Ninety-five percent of hides produced in the United States are shipped in containers to leather producers, primarily in the Far East, but also other countries around the world.
In 1834, Richard Henry Dana Jr. departed from Boston to Alta, Calif., for a two-year sea voyage. His account of the journey, Two Years before the Mast, is a classic, but what drew Dana’s ship and others to what was then a Mexican territory was the lucrative cattle hide trade.
One-hundred-and-eighty years on, executives with hide companies in California such as Kelly Meine, president of Union Hide Co. in Walnut Creek; or Doug Ohland, general manager, and Ozzy Moreno, operations manager of Southwest Hide in Modesto, are successors, in a way, to the rancheros whose hides filled the hold of Dana’s ship, Pilgrim.
But instead of selling to tanneries in the United States, today 95 percent of hides produced in the country are shipped in containers to leather producers, primarily in the Far East, but also other countries around the world.
“Leather is an industry that tends to follow light manufacturing trends globally. So wherever footwear production goes, usually that is where leather tanning goes as well,” explained Stephen Sothmann, president of the U.S. Hides, Skin and Leather Associates.
The value of cow hide exports amounted to a record $2.85 billion in 2014, he said. They were about $2.5 billion last year. Exports of pig, sheep, and goat skins are a small fraction of that amount.
The hide business is dominated by four large multinational meat producers: JBS, which acquired Swift & Co. in 2007; Tyson, which acquired IBP in 2001; Cargill; and National Beef.
But there are also smaller companies—Sothmann said his association has about three dozen companies that either produce and process hides or are trading companies.
Union Hide is a trader/exporter and has a close relationship with Southwest Hide, which both processes and exports hides.
Union Hide traces its history back to 1906, when founder Kalman Gluck started a business with a horse and wagon, buying used burlap feed bags from farms around San Francisco that he repaired and resold. When he noticed some hides were being discarded, he expanded into that business. In 1912, the company bought a property at Third and Harrison streets in Oakland, and founded the American Bag and Union Hide Co. Gluck’s son, Max, eventually took over the business and ran it until his death in 1983. The company was then sold to a group of private investors. Max Gluck was succeeded by Joe Katzburg, who ran it until 2001, when Meine became president.
Union Hide built a plant for processing hides in Modesto in 1963, centrally located in the San Joaquin Valley where many slaughterhouses were located.
It eventually closed the plant and outsourced the processing of hides to Southwest Hide, a competitor. Southwest eventually bought Union’s Hide’s Modesto plant. So while the two companies are competitors, Union Hide is also Southwest Hide’s customer, having Southwest process its hides in Modesto, as well as at Southwest’s other plants in Scottsbluff, Neb.; Bellingham, Wash.; and Hereford, Texas.
The Modesto plant receives hides from slaughterhouses in the Central Valley and as far east as Nevada. On arrival, they are placed in a brine “raceway,” which is a large vat that keeps the hides circulating for 12 to 18 hours.
The brine removes much of the water from the hide—Ohland said a hide can lose two gallons of fresh water while circulating—and the salt arrests decay. Water is then wringed out and flesh from the hide is removed.
From the fleshing machine, the hides pass on to a grading table where they are trimmed, graded, sorted, and folded.
Hide prices vary greatly, not only according to supply and demand, but on how the animal is raised. Feedlot animals generally command better prices, because they are less likely to have blemished skin from insect bites and encounters with barbed wire; steers don’t have the “stretch marks” of cows that have given birth. The lowest prices are commanded by the hides of animals that have died in the field, which may have to be dragged across the ground and whose bodies may already have begun to decay.
Sothmann said a heavy Texas steer hide in November 2014 would have sold for as much as $120, but now sells for about $72-$73. A Holstein dairy steer that has been feedlot raised was selling for $88.50 in July, Meine added, but the lowest quality No. 3 renderer hide from a dead stock animal would fetch only about $30.
As the hides are sorted onto pallets at the Southwest Hide facility, they are stacked with handfuls of “safety salt” thrown in between each hide to prevent them from sliding. The pallets of hides are then placed in a hydraulic press to remove additional water and stored in a cooler room at 40° F, which further prevents deterioration.
Hides have a reputation for being a smelly, messy cargo, and Meine said some container-shipping companies refuse to accept them. One carrier executive who spoke to American Shipper agreed that the use of liners, and improvement in their quality, has reduced incidents of leakage.
The container liners “did kind of save the industry in terms of our relationship with the steamship lines, because they really do retain moisture,” Sothmann said.
Care is taken in packing the containers. They are swept so nails or shards of wood don’t puncture the liners. The best quality liners are purchased and the bottom is covered with cardboard to prevent damage from forklifts while loading the palletized hides. Sawdust is placed in the bottom before the container is sealed to absorb any moisture that does develop during the ocean voyage.
Twenty-foot containers are used to transport hides, and Meine said special chassis are used so that the containers can be heavily loaded. He noted that the hide companies are fortunate because Modesto is home to E&J Gallo, which receives many inbound 20-foot containers that can then be “street-turned” and used for exports. The special chassis allow the 20-foot containers to be loaded up to a maximum weight of 52,000 pounds at the Modesto plant.
Efficient transportation is a major concern for Meine, who was a liner carrier executive with Korea Shipping Corp. before joining Union Hide.
Like many shippers, he is extremely frustrated by truck congestion both at the Port of Oakland and on the highways connecting it to the Central Valley. Drayage to the Port of Oakland from Modesto costs about $800, plus $35 for a fee the port recently began imposing to help fund extended hours.
As a backhaul cargo, hide exporters enjoy extremely competitive ocean rates that can run from $300 to $700 per TEU.
Meine was an enthusiastic supporter of “M-580,” the short-lived weekly barge service that operated for about a year between Oakland and Stockton, and avoided highway congestion on Interstate 580.
He believes short-sea shipping and marine highways are “far underutilized” in the United States, adding “compared to the rest of the world we are light years behind.”
The service allowed hide exporters and other producers of agricultural goods to truck their containers to the uncongested inland Port of Stockton, where they were loaded on a barge for onward transport to the Port of Oakland. Combined, the cost of drayage and the barge was about $390. But an even bigger savings, Meine said, came from drivers being able to make three or four turns per day. Today, drayage drivers bringing cargo from Modesto to Oakland sometimes have trouble making more than one trip per day.
The barge service never attracted sufficient cargo and there were some problems with consistency of service, resulting in its termination after about a year. Meine is still hopeful that someday it might be revived.
Over the years, the hide industry has seen major market shift as the leather industry moved production from the United States to Japan, then South Korea and Taiwan, then China, and increasingly to other Southeast Asian countries.
The U.S. Department of Agriculture said the top 10 markets for hides are China, South Korea, Mexico, Taiwan, Thailand, Italy, Japan, Vietnam, the Netherlands and Hong Kong.
While Union Hide and Southwest Hide export “salted hide,” Sothmann said 28 percent of the 26.6 million hides exported last year were “wet blues.” These are hides that have undergone the first step of the tanning process and have been soaked in a chromium solution, which leaves them with a blue tinge.
He said some companies would like to sell more wet blue hides because they are a higher value product, but buyers don’t always want them.
Sothmann said it is estimated that about 50-55 percent of hides are used for shoes, 10 percent for furniture, and about 15 percent for automobile upholstery, the fastest growing end-use. Purses, belts, clothing, and accessories account for the remainder.
He noted the leather industry is cyclical. In 2014, hides fetched record prices. Since then, however, prices have weakened. U.S. producers have been hurt by the strong dollar and slowdown in consumption by China’s middle class.
“I think it was a surprise for the industry to learn how dependent we are on those consumers.” He said homes and apartments in China are commonly sold with furniture, some of which is upholstered with leather.
Sothmann said congestion at U.S. West Coast ports in 2014-2015 hurt the industry because many hide shipments were delayed and then delivered to China just as prices were beginning to weaken, sending “the market into an absolute free fall.”
When leather prices increase, Sothmann said designers figure out ways to use less leather in products. A major frustration for the leather industry, he added, is the increase in the use of materials such as bonded leather that do not wear as well as the real thing.
Some markets—he mentions Brazil’s “leather law”—“have done a good job of getting their consumer regulatory authorities to take notice of this,” he said. “Unfortunately, the U.S. Federal Trade Commission hasn’t really stepped up to the plate.”
Chris Dupin is Maritime and Intermodal Editor of American Shipper. He can be reached by email at cdupin@shippers.com.