The Red Sea attacks are creating chaos in the global coffee trade
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- The attacks in the Red Sea are upending coffee trade flows, sources told Bloomberg.
- Buyers are turning down shipments from Vietnam that pass through the Red Sea, seeking supplies from Brazil instead.
- Prices have hit 25-year highs, with premium robusta futures have surging more than 30% this month.
As tensions in the Red Sea keep ratcheting higher, the chaos is beginning to seep into different pockets of the market — including the coffee trade.
Trade flows of robusta beans, a variety used in instant coffee, is being upended as shipping costs surge and detours add several days to voyages, Bloomberg reported on Thursday.
Buyers are turning down shipments from top coffee producer Vietnam, and instead are seeking supplies from Brazil, sources told Bloomberg.
That's because Europe-bound vessels from Vietnam pass through the Red Sea, a key trade lane for the country's coffee exports. In fact, robusta trade through the Red Sea has been disrupted before, when a vessel blocked the Suez Canal in 2021, upending the coffee market.
This time, as the major waterway has become fraught with attacks from Yemen-based Houthi rebels, it's forcing ships to reroute, which makes it more expensive to transport commodities like coffee.
Premium robusta futures have surged more than 30% this month as a result of the trade disruptions. And that's after a shortage of coffee beans in 2023 drove prices up by 60% due to dry weather conditions in Vietnam. The Southeast Asian country accounts for 40% of the world's overall production of the robusta bean, according to Nescafé.
According to the International Coffee Organization, robusta prices reached a 25-year high in December, averaging $1.35 a pound.
The tumult in the Red Sea has raised shipping costs over a whopping 122% since the start of December, according to the Drewry World Container Index.
And in the coffee market, some Vietnamese exporters are seeing freight rates rocket up almost sevenfold to $4,000 per container, sources told Bloomberg.
As the tensions escalate, the maritime ruckus risks triggering another spell of inflation, bringing back pandemic-era supply shocks.