Did Tri Marine Fall Victim To Linear Thinking?

Tri Marine has grown to be one of the largest tuna supplying firms in the world, since its formation in 1972 in Singapore, as a tuna procurement activity for an Italian government-owned group of companies. For many years the corporation went from strength to strength in the world of tuna, but has just recently shown its first signs of shaking.

Is this a company that has been cursed by linear thinking? Has it fallen victim to a straight line thinking process that proceeds in a sequential manner?

In 1986, when the Italian government implemented a change in public policy, calling for divestiture of food sector businesses, Tri Marine became a private company. Since then, when the trading of tuna was its only activity, it has virtually integrated itself through the entirety of the tuna industry, and has seen considerable growth.

Tri Marine’s activities have included fishing, trading, marketing, and up until recently processing; business which has snowballed significantly since its birth. But a number of bumps along the road, including lower global tuna prices, and tricky situations on US fleet access, seem to have sent the firm slipping for the first time.

In October 2013, Bolton Group International reached a definitive agreement for the acquisition of an important minority interest in Tri Marine, seeing the start of a large integrated tuna company. The deal united two firms with a combined annual turnover of over USD 2 billion.

Bolton is one of the largest branded tuna companies in Europe, and its buy into Tri Marine was seen to be a combination of expertise and global tuna supply chain resources – one that had already existed through commercial agreements between the two companies for over 25 years.

Bolton’s substantial investment to snap up a share of the firm was focused on securing access to tuna raw material and global processing for its EU brands, and also came with a keen interest in entering the US market.

It was revealed that the income from Bolton’s purchase of shares would be used to fund strategic growth initiatives for Tri Marine (TMI).

Following substantial growth, however, TMI announced just recently that its 2015-opened tuna processing plant, Samoa Tuna Processors (STP), which is located in American Samoa, will close indefinitely, effective December 11th 2016.

This date marks the usual start of the Christmas closure period, and it’s yet to be seen if the shut-down will materialize after the holidays.

Having gone from strength to strength at a time when the tuna business was flourishing, it seems Tri Marine may have had too much confidence in the growth of the industry continuing.

With increasing scarcity of resource and consequently continued rising prices, it’s now suffering the impact of more depressed market conditions.

A distinct change in average global tuna prices is just one factor that was likely a strong contributor to the end of Tri Marine’s bull run. During 2011 and 2012, the average global benchmark price for whole round skipjack tuna in Bangkok was around USD 1,800 and USD 2,060 per ton respectively.

Fast forward to 2015 and 2016 so far, and this has fallen to approximately USD 1,140 and USD 1,400 per ton respectively.

Due to this market drop, as well as other factors, STP, which only opened in 2015, and cost the company a USD 70 million investment, is now expected to shut indefinitely.

At the time of the opening, Tri Marine’s CEO, Renato Curto said: “We are USD 70 million confident of our investment in the cannery project. Our decision to invest came down to our belief that tuna is a good, nutritious product, that tuna stocks can be sustainably managed for the long-term and that processing in the islands is the right thing to do.”

He said that the investment was evidence of his firm’s bullish outlook on its business model of vertical integration between its US-flagged vessels, its processing facilities and its distribution channels, allowing it to market and sell “Product of the USA” labeled tuna to its private label customers.

In February this year, Atuna.com reported that Tri Marine and StarKist enjoy almost un-rivalled access to the Buy American national school lunch program in the US. Both of these firms have been able to boast “all American” supply chains, separating whole round tuna in their American Samoan canneries, which has come from US flagged vessels.

At the time it was said that the appetite for fully American products was not only growing in the food service sector, but it appeared as though individual consumers in the US were keen to see this message too.

As well as supplying private label tuna to mostly the US market, Tri Marine has long been a major supplier to the United States’ Big 3 canned tuna brands; StarKist, Bumble Bee and Chicken of the Sea.

Despite this keen thirst to get its fully American supply chain started, at the beginning there were already issues with STP’s production launch. Key components of the plant were delayed due to shipping strikes on the US West Coast, and the start of tuna processing was therefore postponed.

Having eventually got well off the ground, its imminent closure now sees a loss of jobs for around 800 people, and on the heels of the announcement, saw Joe Hamby step in as the acting CEO of the plant, and Tri Marine’s The Tuna Store, with Don Binotto stepping down.

The planned closure is said to be the result of a number of factors, which mounted to create “challenging economic” conditions, leaving the plant unsustainable in today’s market. The company, along with its American Samoa tuna canning neighbor, StarKist Samoa, has tried tirelessly to gain economic incentives from the US government to process in the territory.

In October 2016, shortly after the announcement, Hamby said that American Samoa needed more financial support in a period when the global tuna industry is at overcapacity in terms of fishing and processing, which he says have negative impacts on the US territory.

This overcapacity leads to periods of oversupply, he noted, which then lead to lower prices, sometimes dropping below the cost of fishing.

“The tuna industry is the backbone of the American Samoa economy”, Hamby said, adding that the tuna canneries there depend on the US market, as tuna products from American Samoa are exempt from import duty in the US.”

According to Hamby, low cost Southeast Asian tuna processors quote prices that are below their full cost of production, in order to win bids from US buyers. These below cost prices offered by canneries with low cost labor are competition for American Samoa, he argues.

Aside from zero duty with the US, Hamby believes one of the only other benefits that American Samoa has is fish supply. However he notes that this benefit was reduced due to the limit of access for US purse seiners in high seas areas, known as Effort Limited Area for Purse Seine (ELAPs).

“When the high seas are closed, less fish is delivered to American Samoa. In these days we are seeing the consequences of restricting the American Samoa based US flagged purse seiners from fishing on the high seas,” he adds.

“If public policy does not change to protect and support the American Samoa tuna industry, support that can be measured in economic terms, it will be lost.”

As well as reduced access to high seas fishing, during late 2015, there were severe disruptions to the South Pacific Tuna Treaty, which has given the US fleet an annual access package to PNA waters, for a pre-arranged price.

After the US defaulted on payment to the Treaty, the US fleet, of which Tri Marine owns and manages around 15 tuna purse seiners, suffered a substantial period of lost fishing ground access.

During this time, some Tri Marine seiners switched operations to the Eastern Pacific Ocean, encouraged by good fishing conditions brought on by a strong El Niño. This resulted in higher volumes of landings in EPO-based ports, and ultimately less to more Western locations, such as American Samoa.

As this was happening, long and slow negotiations took place on how to rearrange the deal, in which the fleet remained locked out of the PNA. Finally, in June 2016, a new Treaty was set for six years, and for the first four at least, less days and a smaller financial contribution are included.

However, even after a renewed Tuna Treaty, Tri Marine reported that its catching rates in traditional fishing grounds were not strong, resulting in a reduction of raw material supply to its American Samoa cannery.

Several Tri Marine seiners continued their operations in the EPO following the agreement, at least until November 2016. While catch rates may have been in their favor, with a “no transshipment rule” in the IATTC area, seiners are forced to head back to port and land their catch, which can be costly.

Another reason credited to the probable cannery shut down, communicated by Tri Marine, was that the firm missed out on a federal tax break in 2015, known as the American Samoan tax credit. The firm states that this saved companies that had previously established production facilities in the territory millions of dollars. However it does not apply to companies built after 2006.

While all of these factors had their impacts, reportedly, the worst blow to Tri Marine overall was it not being able to get “Made in America” catch to consumers within the US.

The firm stated that demand wasn’t rising fast enough for higher quality tuna product, which was also a very important component of Tri Marine’s future strategy. There was a considerable struggle in convincing large buyers that it was worth the premium price.

Another repercussion from linear thinking was Tri Marine’s bet on the retailers’ private label share continuing to grow in the US, and its ability to become a firm supplier for these product lines.

Tri Marine had strong faith in its own brand, Ocean Naturals, launched through The Tuna Store, competing against the US Big 3. This was a brand that offered diversity to the US market, offering pole and line caught tuna without the use of vegetable broths or additives.

With its vertically integrated model it thought it would be able to compete and potentially beat Bumble Bee and Chicken of the Sea, which do not have their own fishing fleets or plants in American Samoa, giving them no chance of complying with “Made in America” rules.

After announcing the closure, Tri Marine Spokesperson, Heidi Happonen, said that the firm had expected to see black numbers for STP in its first year or two of operation, because it was normal for any startup company to initially lose money.

However, she said that Tri Marine had expected the losses the cannery was facing to be reduced, and eventually turned into profit as daily production increased.

But the Tri Marine fleet, just like most other US seiners, suffered dramatic losses when skipjack prices hit a level of USD 950 per ton on more than one occasion, and remained under the USD 1,400 CFR Bangkok level during 2015 and the early part of 2016.

At the time of the closure-announcement, Curto said that Tri Marine is evaluating alternatives for the facility including outright sale, but preferably to a strategic buyer that would minimize job losses.

The company says its commitment to quality, sustainability and community, central parts of its operations, will remain unchanged, and believes that its network of vertically-integrated supply chains will continue to provide consumers around the world with high-quality, responsibly caught tuna.

However, the firm’s future business strategy will much depend on its ability to turn some of its troubled activities around. It will also depend on the patience, strong nerve, and confidence of Bolton, as a major shareholder and its biggest customer, to continue on the current route. ■