Ready Seafood in Portland is joining a handful of U.S. lobster companies that have opened Canadian operations, locking down year-round access to hard shell lobsters that can be exported to both China and Europe without the tariffs that have crippled other U.S. dealers.
Last fall, Ready acquired L Walker Seafoods, a small, family-owned live lobster holding, packing and processing plant in Nova Scotia. It gives Ready a toehold in Canada’s most lucrative lobster territory, which lands as much in its six-month fishing season as Maine does in a year.
“It’s something we always knew we were going to do,” co-founder Brendan Ready said.
Developing a business footprint in both nations that land American lobster is a coming-of-age moment for dealers, allowing them to source fresh sturdy lobsters from New England in summer and fall, when the U.S. season peaks, and from Canada during its winter and spring fishing season.
Ready is following in the footsteps of other American lobster dealers, ranging from Boston Lobster Co., which opened a buying and pounding plant on Cape Sable Island in 1993, to Boston Wholesale Lobster Co., which made its move five years ago and now runs two Nova Scotia plants.
Other Maine dealers have invested in Canada, too. Garbo Lobster, a subsidiary of East Coast Seafood Group in Massachusetts, expanded into Canada back in 2001 with a Nova Scotia location, according to its website. Garbo, which operates a storage, packing and shipping facility in Hancock, has since added a New Brunswick storage facility.
Dealers from both sides of the border who attended the Canadian-Maine Lobstermen’s Town Meeting in Portland last week said that having a footprint on both sides of the border is necessary to fulfill the international customer’s demand for year-round lobster. At some times of the year, Canada is the only place a dealer can find lobsters with thick enough shells to make the trip to an inland city in mainland China, they said.
Having a direct relationship to the Canadian fishermen who catch the lobsters at those times of the year also helps U.S. dealers sell product at a top price because they can personally vouch for its provenance and freshness with customers.
Cutting out as many middle men as possible not only helps keep costs down, but shortens the time from trap to table, which is always a factor in an industry where people make their living selling millions of pounds of live animals around the world, dealers said.
A cross-border lobster operation insulates a company from tariffs, too, giving it two countries with different trade deals to pick from when it comes to shipping lobsters abroad – especially now, while Canada enjoys a strong trade deal with Europe and the U.S.-China trade war rages on.
In September 2017, Canada signed a free trade deal with the European Union that allowed its dealers to sell lobster to the 28 member nations without a tariff. EU buyers must pay an 8 percent import tariff on all U.S. lobsters. As a result, U.S. lobster exports to Europe fell 47 percent from 2016 to 2018.
Last July, the U.S.-China trade war made an impact on the U.S. lobster industry when China levied a 25 percent tariff on U.S. lobster imports. Chinese buyers flocked to Canada, causing U.S. lobster imports to drop 36 percent and Canadian lobster prices to soar as everyone tried to lock down part of the Canadian market.
Boston Wholesale takes advantage of its Canadian trade benefits whenever it can to offset the high costs of trucking Canadian lobster to places like Boston’s Logan International Airport to get a U.S. flight to China or Europe, according to co-founder Billy Palumbo. The tariff workaround comes at a logistical price, keeping profit margins razor thin.
“There are very few flights coming out of Canada to Europe or China,” Palumbo said. “The ones making money selling Canadian lobster to China are chartering planes. The Chinese buyers are doing it on their own, buying Canadian companies to control the whole supply chain.”
There are certain things a cross-border operation can’t do. A U.S. dealer can’t get around the China tariff by trucking lobster landed here to Canada for export to Beijing, for example. But if they buy it in Canada, and it’s landed in Canada, they can get around the tariff, said Geoff Irvine, head of the Lobster Council of Canada.
They can even truck the Canadian lobster to airports in Boston, Newark or New York to catch one of the many U.S. cargo flights to Europe or China, Irvine said. Many Canadian dealers ship lobsters they bought and packed in the Maritimes out of U.S. airports, especially to reach Europe.
Ready Seafood was in talks to buy Walker before the U.S.-China trade war broke out, Brendan Ready said. When Premium Brands Holdings Corp., which itself is based in Canada, acquired Ready last September, the Portland company asked its new corporate parent to make the $700,000 purchase.
“We are locking down access to fresh, quality product year round at a time when the Chinese are cornering that market,” Ready said. “It’s something we always knew we were going to do. In this market, it became something we had to do.”
Ready said his team is too busy training Walker employees to handle, grade and pack lobsters the way it’s done at Ready Seafood to explore possible tariff workarounds right now. But in a conference call with industry analysts last month, Premium Brands executives said Ready had just found a way to mitigate its significant tariff losses.
Not only did Ready get hit by the tariffs, but losing the China market created an oversupply of U.S. lobsters looking for a home and drove the price of that domestic product down, officials said. But they didn’t want to talk about the workaround, which they described as proprietary and unique.
While the tariff has hit some U.S. lobster dealers hard, forcing them to take losses and lay off workers, Ready believes the tariff interruption will be good for the U.S. industry in the long run, forcing it to expand to new export markets and lobster products.
“We can’t chase China,” Ready said. “Sure, it would be great to have it all, but China is just one market and we have to make sure we have premium lobsters all winter to serve our customers who take care of our industry all summer and fall. We have to look beyond China.”