roaster will need to evaluate the situation for themselves. But almost certainly, using a trader or an importer will be faster and easier every time.
At Falcon, globally our largest teams are logistics and finance. Our logistics teams handle many shipments a day and are fantastically efficient. They know all the regulations; we have forwarders and warehousing partners in place globally. Our finance team are well versed in dealing with bank collections, letters of credit, and other international payment procedures. This allows you to hand off the shipment and focus on other things that will add more value to your business.
The other thing traders and importers can do is support you to define your own supply chains. If you always wanted to have a steady supply of coffee or you want to support a particular cause at origin such as female empowerment or sustainability, we can help you to find the right partner and facilitate the relationship giving you an edge over your competitors. We exist to foster relationships between producers and roasters for mutual benefit and positive impact.
