Einar Gustafsson is the CEO and Rasmus Soerensen is the chief commercial officer of Seattle, Washington, U.S.A.-based American Seafoods, one of the world’s largest at-sea processors of Alaska pollock and Pacific hake. Both were appointed in February 2022. Earlier this week, Bregal Partners announced it would commence a sale process of its holding in the company.
SeafoodSource: How has your first year at the company gone?
Gustafsson: I joined the company in March 2022. Since then, we have refocused our strategy to be focused on being a fishing company and trying to be the best that we can be and be a good supplier to our customers. We don't want to compete with our customers, we want to partner with our customers so we do the fishing and they do the processing and value-added, and that seems to work well. Secondly, we are looking for growth opportunities, both in terms of building a new vessel, which is in early stages still. We have had to have a preliminary design done and we’re looking at some financing and shipyards. Obviously, it is challenging given the U.S. regulations to do this. We are actively looking at M&A opportunities and have built up a few, primarily focused within our area of competence, within our sector, not necessarily pollock fishing, but within the fishing sector both here domestically and abroad. We are being very careful about what we want to buy and we want to do. I inherited a very strong company with a very strong balance sheet, so we have firepower, but I want to use that carefully. Overall, we are pretty optimistic. Markets are good. Business is good.
SeafoodSource: Can you provide any more insight into how you developed this new strategy?
Gustafsson: Some people say there is some value in vertical integration. And it may be true that you control your destiny, you control your materials through the supply chain, you have an end-to-end solution for your customers. But I don't believe in that personally. So, I think we are very focused on what we do. We used to have a value-added operation on the East Coast many years ago, that was not very successful and we exited that. I think it’s quite important to stick to basics. So, we went to a bit of a strategic review and we concluded we would focus on what we're very good at, which is high-volume fishing, primary processing type of operation.
SeafoodSource: Can you provide an overview of the company's financial situation?
Gustafsson: We have a very strong balance sheet. In the past seven years, we've paid down an enormous amount of debt and have quite a low leverage ratio. I can't get into specifics but we are clearly well-positioned to both continue to invest in our business, whether it's in the acquisitions – M&A-wise – new-builds, or existing vessels. I think the company has never been as strong as it is now, in its history, from a balance sheet point of view. We can hold inventory, we’re well within all covenants, we’ve got excess headroom on lines. The biggest challenge is I can’t mess it up. [Previous CEO] Mikel [Durham] did a phenomenal job of driving discipline and that paid off in a number of ways. We need to treat this asset with respect and make sure that we invest wisely.
SeafoodSource: How do you feel about the status of your vessels and how close are you to embarking on a fleet-renovation program?
Gustafsson: Our vessels are not young, but they're not old. We have done an exceptional job of maintaining and investing in the vessels. So, the opportunity to build a new one or renew the fleet is more an opportunistic thing than a result of obsolescence. So, the question is, can we do something that results in a more-efficient vessel, new product forms, like that can add to the market. In the meantime, we continue to maintain our vessels very well. I think we’re in good shape, but it is challenging and we have to proceed very carefully. We got to make sure that the numbers stack up. We as an industry are looking at trying to learn from each other in terms of how to best do this and what to deal with and it really is a challenge. So, we’ve got to proceed very carefully.
SeafoodSource: How has the fishing and demand been this year?
Soerensen: Pollock A season is done, it was good fishing. A little bit lower yield than we expected but better pricing and record fishing. In general terms. Alaska pollock is in a very good position in the global markets. We came through a pandemic, where operationally we and the entire industry had a lot of challenges, but from a market standpoint, it was all upside. There was plenty of demand for our products on all fronts. When the pandemic hit and foodservice shut down pretty much all over the world and all consumers started flocking more to the supermarket and became more adventurous within the supermarket, frozen fish benefited tremendously from that. More consumers came into the category. They were a little bit more willing to try new things. And even coming out of the pandemic, we've seen a lot of those new consumers stay with seafood, so that's been a very positive development. We had last year a 19 percent drop [in supply] in our quarter which of course immediately had a quite profound impact on pricing for all our products because we were going through a time of very high demand for everything we produce on our vessels, and all of a sudden we have almost 20 percent less supply. So that had an impact and consequently everything frozen off our vessels went to historical high prices in the second half of 2022. TACs are correcting, we are nudging back in towards more normal level at 1.3 million tons this year, so it's 14 percent up again. With more supply coming into a market situation that is now adjusting again coming out of the pandemic, there is a slight imbalance between supply and demand. So, we are seeing prices adjusting which is not unusual when they go up, there's usually an adjustment afterwards. We're starting to see them plateauing and we're still at very healthy pricing for all products coming out of the pandemic coming out of a low TAC year.
SeafoodSource: Where is the market for Alaska pollock thus far in 2023?
Soerensen: I think that's fair to say prices were getting a bit too high last quarter, and were rising too fast, that was a reaction from the market. We like stability and a healthy demand and when prices rise too sharply, too fast that’s not good for anybody. To give you an example, a lot of our customers have a little bit more inventory now than they have been used to the last couple of years. And when you didn't have a price correction, that means your inventory is now too expensive. Look what happened to the snow crab. So, there is a mechanism there the industry and the market actually have a keen interest in keeping things relatively stable. Now of course, there’s adjusting for inflation rates and all that, but these big swings in the marketplace is not a good thing.
We also don't sell on the spot price. We believe in longer-term relationships, long-term deals, and we thought the spot price towards the end of last year was too high, and we didn't want to follow it up. Our business model is very much based on loyalty. Most of the customers we do business with, we've done business with for over 20 years. So, we have a pretty predictable relationship with our customers. We support them when the supply is tight, and they support us when we need them more and there's a little bit more product in the marketplace. So, it's been interesting here in Barcelona this week because there's definitely an underlying optimism in the marketplace. Business is back. There's definitely some short-term uncertainty in the pollock market, both in the fillet-block market and the surimi market, but I think there is also an understanding that this is a short-term correction of those high all-time high prices. The underlying notion is that the market conditions are actually quite healthy. I compare our outlook for the rest of 2023 to 2019, the last normal year we had before the pandemic, which caused so much unpredictability and weirdness. In 2019, we had more supply and less demand than we do right now. In the current market situation, we have more demand and even less supply than we did in 2019. So, it’s our belief we’re in a short-term transition from what happened at the end of last year to what is happening beginning of this year. But the biomass has never been healthier. Both the pollock and the hake, we’re seeing record-fast fishing given the abundance of the fish. We call it the perfect protein I think for a reason, on carbon footprint quality, traceability, sustainability, all-American made, unadulterated, you can’t beat it.
SeafoodSource: What are your major markets now?
Soerensen: We do about half of our sales in in Asia, about 20 percent in the U.S., and about 30 percent and in Europe. In terms of the North American market, on the block side, it’s mainly a deep-skin market, and that's because the end use for that products is typically through the quick-service restaurants or foodservice in general. Whereas in Europe, it's much more retail-based, which is also why we sell more pin-bone-out (PBO) into Europe than deep-skin, but the global demand for deep-skin is going up rapidly and part of the reason for that is the cod situation. Quotas are down, and as a result, pollock is really the new cod in some markets, where we see that our deep-skinned Alaska pollock, because of its pure white color, is replacing cod products because cod is too expensive and not available. So, there's a whole new demand building for deep-skin blocks. But the cornerstone of the market in Europe is still PBO. It's appreciated, it’s still white, and the Europeans appreciate the taste of the fish. Whereas in America, we want it white and tasteless.
SeafoodSource: How has Russia-Ukraine conflict affected the marketplace and your business with all the disruption, war and the trade tensions?
Soerensen: It's very confusing. The conflict in Ukraine has created a different product flow and when you have massive changes in where fish typically goes over a short period of time, it confuses the marketplace. And in Europe, the confusion is even greater because it's right in their backyard. It makes it makes the short-term outlook very uncertain, because something could happen tomorrow that would worsen the situation and have a direct impact on everybody's business. So, it's very unfortunate and it's very difficult for the buyers to navigate. From an official standpoint, Russian fish can't go to the American or the E.U. market right now as a result of sanctions. The Russians are renewing their vessels, but they’re not getting E.U. approval numbers, which means the products that are produced on those vessels cannot end up in the European markets. So that again, changes where that fish is going. They're going to go fishing, they're going to make something on the vessels, and they're going to sell it somewhere. But where that ends up is less predictable now.
Gustafsson: It's unfortunate that our fellow fishermen, whatever country they may be from, are being punished for the actions of something that's out of their control. Putin is Putin, but these guys are trying to make a living. We were quite positive on the development of the Russia fishery in terms of their care for the biomass, the investment they’re making in the fleet to create a high-quality, single-frozen products both onboard and onshore. The conflict has created an inability for them to invest and maintain their vessels, and as a result, a lot of stuff is going back to China to get adulterated. I have been on the record that we should stop the soak. I think it's a shame the Russians and some Americans have to send their fish to China to be double-soaked, double-frozen and sent back. It’s doing the industry and ourselves a disservice. You eat that a few times and you don’t want it again.
Ultimately, we hope this [conflict] will be over soon and we'll return to normalcy. We need to feed the world and we need to supply to grow the markets and the international supply is about 50 percent of the world's wild-caught whitefish – the markets need that that resource. Thankfully, there's enough markets that are still allowing Russian product that it’s not causing really stupid price fluctuations. If the U.S. had to supply the whole world with [pollock], we would price ourselves out of the market. But at some point, price can only go so high in the short term, and I think the long term will probably continue to appreciate, but when you start looking at the price of chicken, pork, steak, at some point we sort of knock ourselves off the shelf. We're not there yet, but there’s a concern.
SeafoodSource: It’s interesting you’re so supportive of the renewal of the Russian fleet. Why are you cheering on an ostensible competitor?
Soerensen: We compete with the Russians, as we compete with our colleagues in Alaska, that's the nature of the beast. But speaking in general terms, Russia investing more in value-addition at home like we do is going to improve the global image of Alaska pollock tremendously, because it takes the Chinese factor out of it. Fish goes to China to become cheaper. And the degree of how cheap it is basically, the relationship between the producer of the double-frozen block and the buyer of it, but it comes into the market as Alaska pollock like our products, and that's unfair competition. When the Russians invest into their fleet and into their factories, they're essentially going to produce the same types of products, high-quality, consistent-quality products as we are, and we would much rather compete against that than something that we don't really know what is.
Gustafsson: And if you want to go off on a tangent, I believe we have to tackle the fact that wild Alaskan pollock is only name-of-origin protected in the U.S., but we cannot get protection for the Alaska pollock name outside of the U.S. And that pisses me off because wild Alaska pollock from the U.S. fishery is currently a very different quality than what is coming out of Russia or China. And I think we owe our customers the honesty of where it comes come from. That being said, yes, I believe that yeah, they're competitors, but there’s not a lot of wild fish in the world and we’re definitely better off when the fish is of better quality, which will result in more people eating more fish.
SeafoodSource: Any update on the situation with the Bayside Program?
Gustafsson: It’s in litigation, so we can't comment. We have maintained 100 percent service delivery to our customers. We have obviously found alternative routes. And we're working through it and hopefully we'll resolve it at some point.
Soerensen: The Bayside route really worked well for the industry and especially for the receivers of the product on the East Coast of the U.S. And we had a buffer inventory over there as a result of Bayside being the hub. The supply chain into that market is much more complicated today than it was before. So we’re doing the U.S. consumer a disservice. But it is what it is, we're working through it, and we're not worried.
Photos courtesy of American Seafoods
