Why ocean rates are surprisingly controlled this Bissau cashew season

The share of bulk goods in international agricultural exports is going down compared to that of processed food. Even though it is the same for Africa, the continent exports a huge amount of bulk unprocessed agricultural commodities to different parts of the world.

Africa Agriculture Trade Monitor (AATM), an annual flagship publication of the International Food Policy Research Institute (IFPRI) and AKADEMIYA2063, in its 2021 edition noted that the agricultural trade from Africa was recently affected by two important developments: the pandemic and the implementation of the African Continental Free Trade Area (AfCFTA).

"These two important developments have presented a critical challenge and an unprecedented opportunity. While the recessionary impact of the pandemic has led to lower growth rates, rising poverty, and reduced trade flows, the AfCFTA represents an opportunity for significant gains at both the regional and continental levels," it reads.

The report notes that "While Africa has long been an important exporter of cash crops and niche products, most African economies have not diversified; they continue to export either exclusive or standard products."

For example, in May 2022 the French ocean liner CMA CGM announced the resumption of the Bijagos Shuttle service, the personalised and unique product to serve the seasonal export of cashews from Bissau, Guinea-Bissau to India and Vietnam.

"Starting mid-June 2022, Bijagos Shuttle service fully operated by CMA CGM deploys two vessels of 1,700 TEU. Port of Bissau is served on fortnightly frequency during the cashew season from mid-June 2022 to the end of the season," reads the service update.

Every year, the sourcing season ends by the end of July but the exports will continue in August and September.

The tropical country situated on the Atlantic coast of West Africa, Guinea Bissau depends excessively on the production and export of cashew nuts. The cashew crop accounts for more than 90 percent of the export earnings of Guinea-Bissau. So much so, that the International Monetary Fund (IMF) recently suggested the country diversify its output and exports for sustainable growth.

Talking about the history of the shuttle in a response to Logistics Update Africa, CMA CGM Group said, "Cashew production, the main engine of the Guinean economy, contributing nearly 10 percent of GDP, was growing rapidly and an efficient solution was needed. The launch of the Bijagos Shuttle service dedicated to cashew exports in 2015, with 2 calls per month carrying around 1,000 TEUs each, was the Group's response to a real need among exporters in Guinea Bissau."

"For container shipments from Port of Bissau to India, the freight rate was $250 - $270 per tonne in 2021 or even before Covid-19 and it is $260 in 2022, thus for this season container shipments freight is under control, comparatively"
Sachin Eapen, VP - Agro Division at Mac World Industries

Even though the shuttle provides the necessary capacity for exporting the cashews from Guinea Bissau, the movement of these from the bushes to the hands of intermediates to the warehouses in Bissau and then to Tuticorin in India or Ho Chi Minh in Vietnam involves several stakeholders, procedures and supply chain bottlenecks.

For example, CMA CGM is the only ocean liner operating from Guinea Bissau this season. A P Moller Maersk, which does a lot of cashew export movements from the African continent and has served Guinea Bissau in the past, is absent in Guinea Bissau this season due to a legal battle which led to the seizure of one of its vessels in the country. Hence many traders expected the monopoly of CMA CGM and high container freight rates.

However, according to Sachin Eapen, VP - Agro Division at Mac World Industries, the container freight rates are "surprisingly controlled" this time. Mac World is a Malaysia-based company engaged in exports of palm oil and its derivatives from Malaysia and Indonesia. They are also one of the exporters of agro products from Africa.

This season they are planning to export 5,000 tonnes of raw cashew nuts from Guinea Bissau to India. They source raw cashews and other Agri products from different countries in Africa including Tanzania, Benin, Nigeria, Togo, Burkina Faso and Ghana, which along with Guinea Bissau contribute the majority of the volume.

"The container freight rate to move raw cashew from Africa to Tuticorin, India was $30 to $40 per tonne before the Covid-19 pandemic. The freight rates have doubled and tripled in many regions. However, Guinea Bissau surprised everybody because CMA CGM didn't push the prices. For container shipments from Port of Bissau to India, the freight rate was $250 - $270 per tonne in 2021 or even before Covid-19 and it is $260 in 2022, thus for this season container shipments freight is under control, comparatively," Eapen said.

Fearing high freight rates, many traders and exporters in Guinea Bissau had booked charter vessels to move their raw cashews from the country. However, they ended up paying much higher logistics costs due to delays in berthing at Port of Bissau which caused much higher demurrage charges, pushing the logistics cost to around $290 per tonne for the same route.

"The freight rates of chartered vessels for similar destinations were $190 per tonne for 2021, but now it is $290, an increase of 52.63%," Eapen added.

Another challenge these Agri commodity traders face in Africa is the shortage of containers, delay in vessel arrivals and high turnaround times caused due to the recent disruptions.

For example, the first CMA CGM vessel of Bijagos Shuttle was supposed to arrive at Port of Bissau on June 15, 2022 however the ship left only on July 6, 2022, which delayed its movement to Asia. The next vessel is scheduled for July 15, 2022.

"Showing up of vessels is an issue. If she doesn't come on time, the sailing is also delayed. To add to this agony, the transhipment port has its own problem. For example, Colombo has an issue right now. Containers get accumulated in Colombo due to operational reasons & do not get picked up in the scheduled vessel to the destination, this causes untimely arrival of cargoes at the destination causing heavy financial outflow for the importers. The shortage of containers and delay in showing up of the vessel at load port and subsequent operational issues in Colombo has added to the misery of many importers," said Eapen.

Meanwhile, CMA CGM Group said, "The CMA CGM Group is standing by Guinean exporters to help them develop their business."

"Each year, the cashew export campaign has an economic impact on the entire population, particularly in the countryside, where most of the production is carried out. The CMA CGM Group offers a reliable and regular service allowing exporting cashew nuts quickly and in optimal conditions to preserve the product's quality and value," it added.

This feature was originally published in the July - August 2022 issue of Logistics Update Africa.