US firms aim to “re-shore” seafood processing from China

Published on
March 16, 2022
Mounting supply-chain difficulties are creating opportunities for U.S. processors to re-shore work.

Mounting supply-chain difficulties are creating opportunities for U.S. processors to re-shore work that previously was performed abroad.

In China, where the bulk of processing of seafood products eventually exported to the United States was once completed, a shift is underway. Companies that previously focused on exports are discovering they can make better returns in the domestic market, according to Cui He, the secretary general of the China Aquatic Products Processing and Marketing Association (CAPPMA). Cui also cited China’s response to the COVID-19 pandemic and related logistical and transportation issues that have slowed production and delivery times for the country’s seafood processing sector.

Those issues, along with the continued imposition of U.S. tariffs as high as 25 percent on seafood imported from China, have made China a less-attractive option for processing for U.S. seafood buyers, according to Bristol Seafood President and CEO Peter Handy. Handy told SeafoodSource that U.S. buyers are finding it increasingly difficult to price China’s cost advantage, particularly with plants in the country’s seafood-processing hubs shutting down on short notice due to COVID-19- related issues.

“Pricing is now complex to understand. To buy five loads out of China, I don’t know if anyone can quote [a price for] that,” Handy said. “Is it really inexpensive enough to operate in China to offset a 25 percent tariff, freight prices, and timing and the uncertainty about the plant’s operations?”

Recent economic data shows Chinese exports are becoming more expensive as the country’s exporters face increased pressure to pass along rising costs to customers, the Hong Kong office of French corporate and investment bank, Natixis, reported. According to Natixis, price growth in the manufacturing and processing sectors shot from 0.9 percent at the start of 2021 to 15 percent in September 2021, while the growth rate of retail prices moved from 0.2 percent in January 2021 to 1.4 percent in September. More than 40 percent of China’s overall export value in August 2021 came from higher prices rather than volume growth, according to Natixis.

“The passthrough from China’s higher production prices to the final consumer has already started,” Natixis Chief Asia Economist Alicia Garcia Herrero said. “The world cannot expect Chinese firms to further reduce their profit margin, at least not as long as external demand remains strong.”

Trade relations between the U.S. and China initially became volatile in 2018, when the previous U.S. presidential administration of Donald Trump began implementing tariffs on Chinese goods. Despite the conclusion of the so-called Phase One trade agreement between the two nations in January 2020, tariffs on seafood have not been removed and U.S.-China Business Council President Craig Allen said the bilateral trading relationship isn’t going to smooth out anytime soon.

“How to get out of the trade tension? I don’t see a clear pathway right now. I wish I could provide you with a roadmap. But at least for 2022, I expect very stormy seas,” Allen said.

The growing complexity of sourcing seafood from China is creating an opportunity for firms like Portland, Maine, U.S.A.-based Bristol, Handy said.

“Even if only a small percentage of the production is re-shored to the U.S., it would create major growth for us,” he said. “There is a lot more awareness about the supply chain now. When China added tariffs, there was very little awareness among customers that haddock was being sent to China for processing.

As a result, Bristol is receiving more inquiries from retailers lately, Handy said, especially for value-added products, as demand for seafood has grown in the U.S. throughout the pandemic. Bristol’s two ranges – My Fish Dish and Seafood Singles, launched to cater to growing demand for socially-responsible and convenient seafood products – have proven successful.

“Retail sales of seafood grew considerably compared to the pre-pandemic,” he said. “The future of the sector is in easier-to-cook, socially-responsible products.”

Handy said re-shoring of processing also reduces the carbon footprint of the seafood industry and adds American jobs. The company purchased an additional facility in Portland, Maine, in October 2021 and increased its staff count by 40 percent to handle larger volumes of haddock processing and the expansion of the My Fish Dish line, he said.

Shoreside Consulting Owner Duncan Fields, a veteran seafood harvester and processor based in Kodiak, Alaska, U.S.A., who was recently appointed to the board of directors of the Alaska Seafood Marketing Institute, has called for more Alaska seafood to be processed in the United States.

“With transportation costs going up, I think there are opportunities for companies to process more seafood in America,” Fields told Fishermen’s News in January 2022. “We have lots of processing in Alaska, but a lot of that product is exported and reprocessed overseas. There is a new emphasis in this country on food security, and we can’t operate and promote Alaska seafood without recognizing that there is a political component.”

One skeptic of how changing trends might influence U.S. reshoring of seafood processing is Judson Reis, the principal of Reis Consulting and former president and CEO of Gorton’s Seafood.

“A major obstacle to businesses transitioning their processing out of China is the significant amount of expertise Chinese processors have accrued through decades of serving as the world’s leading seafood-processing hub,” he said. “You have these centers in places like Qingdao and Dalian that have really built significant expertise. There’s remarkable skill in terms of their ability to maximize the yield.”

As China’s economy continues to evolve and its trade relationship with the U.S. remains strained, it is likely other countries in Southeast Asia, such as Vietnam, will take a larger role in processing seafood, Reis said.

“The foremost factor you need… is to be competitive,” he said. “It’s very unclear at this point, particularly with wages rising as quickly as they are in the U.S., that the [cost] gap is going to improve from where it is right now. In fact, it may widen – it really depends on product. If a product has a very high labor requirement, it’s still going to be cheaper to process it in other parts of the world rather than the U.S. The drive for efficiency will trump other considerations. At the end of the day, if you end up with uncompetitively-priced products, they’re not going to be as well-received in the marketplace.”

Labor costs and shortages in the U.S. are the biggest hurdles the nation needs to overcome if it’s to re-shore any seafood processing from China, Reis said.

“Even if you can get the right labor cost structure in place, you’re still going to have trouble finding enough labor in the U.S. that will actually be willing to do the work. It’s a huge issue for any business right now, and particularly seafood processing, which is a physically challenging environment for people to work in. That is a huge concern,” he said. “We’ve seen the U.S. workforce shrink as a lot of people have retired, as people are being more selective in the jobs they’re looking for, as birth rates continue to decline and as rates of immigration have declined significantly, starting with the Trump administration and continuing in part due to COVID. So the long-term prospects for labor growth in the U.S. are challenging.

If U.S. firms set their sights on poaching any single segment of the sector, the best target would be secondary processing such as saucing, breading, battering, grilling, and other adding of value to fish that’s already been processed, Reis said. Rapid advances in automation may cut down the cost of labor in the U.S., slimming the margin processors face between onshore and offshore work.

“If you can replace some of that labor with machines and robotics, you can use it to improve your operations year-in and year-out. As the costs of that equipment continue to decline over time and the capabilities of machines continue to improve dramatically, there may be a hybrid model that can emerge, where automation can be combined with some labor that together maintains and improves quality of seafood products and lowers their cost structure for domestic production,” he said.

While skeptical, Reis said he’s certainly cheering for more seafood processing to take place in the U.S.

“It would be highly desirable if we could do it. Besides shortening supply chains, it would get rid of some of the political uncertainty that exists. The gap that was such an enormous chasm 20 years ago in wages has narrowed significantly [and] it’s still significant, but not as big as it was before. The trade war, demographic changes in China, shipping delays, and rising transportation costs – all of those things would bode well for reshoring,” he said. “But there’s a couple of big question marks and to be realistic, you’d have to overcome them, and I’m not sure we’re at that point yet.”

Photo courtesy of Kirill Neiezhmakov/Shutterstock

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