Roman Tkachenko, the CEO of Direct Source Seafood, a seafood importer based in Bellevue, Washington, U.S.A., is not thrilled with the U.S. government’s decision to implement and then expand a ban on Russian seafood entering the U.S.
Russian king crab inventories are almost extinguished in the U.S., and it’s impossible to bring more in as cooked frozen legs and claws, even with third-country processing that would change the country of origin. That’s because the only way to achieve a “deep transformation” of king crab to qualify it for the change is to process it into crab meat. Cooking from live king crab it is not enough for U.S. customs authorities, Tkachenko said. And Russia is getting such high prices from Chinese and Asian buyers for whole live and frozen crab, they don’t need to sell to the U.S., he said.
“In China, the majority of live crab goes to high-end dining, and from what I've seen, it is a status symbol to have king crab on the table. You go out to a restaurant and take someone out for dinner for business, and the price doesn’t matter,” Tkachenko said.
In the U.S., the only sources available for king crab are Alaskan and Norwegian product, and there’s just not enough to support a robust market, with Alaska’s red king crab catch set at 2.1 million pounds for 2024 and Norway’s quota cut 60 percent to 2.2 million pounds. And much of that supply is mid-size crab, which struggles to sell, according to Tkachenko.
“Prices are too high,” Tkachenko said. “The category will continue to be a niche item.”
The shriveling of king crab trade has shrunk Direct Source’s sales from a high of USD 490 million (EUR 453 million) to just under USD 300 million (EUR 278 million) in 2023, even though the company’s sales volume is up.
“We had to make that pretty fast pivot,” Tkachenko said. “I'm impressed with the pounds that we're able to generate – I think it's a sign of a healthy business. We were able to build those pounds up and get a really good run in the snow crab out of Canada this past year and shrimp.”
Founded in 2010, Direct Source specializes in king crab, snow crab, and shrimp, run by Ian Kennaway and Roman Tkachenko, the founder of Marine Treasures, which merged with Direct Source in 2016.
“Ian handles the shrimp purchasing and a lot of the sales, I handle the crab side along with the financial side,” Tkachenko said. “We built up incrementally for 14 years, doing USD 18 million [EUR 16.7 million] in sales our first year. The dollars exploded in 2021 when the cost of goods got so high, and we were selling red king crab for USD 54 [EUR 56] a pound.”
The war in Ukraine is “horrible,” and has “hurt everyone," according to Tkachenko, who is originally from Ukraine. But he doesn’t believe that banning seafood from Russia was the right move for the U.S. to make.
“Initially the sanctions against Russia were supposed to be a deterrent against hostility. It hasn’t changed what is happening in Ukraine. It is not hurting Russia, because all their product is going somewhere else. They have an ample market in Asia to sell in,” he told SeafoodSource on 24 January on the sideline of the 2024 Global Seafood Market Conference in Orlando, Florida, U.S.A
In 2022, the initial ban issued by U.S. President Joe Biden did hurt Russia “because they had a lot of inventory and they had to pivot.”
“So they pivoted in 2023,” Tkachenko said. “They're working very hard to grow Chinese demand for cooked frozen crab there. They already have a huge presence with live crab in China.”
The new round of sanctions only hurt U.S. consumers, according to Tkachenko. Unlike seafood, there are agricultural products from Russia like fertilizer that have not been banned, he said.
With king crab relegated to niche status, Tkachenko said one of their more successful categories is Norwegian and Canadian snow crab.
“The snow crab from Norway has a nice creamy color and the quality is getting really good – we have customers who specifically request it,” he said. “Also the seasonality, coming available in the first and second quarters of the year, is strategically placed compared to the Canadian season. Canadian snow crab is a staple in the U.S., and we expect this to continue for the years to come.”
Direct Source imported around 15 million pounds of snow crab in 2023. And it recently signed partnerships with Mexico’s Almar and Sri Lanka’s Taprobane Seafoods to sell both companies’ pasteurized crab meat and four-star Best Aquaculture Practices-certified shrimp.
“Pasteurized crab meat has been a vehicle for growth for us. Last year, we did close to one million pounds, but we just started in June, so this year, hopefully it will be closer to four million pounds,” Kennaway said. “On the shrimp side, we’re doing probably close to 30 million pounds a year between red shrimp from Argentina processed in Peru and white shrimp from major producing countries in Southeast Asia and our other partners.”
Tkachenko said his company’s flexibility has been key to its success.
“One of our strengths is that we are able to pivot to different categories – we're not scared to try new things,” he said. “When we get into a category, we want to do really well with it or we get out. And when things change, like when we lost 70 percent of our business with the ban on Russian seafood, there was a time where we were struggling to understand what we're going to be doing. But I think if you stay true to your core competencies, and have a great customer base with good programs and good partnerships on the sourcing side, that kind of gets you through the ups and downs.”
Kennaway also credited the company’s employees for the success Direct Source has achieved.
“We have people who have been with us from the very beginning. They've been through the battles and the wars. And when we need to pivot, our guys are on board. They're with us and they've been able to execute. They’ve been a huge part of where we have gotten to and they’re always ready to go to battle with us.”
Tkachenko said the company has still been able to make money despite the leaner times, with prices bottoming out for several species.
“We have we have great relationships with our customers that we've had for years. We stand by our contracts and they do as well. We offer fair prices, and we manage inventory well,” he said.
Tkachenko said he’d like to move further toward just-in-time logistics but that it’s often impossible with the products Direct Source deals in.
“In theory, everyone wants to have less inventory. But the moment there's a robust market and there's a shortage, you start buying to fill the demand. With wild-caught fisheries, you’ve got to buy seasonally,” he said.
That reality struck home with the 2023 Canadian snow crab season, according to Tkachenko.
“The market started great, thinking the season would be fantastic. And then all of a sudden, we got into September, October, November and it stops and everyone's looking at each other, like inventories are high, and prices started dropping due to lackluster demand and there wasn’t much you could do at that time” he said. “There are times when you get stuck with inventory, especially snow crab at cheap prices, and the cost of our storage bills were insane. So making money in this type of market is hard because of the slowdowns.”
Despite the difficulties of the last year, Tkachenko is optimistic 2024 will bring better fortune.
“In general, I think we've seen the bottom of the spot market. Don't get me wrong. I'm not so bullish that I think prices are going to explode, but I just don't think we can get much below where we are right now. I think shrimp is at that bottom level and it's pretty safe to play in that arena right now. And I'm feeling crab is the same – I don’t think snow crab can go lower than USD 4.75 [EUR 4.50] for 5/8,” he said. “We're going into the year with lower inventories and lower cost of goods. If we have a normal, stable market, there should be healthy demand. Interest rate cuts would help us greatly. We’re paying the same interest on a line of credit that is half of what it was in 2021. Also, no one could have predicted that ocean freight would be going up right now due to geopolitical issues. So anything that would help alleviate these costs would help the market. But the seafood industry is so used to dealing with things that are outside of anyone's imagination, essentially.”
Tkachenko said he’s confident the company will continue to succeed if it sticks to its vision.
“The vision for us is that in the next 10 to 15 years there’s going to do some changes in the industry,” he said. “We want to get more vertically integrated. We're just looking for the right opportunities for us to strengthen the company.”
Photo by Cliff White/SeafoodSource
