Raw Material Supply Chain Update: Global Logistics Gridlock and Pre-Crop Efforts
The current pandemic continues to deliver unprecedented uncertainty and disruption for many supply chains. Yet Silva is well positioned to continue our service to our customers with large inventories and diversified supply chain partnerships. Our U.S. based processing facilities in Illinois ensure you can be confident in Silva’s ability to deliver quality controlled and trustworthy ingredients through these difficult times.
Globally we continue to see substantial disruptions to traditional supply chains. Significant congestion is present at both domestic and international ports. All modes of domestic transportation are also facing high demand with increased costs and delays as a result. In many international areas where Silva sources raw materials, freight costs have quadrupled over the last six months. With the current demand for container-based shipments remaining high, availability is rapidly decreasing while costs continue to increase at an unprecedented rate. The incident in the Suez Canal and already severe congestion at the port of Los Angeles (Long Beach), in part due to high volume and in part because of limited staffing due to COVID, has created systemwide delays and cancellations of sailings globally. Silva continues to maintain inventory levels through this challenging period at pre-pandemic levels, pushing hard on raw material shipment schedules to ensure our continued ability to service our customers in the months ahead. The cost impact is dramatic, however, continuing to increase through the start of 2021 and without a known ending in sight.
The global market continues to present supply challenges, with dramatic implications on availability and unsustainable rising costs. We will continue to be very transparent with you about the market conditions. While we work to keep inventories, the sea freight costs to get that accomplished may need to be an upcoming discussion with our valued customers.
On the crop side, our Silva team in China remains fully operational and engaged with our supply chain partners in preparation for the summer season plantings. Silva’s agronomists are working closely with our farmers for field preparation and planting plans. This work includes a continued focus on our sustainable practices at field level with an expansion of the number of farmers and regions within this network. Internal benchmarking of reduction in water usage and crop protection chemicals, as well as improvements to soil health, are important KPIs for our agricultural initiatives. During the upcoming months across the globe, we will continue to work with our dehydration partners in preparation for the upcoming drying season.
With food commodity prices on the rise, our farmed materials are also likely to be impacted. However, with our global and diversified raw-material base, Silva is your natural choice for stability and continuity in supply. Our procurement teams are currently working with our global partners, ensuring we leverage our reach and ability to rotate crops between our partners, minimizing our exposure in areas where we see strong competition from commodity crops. Many of our summer crops have not been planted yet, so it is still too early for any projections on crop output and firm price directions.
In many areas where we operate, the vegetables we procure are an important cash crop for the many farmers we support. As we move through the planting cycle in the spring months and into early summer, we’ll be able to better forecast expected fresh outputs based on total planted acreage and climatic conditions. Later in summer, we will be able to better assess price tendencies factoring in the many uncertainties caused by the current pandemic and generally strong demand.
Confidence in the Process
Rest assured that with over 40 years in this business, we know the marketplace and we will continue to do all it takes to manage difficult market factors as best as possible. We pledge ourselves to work hard to ensure continued supply of quality ingredients and stay in our efforts to keep the cost impact to our customers as minimal as possible.