Assuming that shipping in the Red Sea normalizes, Rabobank expects that Kenyan cut rose exports to Europe will be increasingly transported over sea. As stated in their report, which is titled 'Kenyan cut roses bound for EU markets shifting to sea freight: A 2030 outlook'.
The report which was published earlier this month is written by Lambert van Horen, Senior Analyst - Fresh Produce at Rabobank, and Maximilian Schmidt, intern at Rabobank.
The full report is exclusively available for Rabobank clients, but we got permission to read the report so that we can provide you with a summary.
The authors of the report estimate that the percentage of sea-freighted cut flower exports to EU member states and the UK will approximate 19% in 2030. This number falls short of the target set by the Kenyan flower industry which aims to reach a share of 50% in 2030.
Driving forces
According to the report, sea freight came into view because the Covid-19 pandemic put pressure on air traffic. This shift from airfreight to sea freight was further propelled by European sustainability regulations, the adoption of environmental foot printing and benchmarking by the flower industry, cost savings in sea freight, as well as technical advancements in farm and post-harvest management.
European governments, non-governmental organizations, lobbying groups, as well as certification schemes and sourcing criteria increasingly urge producers and traders to adopt measures that make them comply with the latest sustainability regulations and standards.
Moreover, it is mentioned that sea freight is poised to partially replace airfreight thanks to its potential to save on freight costs while also reducing greenhouse gas emissions. Rabobank points out that the adoption of sustainable aviation fuels would have a negative effect on Kenya's competitiveness, as it would come along with increased air freight rates.
In addition, the uncertainty regarding landing rights at Amsterdam Airport Schiphol is another factor that may limit Kenya's capacity to export to Europe. Furthermore, sea freight will presumably become more viable, and reliable as a result of research and innovation in this field.
Differences across regions and market channels
The report further emphasizes that the pace at which export countries shift to sea freight differs across regions. Influenced by factors such as geographical features, airfreight rates, and general market position.
According to the report, up to 2023, large Kenyan growers that supply to European big-box retailers will have the most incentive to sea freight flowers to Europe. Namely, they tend to supply European large big-box retailers and thus operate in a business environment that is characterized by competitiveness and economies of scale.
Ethiopian, Ecuadorian, and Colombian growers currently have fewer incentives to adopt sea freight flower transport to Europe. Ethiopia, for instance, is landlocked and is relatively more competitive in airfreight, at least in the medium term. Sea freight is less attractive for Ecuadorian and Colombian growers because of the diversity of cultivars and varieties they grow, and the fact that they have to deal with last-minute orders.
Nevertheless, the authors state that it requires a supply chain-wide effort to overcome these barriers. Throughout the chain, they still observe working procedures and ways of thinking that don't align with large scale sea freight export. The wider adoption of sea freight is further prevented by long and unpredictable transit, a lack of knowledge, as well as legal and financial risks.
The report also compares the potential of sea freight in different market channels. They conclude that for the medium term, exporting cut-roses by sea has the most potential for big-box market channels since they attach more value to sustainability than e-commerce and florist channels, respectively.
Other questions and a new balance
The report also draws attention to some of the questions that the expected increase in sea freight will raise. Think of questions related to quality control, packing at the source, lead times, potential transit risks, and competitiveness.
According to the last chapter of the article, we can expect a new equilibrium in the international transport of cut roses and cut flowers in general, with a leading role for large farms and traders.