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  • OTLT.USA
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Special Coverage: The global seafood supply chain

The global seafood supply chain is a complex one, and is challenged by various headwinds that can be costly to the industry.

Source: OCEAN BEAUTY SEAFOOD

   The global seafood supply chain is a complex one – the window during which certain species are captured can be narrow, and the catch can fluctuate widely, not only from week to week, but from year to year.
   The big seafood companies source around the world and some have production facilities both in the U.S. and overseas in countries like China that have lower labor costs.
   Equipment failures, the inability to obtain sufficient space on ships or airplanes, or not having enough equipment, such as refrigerated containers, can be costly since so much effort is put into planning.
   And changing consumer tastes present yet another challenge.
   One such company, Canada’s High Liner Foods, said last year it saw “lower demand for traditional breaded and battered frozen seafood products,” a trend it expects will continue.
   Annual per capital consumption of seafood in the U.S. was 15.5 pounds in 2015 and has ranged between 14.4 pounds and 16.6 pounds since 1990.

Ocean Beauty. Jan Koslosky is vice president of supply chain management at Seattle-based Ocean Beauty Seafoods, the number one producer of wild-caught canned and smoked salmon, and a major producer of fresh and frozen salmon as well as a wide variety of other seafood species.
   “In order to be successful in all the various markets we are in, we do participate in a lot of other fisheries,” Koslosky explains. As a result, “We really wind up touching all modes of transportation to be able to support all of this activity.
   “If I had to pick one word that determines the success or failure of being able to mount a logistical pipeline that works, it is collaboration,” he said.
   Each year, Koslosky meets with key vendors like Alaska Airlines, its domestic ocean carriers Matson and Alaska Marine Lines, and international container carriers Maersk, APL, OOCL, MSC and CMACGM to explain Ocean Beauty’s strategy for the year and expectations for continuing support.
   The catch of Alaskan pink salmon, which consists of several different species that account for around 65-70 percent of the wild fish caught in the state, varies greatly from year to year. Only 39 million fish were harvested in 2016, compared with 160 million in 2015, 95 million in 2014, and 219 million in 2013.
   Building a logistics pipeline flexible enough to accommodate those swings is challenging.
   Last year was “the lowest pink salmon return since the early 1970s,” said Koslosky. “We have not yet seen a scientific explanation, but global warming and increased ocean acidification may be contributing factors.”
   In January, then-U.S. Secretary of Commerce Penny Pritzker determined that there were commercial fishery failures for the pink salmon fishery in Alaska, as well as eight other salmon and crab fisheries in Washington state and California, “due to unusual ocean and climate conditions.” The designation enables fishing communities to seek disaster relief assistance from Congress.
   Kenny Gill, vice president of Alaska for Matson, notes that seafood shipments also vary from year to year because of quotas put in place by the North Pacific Fishery Management Council.
   “It’s a very well managed fishery up here in Alaska, to make sure it is sustainable for the long term,” he says. “[But] every year it is different. In 14 years, I don’t think I have ever seen the same season twice.”
   Gill said it is necessary to pre-stage refrigerated containers, “because you don’t know if it is going to be a heavy domestic market out of the gate, or export. If you don’t have a box ready for the processors, they will take somebody else’s box.”
   When the season comes, “it hits hard and fast, and then it’s over,” he said.
   Koslosky said Ocean Beauty faces a number of issues that require close attention, including the positioning of containers for both domestic and international use, particularly at remote locations; obtaining sufficient airlift capacity at a time when domestic wide-body lift is being reduced; port efficiency; shifting ocean carrier alliances and capacity reductions; and obtaining sufficient on-demand trucking capacity.
   Ocean Beauty normally operates six shore-based production facilities in Alaska. Five of them – in Naknek, Alitak, Cordova, Excursion Inlet and Petersburg – are seasonal and directed at wild salmon. KFSK, a local radio station in Petersburg, reported in February that the company would mothball its canning plant this year because market conditions favor selling frozen salmon over canned.
   The company’s sixth plant – in Kodiak – operates year-round, and the company participates in the harvest of all the North Pacific species, including crab, pollock, halibut, flatfish, and salmon.
   Ocean Beauty has two valued-added facilities in Washington state, one in Seattle, where it produces hot-smoked salmon, and one in Monroe, which produces cold-smoked salmon and is one of largest fish smoking operations in the country.
   “While we view ourselves as primarily a wild Alaska salmon company, we’ve grown way beyond that and offer the full range of products for our retail customers,” noted Koslosky. For example, the company sells products made from farmed Atlantic salmon produced in Chile, Poland and Norway.
   While the company processes fish in North America, it also has fish further processed in Northern China and Thailand. It will ship frozen headed and gutted wild Alaskan salmon or other fish like cod to locations such as Dalian and Qingdao. There it is drawn out of cold storage by the company’s co-packer partners, who will thaw it, and make it into sides or portions and package it. It is then shipped to customers in the U.S. and around the world.
   Buying seafood from other companies, even competitors in Alaska, “gives us more manufacturing bandwidth,” explains Koslosky. “It’s a trading arrangement and usually moves pretty quickly, which helps to continue to generate revenue, but you don’t need to carry it in inventory.”
   The company has a network of third-party operated cold storage warehouses in China, Japan, Holland and Lithuania to place commodity inventory as close to the end-user customer as is practical.
   A private company, Ocean Beauty is half-owned by the Bristol Bay Economic Development Corp., a not-for-profit organization that promotes economic growth and opportunities for the residents of 17 communities surrounding Bristol Bay in Western Alaska, and three long-time private investors.
   The company does not divulge its annual sales figures, but Koslosky says it ranks among the top 10 North American seafood companies and is probably one of the three largest fresh seafood shippers out of Alaska. It ships somewhere in the neighborhood of 1,000 containers of refrigerated seafood to 30 countries annually, and imports another 300-400 containers of fish from overseas – tilapia and mahi-mahi harvested off the coast of South America, for example—and finished product returning to the domestic market.
   But Ocean Beauty’s operations extend across the country. The company has fresh seafood distribution centers in Seattle; Portland and Astoria, Ore.; Boise, Idaho; Helena, Mont.; Salt Lake City, Utah; and Dallas, and a fleet of 80 to 90 vehicles to get product the last mile to customers, which include both retailers and food service accounts.
   With most of its catch coming from Alaska, the company uses Jones Act marine carriers, truckers, and air carriers – both chartered aircraft and regularly scheduled carriers such as Alaska Airlines – to get its product to market.

Keeping It Fresh. Salmon runs vary both by species and geographic area but in Alaska are compressed into a relatively short period of time that begins in mid-May and begins to wind down in August.
   Copper River salmon, which include Chinook (King), Sockeye and Coho, are the earliest Alaskan salmon and begin to run in the middle of May. Those salmon are widely marketed, particularly in the western states, and are a real “money fish,” said Koslosky. “We need to be able to move that fish to market as quickly as we can.”
   The company ships an average of 3 million pounds plus using a combination of scheduled air service, additional charters and ALCAN Highway carrier Lynden Transport. And Ocean Beauty’s bottom line depends on the reliability of those carriers in ensuring product arrives on-time and at the correct temperature.

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   Located near the Copper River, the company’s Cordova plant ships out fresh fish arriving there within six to 10 hours, according to Koslosky. “The salmon that’s harvested at Copper River is so valuable and so expensive that we ask our 110 fishermen that fish for us down on the river flats to bring the fish directly to our dock, where that fish is immediately butchered and cased up and goes right to the airport,” he said. The company strives to have all of its fresh fish delivered to its destination within 24 hours.
   Koslosky says special precautions are taken to ensure freshness. Each case of fish has four frozen gel packs that help stabilize the temperature in the box, and the company uses an additional liner inside the container. This way, when the ship arrives at the customer, the fish is under 40 degrees, which he said is the temperature at which a retailer such as Kroger or Whole Foods will reject a shipment.
   Koslosky has a broad transportation background. A former Sea-Land executive, he has operated his own NVOCC, an air forwarder, and managed a fleet of 10 refrigerated breakbulk vessels servicing communities along the Aleutian Chain and Bering Sea.
   When he joined Ocean Beauty, the chief executive of the company said he was “one step away from completely cancelling the fresh program” because fish was arriving at above acceptable temperature and upsetting valuable customers.
   So the company developed a training program in conjunction with Alaska Seafood Marketing and presented it to airlines and their employees to help them understand “the biology of what is going on inside the box of seafood,” said Koslosky. He personally taught 20 classes for cargo handlers and supervisors in Anchorage and Seattle.
   The company also collaborated with Weyerhaeuser to develop a recyclable fiberboard liner to help insulate containers, and started using time temperature devices on every shipment, one on the outside and one in the inside, “so we could identify dwell time to make sure when that box got to a relay point such as Seattle or Anchorage, it did not sit on the tarmac between flights,” he added.
   A protocol was developed to put the fish in a freezer to reduce the BTUs of the packaging that had accumulated by that point in transit, and a triage program was established so that if air capacity out of Anchorage, for example, was compromised, an air freight forwarder would come pick the fish up, repack it and re-tender it so that the shelf life was not lost.

Alaska Airlines. Ravelle Snyder, a cargo sales manager at Alaska Airlines, says her company transports about 21 million pounds of fresh seafood from Alaska, carried throughout the country on its own planes or those of interline partners.
   “With every different seafood, every different fish, there’s logistical challenges,” she says, but “air cargo is really about fresh seafood moving fast and not breaking that cold chain while it’s moving.”
   Obtaining sufficient capacity for seafood is a major challenge. Like many carriers, Alaska Airlines over the years has switched to smaller, more fuel efficient aircraft such as B-737s that have less belly space. The airline operates one freighter and five combination 737-400s that can carry four unit load devices for cargo in the front of the aircraft and passengers in the back.
   But the company plans to start retiring those planes and replace them with three 737-700 freighters, which will give more capacity to move cargo.
   “Getting capacity where it needs to be when it needs to be there is a huge challenge,” said Snyder. Catches can be either underestimated or overestimated, she noted, echoing Koslosky’s remarks on the need for close collaboration.
   For example, Alaska Airlines worked with Ocean Beauty and the Transportation Security Administration to make sure seafood companies could be certified to screen their own cargo. Without that, “there wouldn’t have been Copper River salmon in Boston on the first day of opening,” said Snyder.
   Airports are another challenge, as they sometimes don’t understand the need for cargo to get quickly in and out of their facilities.

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   “It doesn’t help us any if we get the fish out of Alaska and on time to Boston if there is a truck waiting 10 hours to pick it up,” she said.

Switching Modes. As the salmon run builds, more inventory comes into the system, and prices fall, Koslosky says airfreight movement is not sustainable, so Ocean Beauty runs truckloads of sockeye salmon down the ALCAN highway from Anchorage to Seattle.
   “We run it with team trucks, two people driving,” he said, noting that it takes about 56 hours for the trucks to make the roughly 1,400-mile trip. “The fish has been headed and gutted and iced, and arrives in excellent condition. And we either process it here or we have it processed for us locally into sides or portions or whatever, and then it immediately moves in to the market.”
   As the season progresses, Matson moves salmon to both Tacoma for domestic use and to Dutch Harbor, where Maersk, APL and NYK all pick up seafood destined for Asia. Some of the seafood gets transshipped to destinations as distant as Europe.
   Ocean Beauty is a buyer of both domestic and international ocean transport.
   In addition to shipping its products to customers in 30 countries, the company sources seafood from producers in Europe, South America and Asia, and uses its distribution network not only for its own production, but for seafood it buys from brokers and importers on the commodity market. It also has a network of offshore co-packers in five different countries that help the company produce seafood for both domestic and export distribution channels.
   Ocean Beauty operates and co-owns the largest canned salmon labeling business in the country. All of the company’s Alaska plants are canneries, and the canned product is shipped to Kent, Wash., where it has a 240,000-square-foot facility with four labeling lines that can label cans ranging in size from a quarter pound to one pound. With less need for speed, the company’s five canneries outside of Kodiak are served by the barge operator Alaska Marine Lines.
   The company also competes for food bank contracts from the U.S. Department of Agriculture and orders from non-governmental organizations, which bring the fish to areas that have suffered catastrophes such as earthquakes or extreme weather. Because canned salmon can be stored without refrigeration and is high in nutrients, it’s an ideal product in such situations.
   For major retailers in the U.S. like Publix, Kroger and Trader Joe’s, Ocean Beauty has a vendor management inventory program. It makes product to their specifications, either under its own brands or the retailer’s private label. The fish is shipped to the customers preferred cold-storage location, which improves the order cycle.
   When the supermarket issues a sale order, Ocean Beauty processes it and releases it to the customer’s regional distribution center.

High Liner Foods. Headquartered on the other side of North America in Lunenburg, Nova Scotia, High Liner Foods is a leading seller of frozen seafood in North America. Publicly-traded on the Toronto Stock Exchange, the company had sales of $956 million in 2016, down slightly for the second year in a row from $1 billion in 2015 and $1.05 billion in 2014.
   High Liner has processing plants in Newport News and Portsmouth, Va., in addition to its facility in Lunenburg. (The company sold another facility in New Bedford, Mass., last year).
   With the lower demand for breaded and battered seafood, it says “innovation activities and new product offerings in 2017 will focus on bringing new customers to the frozen seafood category through the introduction of new frozen seafood products that align with emerging consumer trends and preference.”
   While High Liner sources some cod, haddock, mussels, walleye, scallops, cold water shrimp, sole and lobster in Canada, Darcey McKay, an international transportation manager for the company based in Halifax, says, “We import into North America from all over the world.”
   The company sources more than 30 different species from over 20 countries. About 37 percent of the company’s products are sold in retail stores under the High Liner name, as well as Fisher Boy, Mirabel, Sea Cuisine and C. Wirthy & Co. The remaining 63 percent are sold to restaurants and institutional buyers under brand names such as High Liner, Icelandic Seafood and FPI.
   “We procure over 250 million pounds of seafood every year,” said McKay, about 30 different species, including wild caught pollock, Atlantic and Pacific cod and salmon, and shrimp and tilapia from aquaculture producers.
   McKay said High Liner has grown rapidly through acquisition. In 2005, the company’s total sales amounted to about $250 million.
   Integration of the supply chains of acquired companies had been a challenge, and Keith Decker, the president and chief executive officer of High Liner, said that in 2016, the company completed a supply chain optimization project begun in the third quarter of 2014 that has resulted in “pre-tax cost savings in excess of $20 million on an annual run-rate basis.”
   According to McKay, “Seasonality is a huge factor in our supply chain, in many different ways. The seasonality of the fisheries (both wild-caught and aquaculture), the seasonality of the shipping industry, and the seasonality of our customer demand all play a big part in this.

Alaskan container terminal
Alaskan seafood is a major commodity at APL’s terminal in Dutch Harbor.

   “For the fisheries themselves, there is a seasonality component which varies from species to species and we need to ensure we source enough supply during that season to ensure we are able to meet customer demand year-round. Pacific salmon, for example, only has a four month harvest. On the aquaculture side, there is also a seasonality element involved. Tilapia, for example, is not harvested in some parts of the world during the winter months as the water is too cold. Seasonality of wild-caught species does not drive the use of aquaculture species as there is separate demand for each of these.”
   And the biggest challenge in procuring ocean freight is the “peak” shipping season leading up to the winter holidays because “equipment and vessel space is tight, and we are usually moving higher volumes at this time,” the former ZIM executive said.
   “To deal with this, we employ a couple of practices to make sure we get our shipments on the water on time. We maintain a blend of long-term and short-term agreements with carriers to ensure we have dedicated space. Also, we’ll have agreements with enough different carriers so that if we run into issues with one carrier we can fall back on others to make up for it,” he explained.
   McKay said High Liner does not use air cargo except for samples and in emergency situations when it is low on inventory.

Separate Profit Center. Interest in refrigerated cargo varies among container carriers, with some more keen than others.
   But Dirk Peters, a commercial director at CMA CGM, said the Marseilles-based carrier manages its reefer business, including seafood, “basically as a separate profit center, as a separate product,” with specialized staff that operate separately from the traditional container departments that manage the bottom line for each service. CMA CGM has operational control of about 223,000 reefer plugs in its global network.
   “The main challenge in the reefer business as we see it is to develop solutions for the different products that are carried,” said Peters. Seafood is the third-leading refrigerated cargo after produce and meat, and he says carriers have been trying to develop new equipment to meet the specific needs of various customers.
   This has led to a proliferation in different types of refrigerated containers – 20-foot reefer boxes (popular among exporters of lamb from Australia and New Zealand), standard 40-foot reefers, 45-foot containers, 40-foot “super freezers.” But the increasing number of container types makes equipment positioning more challenging, he said.
   The company’s latest innovation is called “Aquaviva,” a 20-foot reefer Peters says can carry up to 2,800 lobsters. The specialized container is equipped with water filtration and oxygenation systems that CMA CGM claims can extend the post-transport life of lobsters from a few days to several months.
   “Because the lobsters basically spend 10 to 12 days of the voyage in their natural habitat, they arrive in basically the same shape they were put into the container,” he said. “The idea is not to beat airfreight at their game, the idea is to create a new market. It’s a bit more expensive, but the success has been with product quality.”

By the Numbers. Global seafood production – both wild caught and produced through aquaculture – is growing. According to Íslandsbanki’s (Bank of Iceland) annual report on the seafood industry, fishing and aquaculture produced 171 million metric tons of product globally in 2015.
   About 95 million metric tons, 56 percent of total 2015 production, was wild caught seafood, and the other 76 million tons (44 percent) resulted from aquaculture.
   However, fish and shellfish produced through aquaculture is growing much more rapidly and is forecast by the OECD to overtake the wild catch by 2021. While the wild catch grew 12 percent between 1990 and 2015, aquaculture production grew about 485 percent in the same 25-year period.
   About 57 percent of wild-caught seafood originates in Asia, followed by 18 percent in North America, 15 percent in Europe, 9 percent in Africa and 1 percent in Oceania. The United States is the third largest fishing nation after China and Indonesia, with India and Russia rounding out the top five.
   Asia is even more dominant in aquaculture, producing 89 percent of farmed seafood, compared to 5 percent in the North America, 4 percent in Europe and 1 percent in Africa.
   In the U.S., imports of edible seafood products amounted to 5.7 billion pounds in 2015, valued at $18.8 billion, compared with exports of 3.1 billion pounds valued at $5.6 billion. Industrial seafood products – mostly fish and shell fish meal used as animal feed, but also oils, shells, and fertilizer – are another huge industry, with $15.5 billion in imports and $22.8 billion in exports.
   Alaska is by far the largest producer of seafood among the U.S. states, with 6 billion pounds of seafood landed, followed by Louisiana (1.1 billion pounds), Virginia (410.3 million pounds), Washington (363 million pounds), and Mississippi (304.1 million pounds).
   By value, however, the ranking is different, in part because Maine and Massachusetts account for 95 percent of lobster landings. Alaska led all states in value of landings at $1.8 billion, followed by Maine ($588.3 million), Massachusetts ($524.9 million), Louisiana ($339.8 million), and Washington ($274.1 million).
   In terms of aquaculture, the National Marine Fisheries Service estimates freshwater plus marine U.S. aquaculture totaled 608 million pounds with a value of $1.33 billion. Freshwater production was primarily catfish (307 million pounds), crawfish (134 million pounds) and trout (48.5 million pounds). Marine finfish, dominated by salmon, accounted for 41.2 million pounds, and oysters (33.3 million pounds) were the leading marine shellfish.

Chris Dupin  Chris Dupin is Maritime and Intermodal Editor of American Shipper. He can be reached by email at cdupin@shippers.com.

Chris Dupin

Chris Dupin has written about trade and transportation and other business subjects for a variety of publications before joining American Shipper and Freightwaves.

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