Skyward bound: Rising costs devour margins
Sales and volume are up in 2011 at Bluefin Seafood, a medium-size wholesaler in Louisville, Ky., but that doesn’t mean the company is making much more money than it did during the darkest days of the recent recession. Mounting product costs have devoured margins nearly as fast as sales can widen them, says Joe Bonura Jr., VP-sales, and he doesn’t anticipate a reversal of that trend.
“What’s crazy is we’re making less money right now with higher seafood prices than we did when prices were half as much” and sales were down, Bonura says. “Our customers say we’re charging them an arm and a leg, but the fact is we’re paying that, too. So my profit percentages are horrible.”
Bonura is not alone — every link in the supply chain is seeing margins squeezed nearly dry as the costs of catching, processing and selling seafood have soared in the past two years. U.S. fishermen paying record-high prices to fuel their boats are passing that expense on to processors who also face spiraling fuel surcharges assessed by shipping companies. That leaves retailers and restaurateurs fretting over whether to pass those costs along to consumers.
“Even though we’re having a hard time with profits, we’re not charging customers more; the economy still isn’t very good,” says Frank Diep, chef at BarChi Sushi in Austin, Texas. This year, nearly all his food invoices include a line-item fuel surcharge. “We just have to wait a little bit and see if prices come down, to see if this is seasonal and will change.”
Jim Kenny wishes record prices were merely seasonal, but the commodities analyst predicts strong global demand for seafood will keep prices elevated well into the future. Kenny credits surging middle class incomes in China, India and Southeast Asia for pressuring supplies and pushing up prices.
“I don’t know where in recent history we’ve seen such an explosion in the middle class,” says Kenny, director of business development and seafood specialist for Urner Barry in Bayville, N.J. “I’ve not run across such global competition for seafood in our times.”
Click here to read the rest of the story on rising costs, which was written by SeaFood Business Contributing Editor Steve Coomes and appeared in the magazine’s June issue.