A trip into the hidden backend that’s enabled the rise of precisely and ethically sourced “third-wave” coffee.
This is the script for episode 4 of Containers, a radio documentary about how global trade works. Things change in the editing, producing, and mixing stages, so it may not exactly reflect what you hear in the episode.
ALEXIS: This is Containers, a radio documentary presented by Flexport, which looks at work, technology, and shipping as a way of understanding how the economy actually works. The systems that deliver the products you buy to store shelves or your door step are complex and hidden. Through telling the stories of people working in supply chains, we make logistics more human and understandable. I’m your host, Alexis Madrigal.
In previous episodes, we’ve looked at whole systems in a kind of horizontal way. How did containerization develop? How does global trade across the Pacific work now? What kind of maritime ecosystem does it take to be a port city in the modern era?
Today we’re gonna look at how one product moves across the world, and that product is COFFEE. Because coffee is the best and everyone loves it. And also, something really interesting has been happening in coffee logistics that directly influences the kinds of coffee you can now buy and drink.
In the course of a few years, a fancy coffee went from a Starbucks latte to a cup of individually poured coffee from some particular cooperative in the highlands of an equatorial country. The fancy coffee game now requires wine-industry-like attention to the soil at origin, microclimates, labor practices, farming methods, and processing steps. People call this “third wave coffee,” and it’s produced highly visible, tasteable change in the type and quality of coffee available in the United States, especially in fancy food and drink strongholds like San Francisco.
While as a coffee drinker, you might notice all the new types of coffee, there is a hidden back end to this revolution in coffee production. The whole industry has had to reorganize itself to meet the demands of the third-wave roasters. There is a new coffee culture, and we’re gonna look at the infrastructure that makes it possible.
To understand how third wave coffee is transforming global trade, you have to know how the stuff is bought, sold, and transported. So, let me introduce you to our guide in this world, Aaron Van Der Groen.
AARON: On my weekend, one of my favorite things to do is find a greasy spoon diner where nobody in coffee knows me and just have a stack of pancakes and whatever comes off of that glass pot. It’s the best.
Aaron wears big, 90s sideburns and a ponytail. His catch-all adjective is “neat” and I think he would not mind me saying that he’s more coffee nerd than coffee snob. He works for Ritual, which has long been the standard-bearer for ultra-high-quality, small-farm sourcing in the Bay Area and nationally. He selects and maintains the complex flow of raw coffee into the roasting operation. Aaron is what’s known as a “green buyer” and his job places him right in the middle of the global coffee revolution, which has created and depends on a sophisticated consumer.
AARON: We have a coffee called Carmona from Guatemala. As far as people who buy Carmona are concerned, they just wanna see that name and they want to see it available.
ALEXIS: So yeah, people see the name “Carmona” and they come to associate it with a particular flavor and they want it to stay consistent and good. But Carmona is really kind of a catch-all for a bunch of harvests of different trees picked at different times on the 270 acres of the Hacienda Carmona in the Antigua region of Guatemala.
AARON: You’re not picking the whole farm at once. You’ve got people who go out there for a day. They pick a bunch of bags and it gets processed. A small sample is set aside and that stuff is the stuff that the green buyer will taste.
ALEXIS: When Aaron arrives on the scene, the beans from different harvest times are grouped into what are called “day lots.” And that’s what the green buyers sample.
AARON: And then they say, “I like that one. I like that one. I don’t really like that one. But this one’s cool, too.” So how about you take these 3 and kind of, we’ll put them together and that will be the Carmona for this year.
ALEXIS: And that’s what he does for all the coffees that Ritual sells from all over the world. Which means that for you to have your preferred Ethiopian coffee or something special from Columbia, he has to travel the world, getting buzzed, tasting the finest coffees humans have ever produced. It’s a pretty sweet job. He just got back from a coffee buying trip to Kenya, where he went to the Nairobi Coffee Exchange, which is held in this crazy wood-paneled room.
AARON: It’s definitely a relic of … it feels like old colonial British times. You’ve got all these big formal desks that the traders sit at. Each one has an ash tray built into it. All these stained coffee cups around. I have in my head this vision a bunch of old ex-pats sitting around making this huge billowing smoke and buying and selling coffee.
ALEXIS: The coffee business varies wildly from country country, so each nation has different rules and they’re often strange by American business standards. Aaron’s job is to navigate the byzantine world of coffee trading, all in service to the ever growing demand for high-end coffee that can retail for more than $25 per pound.
AARON: Coffee is bought and sold for the entire country of Kenya in tiny little 10 and 12 bag lots. Occasionally you’ll see something that comes into the 100s, but you know, this auction will go from real early in the morning to way late at night and it’s not done until every last bean in the entire country of Kenya is sold.
ALEXIS: In Nairobi, there are brokers who do the actual trading for people like Aaron. They’re the ones sitting at the desk with the ash trays.
AARON: There’s one little button on the desk and as long as 2 traders have the button pressed or more, the bid price keeps going up and up and up. And yeah, it makes crazy little sound effects. It starts going pew-pew-pew. And after a couple seconds when nobody makes their last bid, it’s yours.
ALEXIS: So what happens next? After the coffees Aaron buys arrive at Ritual — more on that in a minute — he sits down with Ritual’s head roaster and they talk over the acquisitions.
AARON: And I’ll be like, “hey, I think this one would be really good as a single origin, light roasted drip line. I’m thinking about putting it in our cafes. We’re going to brew it up this way. You know, let’s find a good roast for that.”
ALEXIS: Then the beans are taken to ritual’s roastery, which is located in a coffee micro neighborhood in San Francisco’s SOMA district. He invited me to see the facility firsthand. The roastery is about the size of a big café. A garage-like room at the back serves as Ritual’s whole warehouse.
AARON: It’s small for what we do. We have about 2 weeks of coffee here. So we kind of follow the harvest. Right around this time of the year, things are actually pretty slim.
ALEXIS: Honduras, for example, tends to harvest in February or March, so by January of the next year, that coffee is all gone. But Aaron has found one group of farmers who let him keep fresh Honduran coffee flowing into Ritual longer.
AARON: They’ve got a neat area where they’ve got a little bit more elevation and they’ve got a lake that they’re right next to, so they get fog, cooler temperatures, and they harvest late.
ALEXIS: Ritual is very well known for working with small producers directly, from Central America to central Africa.. But it’s not like he leaves with their beans in his suitcases. That whole system of global trade that brings cars and steel and iPhones to the United States also is what is going to deliver coffee to Ritual. It still needs to be packed into a container, loaded onto a ship, sailed across an ocean, and delivered to Oakland. And that’s just what happens after the coffee leaves the country. Even just in Kenya, there are a lot of steps between coffee tree and export product.
AARON: For the most part, your Kenyan farmer is a subsistence farmer. They are growing mostly food crops to get by and then they’ll grow a cash crop and that’s basically their entire income for the year. That’s what they’ll use to pay the phone bills.
ALEXIS: Given that they have a plot of maybe an acre or two, they work with a local coffee operation that gathers up coffee fruit from a bunch of farms… Those are “day lots” I was talking about earlier. The facilities that house the crops are called a “factory” in Kenya.
AARON: A factory is the place that buys coffee fruit and they turn it into the next step along the way to becoming green coffee, which is called coffee parchment.
ALEXIS: The parchment is basically an outer covering of the coffee bean that has to be removed. That’s done by a coffee dry mill, which takes it off by varying processes, leaving raw green coffee.
AARON: They sort it by density, by color, by size, to make all these different grades and qualities of coffee that you can buy and they send it to the auction to be sold by the different grades.
ALEXIS: So just to get to the point of export, here’s the whole chain of transactions.
AARON: So when I come in there and I’m buying coffee at the auction, technically I would be working via a broker to buy coffee from one of these coffee mills who buys the coffee from a factory who buys the coffee from a farmer.
ALEXIS: And that’s where most stories about coffee skip straight to the café sounds of latte making.
ALEXIS: Let’s say you’re one of those Ritual customers Aaron was talking about earlier. You can’t LIVE without coffee from the Carmona Hacienda of Guatemala. By now it should be clear how much global trade rests on the personal tastes of the coffee consumer. But there’s a whole invisible middle layer that moves the beans from a place like Kenya to a roaster in SOMA. Let’s go see it.
ALEXIS: Our first stop in this hidden infrastructure is Royal Coffee, one of the biggest green coffee importers in the western United States. We’re here because I have no idea what an importer actually does. Like, I know that they bring things into the country. I get it in the abstract. But in the specifics? No idea.
Royal is located way out in the San Francisco Bay on a little spit of land jutting out from Emeryville, right in between a Trader Vic’s and a fancy dim sum place. Their two-story building was supposed to be a yacht club. Impeccably curated vintage coffee bags adorn the walls and the trading floor is organized into tasteful oval of desks.
We sat down in a big office and I handed a mic to Jennifer Huber, Royal’s director of operations, and told her to hold the mic close to her like she was singing karaoke. And then … she started singing karaoke.
JENNIFER: I’m the director of operations and I’m a trader at Royal Coffee, Incorporated. And we are a green coffee importer that’s been around since 1978. An importer sources the green coffee beans from various different countries throughout the world and we handle all of the logistics from getting it in the country of origin to the United States or wherever its final destination happens to be.
ALEXIS: Really, it’s all about having a rolodex of connections in the dozens of countries that produce coffee.
JENNIFER: a lot of it is maintaining relationships and developing relationships with the people we’ve been working with. The producers, the exporters and such. A lot of the people we’ve been working with for decades. But we’re also always looking for new producers and co-ops to be working with. So, you’ve got the relationship aspect of it. You’re also creating contracts. Negotiating prices. Staying up-to-date with where the market is for any given country of origin as well as where the New York commodities market is.
ALEXIS: The business is changing, though. It’s getting harder. The standard trade in coffee used to be whole container loads of commodity coffee that was all handled and treated equally. But now, an ever larger percentage of the industry is dealing with much more specific sourcing. And that’s because it creates more interesting coffees that taste better and … also … let’s be real, Millennials love their small-batch everything and will pay $10 for artisanal pickles. So, they, by which I mean we, are definitely willing to pay for single-origin coffees.
The logistical corollary to that single-origin is the microlot, a shipment of a small number of coffee bags. Microlots are the enabling concept for the hyper-specific fancy coffee game of today. For a company like Ritual or Chicago’s Intelligentsia, it’s all about having a bunch of different coffees coming from individual co-ops and farms. And those lots might be 10, 12, 15 sacks of coffee, waaaayyy less than would fill a container, which might hold 250 sacks. So that requires more work for the exporters in Guatemala or Honduras or Sumatra and way more for the importers, too. But that’s the only way you get Carmona or a coffee produced just by the Muriithi family on the Alimu Estate in Kenya.
ALEXIS: And a lot of that extra work falls to the “traffic” team at Royal.
MELISSA: My name is Melissa Holland and I work in inbound traffic and basically what that is is the nitty-gritty nuts and bolts of coffee importing.
ALEXIS: And what that tends to mean is dealing with documents. So many documents. Probably 10 for each and every shipment.
MELISSA: That’s when our detail orientation comes in handy because you need to make sure all the I’s are dotted and the Ts are crossed. And that’s when we encounter probably the biggest challenges just in terms of making sure that the correct number of bags have been accounted for, the weights are correct, the marks are correct, because each individual bag from each country has a unique mark that is supposed to go on the bag.
ALEXIS: They track the containers as they come into the port and try to figure out how soon they can get the coffee out to customers.
MELISSA: Each container has a unique number that I can trace on each shipping line’s website. I can find out roughly where it is. I don’t get GPS tracking on it, but I can figure out roughly where it is and where it is in the shipping process, so I can estimate a time of arrival. And that’s really important to our traders to be able to sell the coffee as soon as it arrives.
JENNIFER: There is a number of reasons why you’d want to sell it right away.
ALEXIS: This is Jennifer again, the head of operations.
JENNIFER: One is to turnover the cash. We’ve paid for the coffee as soon as it hits the water. And we’re financing it. So the sooner that we can paid by the roasters, the better. Another reason is that because, yeah, you kinda want it to get purchased and roasted and consumed as soon as possible for freshness sake.
ALEXIS: In case you missed that, it’s worth dwelling on: small roasters like Ritual don’t have the cash to front all the money they’d need to secure the beans they need for a season. So it’s the importers that finance those acquisitions, giving coffee roasters the flexibility to buy from all over. Chances are, you’ve never heard of Royal. But they could bring in — and finance — during the busy season, 1.5 million pounds of coffee in a single week. 40 containers worth. And even in the doldrums of January, they’ll import 650,000 pounds of coffee.
JENNIFER: We’re large for independent coffee importers. A lot of the coffee importers these days are owned by larger conglomerates.
ALEXIS: What kind of conglomerate owns a coffee importer?
AARON: Like Olam?
JENNIFER: Olam. Louis Dreyfuss.
ALEXIS: See, I’ve never heard of any of those companies before in my life.
JENNIFER: They’re also hidden.
JENNIFER: Louis Dreyfus is huge. Yeah. They’re really big.
ALEXIS: Did you know this stuff before you got in the industry?
JENNIFER: I’d heard of Louis Dreyfus. That’s Julia Louis Dreyfus.
MELISSA: She’s actually related to them.
JENNIFER: You can interview her next.
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ALEXIS: We’ve been tracing the hidden backend to the explosion of precisely sourced, high-end coffee from the farm through the system of global trade. Now we’re going to go a little deeper into the system as it works here in San Francisco, which has been a leader in this new “third wave” of coffee in America.
Coffee importing in the San Francisco Bay has always been a big business. For much of the 20th century, coffee was the highest value import into the city. All the longshoremen knew what it was to work a coffee ship. At times, coffee was the biggest business in the whole Bay. California Street, actually, was something of a coffee row. The smell of roasting coffee blanketed the downtown. And two of the biggest national coffee brands of the century were built in the city, Folger’s and Hills Brothers.
(The ads are appalling, if you haven’t ever seen them! There were so many ways to be an asshole husband in the middle of the century.)
I want to dwell for a minute on San Francisco’s coffee business. One reason is that coffee helped to create San Francisco. But San Francisco, and its role in the importing and distribution of coffee, also helped to create the modern coffee industry, too. The consumer experience of coffee has always been shaped by the hidden backend of not just farms, but ships and technologies and business innovation.
Why did San Francisco become such a big coffee town? Because it was the best port on the west coast, basically. Well, that and World War I. (Much of the following narrative is distilled from an incredible 1920 book called All About Coffee.)
Before World War I, the Germans and British both financed and received shipment of Central American, particularly Guatemalan, coffee. It was very good stuff, better than the Brazilian varieties that most Americans then drank. But when the war disrupted European trade, San Francisco bankers and importers stepped in to finance the Guatemalan producers. Coffee flooded into San Francisco. In 1906, when the great earthquake hit the city, about 250,000 bags were coming into the city. In 1914–1915, it was up to 400,000. And by 1918, boom, importers brought in a million bags of coffee. That would work out to roughly 150 million pounds of coffee streaming into a city with a population of not even 500,000 people.
San Francisco coffee businesses also developed two key processes. One was the use of vacuum packing, which was pioneered by Hills Brothers. Vacuum packing sealed moisture out of ground-coffee-filled cans, allowing for greater shelf-life. In effect, it allowed the massive expansion of national brands selling coffee in tins, which is the model that dominated 20th century coffee.
The other San Francisco invention was what’s still called “cupping,” which is to say that coffee is actually tasted multiple times throughout its production and distribution to see if it’s good. It seems crazy that this had to be developed, but prior to the early 20th century in San Francisco, the world’s coffee buyers thought that they could eyeball the coffee and grade it that way. So they were willing to pay more for bigger beans, for example, even if size had nothing to do with the taste of the coffee. Cupping is now an absolutely essential feature of the coffee business.
San Francisco’s shows that the relationship between the product of coffee as people consume it and the importing and distribution processes are deeply, deeply related. They drive each other. You want hyper specific single-origin coffees? You need a whole supply chain that understands how to deal with that.
There’s this concept in the software world called “the stack.” It basically holds that any particular technology is built on top of other technologies. So, the app on your phone is actually built on a series of underlying stuff that lets developers focus just on the app stuff. And that’s what’s happening with coffee roasting right now. There’s now a beautiful stack that allows even the smallest or newest roasters to ply their craft.
One of those layers is a legendary place called the Annex, which has helped make the Bay Area specialty coffee explosion possible. It’s a place that can store all your little shipments from all over the world and send them to you as you need them for roasting. Aaron guides me out there. He’s been a regular visitor here for years.
ALEXIS: The Annex is an anonymous warehouse in San Leandro. It’s surrounded by a granite trading company, a scrap yard, a place that sells big steel bolts, and a little Mexican restaurant called La Piñata. Aaron and I walk past waiting truckers and inside the main building.
AARON: So this is about as far as I ever make it in the building. We’ll check in here to find, Dave.
ALEXIS: We’re meeting with Dave Weber, who is a strong dude in his middle age. He’s still got all his hair and looks a bit like Jay Leno, but with a normal chin. He’s deeply knowledgeable about the coffee business. Even the artwork in his office is a nod to coffee logistics: hanging behind his desk is a painting of Red’s Java House, an old dockworker hangout at Pier 40 in San Francisco.
DAVE: We’re one of the largest green coffee warehouses on the west coast. The Annex, in total, is right around 500,000 square feet of nothing but coffee, green coffee sacks. I would say that there is safely a bean from every coffee producing country in this warehouse right now.
ALEXIS: The Annex is called a “consolidating” warehouse. They can pull all your various orders from Burundi and Columbia and Guatemala and stick them on pallets, which get loaded into trucks and delivered to roasters. They get involved as soon as the containers get cleared by customs, thanks to people like Melissa at Royal.
DAVE: We have an in-house carriers that’s worked with us since the beginning. He and his drivers know their way around the port of Oakland pretty well. They’ll pick up these containers, bring ’em back to our warehouse. We’ll do the unloading, physically unload each bag out of the containers, palletize ‘em.
ALEXIS: That literally means putting the bags on pallets. Then they check out the coffee, make it available for importers or roasters to sample and get it ready for shipping out. The work that’s done here is physical labor, executed in teams, who spend all day on the warehouse floor pulling bags and loading them up for delivery.
DAVE: So there are 4 forklift operators that are constantly pulling orders. 2 of this, 5 bags of that, 7 of this, all day. And those bags are brought up to the front.
ALEXIS: As with Royal, coffee used to come in and go out in full container loads. Now it’s all those microlots, which require a lot more work.
DAVE: We’ve seen this business go from larger roasters, higher volumes, full truckload in, full truckload out. And that’s still there. But we also see the smaller roasters that are taking 10 bags a week or 40 bags a week.
ALEXIS: We headed out onto the warehouse floor, where we met up with Hugo, another old coffee hand and manager at The Annex. He’s a short, solid guy. Warm and helpful, he’s originally from Guatemala.
HUGO: Guatemala is known for one of the best coffees in the world. Antigua. I remember walking to school, 7,8 years old. Most kids like candy and I would go past a roaster and I’d go chew on the beans and later on, JESUS that was a sign that I was gonna be in the coffee business. It cracks me up.
ALEXIS: The floor of the warehouse is thrumming with activity.
HUGO: How many bags we handle on a daily basis: I would say anywhere between 8k to 10k bags.
ALEXIS: Some of the guys drive forklifts. Some of the guys strap the coffee onto the pallets. And some throw coffee bags, as its called.
ALEXIS: Did you ever throw these bags yourself?
DAVE: Uh huh. When I first started I did. [DUCK UNDER HERE].
ALEXIS: Hugo and I wander off to watch the teams work. He explains the route he took into the business.
HUGO: I started with Hills Brothers back in 1984. I was in the accounting department and there was an opening in the commodities department and I applied for it. And since I’m bilingual in Spanish and a lot of the coffee growers are from central America, I was able to communicate with them. And so I’ve been doing that for 12 years at Hills and 15 years with nestle and 20 years at the Annex. So I’m familiar with roasting, production, and now warehousing. So, you name it.
ALEXIS: Would you ever start your own coffee business?
HUGO: I don’t think I’m very good at taking chances. There’s marketing, sales, and I think I’m weak at that. I’d rather just. I love working in this warehouse. Working with people, customer service, relationships with people going back 35 years. Things have changed. Now I’m here to teach a little bit and at the same time I’m learning because things are changing. Dave and I are down to the last 6, 7 years, we like to support each other and retire here if all goes well.
ALEXIS: What do you think is the most significant change that you’ve seen?
HUGO: Microlot coffee. Even five years ago, it was just a simple one container, one lot, 45 minute job. Now we are getting containers with several microlots that take up to 3, 3.5 horus to sort out. Our gourmet area, the microlot, even 5 years ago. Our bay which is 50 pallets, now we’re 150, 200 pallets a day.
ALEXIS: The business is more time consuming, more complex, and that has driven the growth of the warehouse. As third-wave coffee grows through more small roasters getting into the game, so does the Annex.
HUGO: We know this is the way that it’s gonna be. I tell my guys, wait til summer time. I think we’re probably gonna increase production another 40%. There are more roasters. Medium sized, smaller, and it’s good for us. I tell them, hey: you don’t have to be looking for another job. You’ve got it here if you want it. But you have to get to the next level. And you’ll be rewarded for what you do. I know sometimes they don’t take lunch or they gotta stay late and sometimes they come in at 4am.
ALEXIS: Two guys are preparing to load up an outgoing truck. Hugo looks on with obvious pleasure.
HUGO: 302 bags. They’ll load that truck in an hour at most. That’s 42000 pounds and they do 5–6 of those a day. The other kid is only about 110 pounds. But they’re fast.
ALEXIS: They are fast. We watch them work in perfect coordination. This is part of the foundation of the coffee industry, these sacks, these warehouses, these guys throwing bags. Using their bodies, their shoulders, their backs, their hands to move product. Dave and Hugo go back to work and Aaron and I drive off, probably with some kind of contact caffeine high from being among all those stacks of coffee beans. The way the whole system works to create third-wave coffee is dawning on me.
ALEXIS: In all these different ways, a lot of the scale and complexity that used to be required has gone away. [DUCK UNDER NEXT TRACK] You can contract with somebody. You can just get a little bit of it. You can just get a little bit of time. The capital requirements that existed to be a coffee roaster have gone away.
ALEIXS: Talking to the guys at the Annex, it’s so apparent that they realize that microlots are the future of the game. While the big guys still dominate the business in terms of sheer tonnage, the prestige and growth are in the smaller lots and being able to handle them. When people talk about developing a business ecosystem, I realized: this is what that actually means. All these different little pieces from the farm level, the financial level, at the shipping level, at the warehouse level. The flexibility needs to be built in at every layer. And what it leads to is… all of these new coffees, these new taste experiences because the ecosystem allows people to farm and roast in unprecedented ways.
Special, special thanks to Eileen Rinaldi, founder of Ritual, who hooked us up with Aaron. And to Anne Wintroub for throwing the holiday party, where Eileen first told me the story of this crazy warehouse in San Leandro that is a lynchpin of the local coffee industry. Also thanks to Sheila Muchmore at the Annex for helping us and for having the best name. Thanks to James Freeman of Blue Bottle, too, who got me into writing about the business. And finally, thanks to Marina and Kristin and Fawna at Modern Coffee, which has fueled this whole podcast. Right now, myself, I’m drinking a Costa Rican coffee called Arracache from Modern Coffee.
Tune in next week when we look at the America-first trade policy that keeps American ships plying the waters and we meet a fascinating ship captain named Tony Mociun who happens to be friends with Gary Snyder, the Pulitzer Prize winning poet.