In part one of the two-part interview, Keith Decker, president and COO of High Liner Foods USA, talks about overcoming China’s rising labor costs, Vietnam’s growing importance to the seafood-processing arena and why consolidation is the way to go. Based in Canada, High Liner is one of North America’s biggest seafood companies.
Hedlund: Why are China’s labor costs rising? Part of the reason is the Chinese government’s minimum-wage increase. What are the other factors?
Decker: One of our major tilapia suppliers from China is in the building today [July 20]. Yes, there is the Chinese government’s mandatory [minimum-wage] increase. But [the supplier also says] there’s rising prosperity, and they’re challenged to retain their workers, regardless of what the labor-rate increase is. They’re just challenged to keep their existing workers. The individual businesses are raising rates in order to compete for a work pool that’s growing out of the fish-processing arena. [Workers] have opportunities to work in textiles or electronics … as opposed to sitting in a wetfish plant. And it takes for to five months to train a worker to a certain dexterity and skill set, and then to lose them is problematic. So they’re competing across the country for [an increasingly scarce] labor pool.
Will the seafood-processing sector increasingly shy away from China due to rising labor costs?
A lot of the other labor-intensive industries have already started to move out of China and into other regions such as Southeast Asia or North Africa where they can take advantage of lower labor costs. Some of those industries started moving two or three years ago. But the seafood industry hasn’t moved. China, with its infrastructure and cost structure, will still be competitive. Obviously, costs will continue to go up, but [China] is still very competitive. The infrastructure itself dictates that China will be around for a long time when it comes to processing seafood.
Is there a particular Southeast Asian or North African country that’s of particular interest to seafood processors due to its relatively inexpensive labor?
Vietnam is definitely of interest because the government has invested in and committed to improve the infrastructure. There are other industries that have [moved to Vietnam], so that means port facilities, roads, rails and freezer space are well developed. Obviously you need a lot of freezer capacity if you’re going to process fish.
What is High Liner doing to offset rising labor costs as well as rising raw material costs, which are driving up seafood prices? Are you able to pass price increases on to your customers in this economic climate?
We spend a tremendous amount of time continuously streamlining our supply chain to try to offset rising raw material costs, so that is us working in long-term contracts with our suppliers. The other area that is probably more important as we move forward is that consolidation is the way to go because of scale — size equals volume discounts. The bigger the company is, obviously the more purchasing power you’re going to have, which enables you to be more competitive and ultimately you won’t pass along as large of a percentage of [price] increase if you’re able to forward book or buy at a significant discount.
I still believe that consolidation is the way to go. It’s the infrastructure. Everything from sustainability to traceability to data feeds to IT programs — those are all becoming ever more important to the customer, and it’s a lot easier to spread it over a large pool of business compared to spreading it over USD 10 or USD 20 million in sales. It’s more cost effective, and you can do the types of programs retailers and distributors are asking for.
In part two of the two-part interview, Decker will talk about how the weak U.S. dollar is affecting High Liner, which High Liner product line is performing particularly well and pangasius’ potential in the U.S. market. The rest of the Q&A will be posted on Tuesday.