China was so hungry for Maine lobster last summer that Stephanie Nadeau, a live lobster dealer from Arundel, was selling $100,000 of lobster to Beijing, Guangzhou and Shanghai on a good day. She was living and breathing the China lobster market, which after seven years of 1 a.m. sales calls and repeated trips to the mainland had grown to account for a third of her annual sales.
The lobster pipeline from Maine to China shut down on July 5, however, when China hit U.S. lobsters with a 25 percent import tax in retaliation for U.S. tariffs on imported Chinese goods. Since then, Nadeau’s business, The Lobster Co., has not sold a lobster to China, despite daily phone calls and a trip to the Pearl River Delta to visit her Chinese customers last week.
Nadeau estimates that the tariffs will cost The Lobster Co. about $10 million in 2018 sales. It is still selling to other places in Asia, including Hong Kong, Malaysia and Singapore, but without China, Nadeau has had to lay off two people, cutting her total employee count down to 20, and reduce the number of times she buys lobster from five times a week to two.
“Who knew I was going to get a summer vacation?” Nadeau said with a morbid laugh. “Let’s hope it’s not a permanent one.”
China is the biggest overseas market for U.S. live lobster sales. It was on pace to double its lobster imports this year, with U.S. export data showing year-to-date sales of $75.3 million through June compared with $34.2 million over that same period in 2017. But that was before China levied its lobster tariff.
Live lobster dealers like Nadeau who have invested in building the Chinese lobster market are feeling the sting of tariffs now, but other live lobster dealers who sell domestically or who have more diversified export markets say they remain unscathed – at least for now. They worry, though, that increased competition for buyers outside of China may eventually drive down their prices, too.
“There is no way this isn’t going to hurt everyone in the industry, in time,” said Annie Tselikis of the Maine Lobster Dealers’ Association.
Maine’s $1.5 billion lobster industry relies on live lobster sales to generate “heat” in the U.S. lobster market, dealers claim, and China has fueled much of that heat. But so far, lobstermen say they aren’t feeling the sting of Chinese tariffs. Their boat prices, which range from $3.50 to $4 a pound in different ports for shedders, are comparable to what they were getting at this time last year, they say.
They may not feel the effects of the China tariff until the fall, when the domestic tourism market softens and a majority of the catch has a firmer shell deemed worthy of air freight travel. That’s when a lot of the Maine catch could head overseas and when China’s role in the Maine export market looms large. Coincidentally, that’s when most of the Canadian lobster fishery is closed.
Last year, China imported $128.5 million of U.S. lobster, making it the biggest overseas importer of America’s most valuable fishery.
Dealers who buy lobster and process it, turning the shedders, or soft-shell, catch into frozen lobster tails and meat, are having a banner season. One Maine processor who doesn’t do much business with China said the frozen lobster tail season is the strongest he’s seen since he left wholesaling for processing in 1993.
Export data that would show the impact of the tariffs on U.S. exports to China, or reveal whether dealers have been able to replace the Chinese market with other overseas buyers, will not be released until the fall. Many of the live lobster dealers in Maine who have made big bets on China, like Ready Seafood and Cape Seafood, say they are not ready to talk about their post-tariff sales.
As a rule, Tselikis doesn’t talk about price. Every one of the 300 lobster wholesalers in Maine is different, she said. The industry itself is built more on anecdotes and gossip than on data that is publicly available for review, she said. But losing Maine’s biggest overseas live lobster market is going to hurt, she said. Dealers may be first in line, but what hurts them will eventually hurt everyone.
Nadeau said she isn’t revealing anything that everybody in the seafood industry doesn’t already know: The Chinese tariff has stifled the hottest segment of America’s top commercial fishery and pushed Chinese lobster buyers to Canada, whose live lobsters are subject to a blanket 17 percent tax. U.S. lobsters are subject to that same tax, plus a 25 percent retaliatory tariff.
Because of that tariff differential, Chinese customers are able to save about $2 a pound when buying a Canadian lobster rather than one of Nadeau’s. That differential is an insurmountable gap that no amount of salesmanship or service can close, Nadeau said. In lobster, a deal can be lost over a 10-cent price difference. Two-dollar gaps are industry killers, she said.
In the best of times, Nadeau said she was lucky to earn a 10-percent gross profit margin, or about 70 cents a pound, before expenses. That’s not enough to match a $2 per pound price differential, even if she were willing to forgo her profit in order to hold on to her Chinese customers while the tariff is in play. Matching the Canadian price would end up costing her about $2,000 an order, she said.
Maine Coast, a large live lobster exporter based in York, will probably drop its price to stay competitive with Canadian rivals in Europe, who can now sell their lobsters to the 28-nation trading bloc without a tariff while U.S. dealers face an 8 percent tariff on their lobsters, owner Tom Adams said. But he can’t “sharpen his margins” enough to absorb the cost of the China tariff.
Like Nadeau, Maine Coast hasn’t shipped any lobster to China since the tariff went into effect, he said. Last year, Maine Coast sold an average of 30,000 pounds a week to 50 customers across China, accounting for about 20 percent of annual sales, Adams said. He has been able to make up some of that loss, but not all, with sales to non-Chinese buyers, but not always at the same price point.
Adams had already begun to diversify his export market before the U.S.-China trade war hit. While China was its specialty niche, Maine Coast sold lobster to 29 countries last year, he said. He hasn’t had to cut any jobs and still holds out hope that he can match last year’s revenue, which was nearly $57 million, and grow the company, which is expanding its York facility.
But it requires an overhaul of his business plan, Adams said. With less market available right now, Maine dealers will compete against each other on price point alone, which he calls a “race to the bottom,” until they can grow new markets. But that takes time, he said. It will mean asking his China sales team, many hired because they speak the language, to work new deals in Brazil, for example.
“For a salesman who works on commission, developing a new market means less money to take home,” Adams said. “That’s not easy. You have to start from scratch and build demand for a new product in a new place, often times in another language. We are not laying people off, but we are telling our China team that they have to find a new way to hit their numbers. That’s hard.”
TAKING IT IN STRIDE
For some, the pain of Chinese tariffs may still be coming, while others say they, and the balance of the industry, will remain unscathed.
Maine lobstermen have just kicked off the summer season and are landing new shedders right now, most of which are not yet hardy enough to ship to China. In spring and early summer, U.S. dealers buy a lot of the lobster they sell to China from Canada, not U.S. lobstermen, another reason why Maine lobstermen may not feel the China tariff sting yet, dealers say.
In Maine, the boat price is about the same as it was last July, said Kristan Porter, the president of the Maine Lobstermen’s Association.
“A lobsterman is never going to say the price shouldn’t be higher,” Porter said and chuckled. “But so far, the prices have been all right.”
Meanwhile, the frozen lobster industry is enjoying one of the best lobster tail markets ever, according to John Norton, who owns Cozy Harbor Seafood, the largest of Maine’s six lobster processors. But publicity about the impact of the Chinese tariffs has Norton clients calling and emailing constantly, asking him when the Chinese tariffs are going to drive prices down.
“I tell them, they’re not,” Norton said. “The Maine lobster industry is a lot more than live exports. A few companies, they’ve made really big bets on China, and it’s going to be tough for them, but the lobster industry goes up and down all the time, in waves, and we’ve had bigger waves than this hit us before and survived.”
Some in the industry believe the U.S.-China trade war is the perfect illustration of why Maine should focus on building up the domestic market rather than sending off so much of the harvest to countries that can use tariffs to manipulate trade. John Hathaway, who owns Shucks Maine Lobster in Portland, says the U.S. market is huge and relatively untapped.
“There are 400 million people in the USA at any one time,” Hathaway said. “There are only 20 million pounds of Maine lobster meat each year. That is one Maine lobster roll for every five people once a year! Ever go to Red’s Eats? People line up two hours before they open every day. Do you think those Americans could survive on only one Maine lobster roll a year?”
Nadeau predicts that some of her Chinese customers will return in the fall, after the Canadian lobstermen stop fishing and Maine fishermen begin to harvest firmer-shelled lobsters that ship well to China. With little debt – the 27-year-old company has paid off all of its buildings and its trucks – The Lobster Co. can afford to ride out the tariff, at least for a little while, Nadeau said.
“How long? I don’t know,” Nadeau said. “You can’t operate a business if you’re only profitable three months a year.”