Asia | US news digest. 7 June
A long-awaited stability is out of reach, so industry players brace against the high rates, prolonged congestions, and more pressure on the supply chain.
It seems like the current ocean freights have truly become the embodiment of the saying “sky is the only limit” as they have gone up by another 3% for Shanghai to Rotterdam direction (or $288 on last week to $10,462 - a rise of 518% on their level a year ago for 40ft containers and those on Shanghai-Genoa rose 2% or $238 to $9,900/FEU (+418% year over year). On the transpacific, spot rates from Shanghai to Los Angeles increased 4% or $210 to $5,952/FEU while prices from Shanghai to New York surged $412 (+6%) to come in at $7,559 for a 40ft box. As for the transatlantic trade, the westbound leg rose just 1% to an average of US$3,720/FEU on Rotterdam-New York, while prices on Rotterdam-Shanghai increased by 5% also to $1,629/FEU. The continuing blockage of the port of Yantian does not contribute to the positive changes. Although Chinese officials are stating that the situation is improving, it is on the contrary getting worse. The number of delays is growing since only the eastern portion of the terminal is operating at 30% capacity, while the western part of it is completely shut down. China has increased the dray cost and decreased the availability of truckers. This is also negatively affecting the equipment problems as inbound vessels bypass Yantian for other terminals. Importers watching the spot rates that are now astonishingly high have begun to move orders forward to allow more time to get their products to market. They now have to prioritize the products based on their profit margins. Is it even possible to determine the limit of the rate growth? According to experts, hardly. While a “new normal” is expected to be around 10-20% above the pre-COVID level, nobody knows when this awaited stability finally takes place. There are several reasons for the current circumstances. Firstly, there are not enough empty containers and slots. Secondly, the players have to mind the ratio of goods ready to ship vs placement of the new orders in order not to pay extra money for the boxes decreasing in value. Thirdly, the contagion of equipment shortages across trades: Asia-Europe is experiencing quite anemic demand growth, but rates are through the roof because there are no boxes to move the cargo. The congestion of Yantian is not the only obstacle. In turn, Hapag-Lloyd is bypassing the Port of Oakland from the westbound legs of two of its transpacific west coast services because of the delays and prolonged blockage. While the aforementioned ports are struggling, the port of Los Angeles aims to increase its infrastructure budget by 42.5% to meet growing demand. The improvements have been spotted at the Chittagong port. Despite facing weeklong disruptions in mid-May, cargo volumes continue to be positive. Faruque Hassan, the new president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said the apparel may make a full recovery by October. It is going to follow the reopening of western retailers.
What about manufactures and the exact aforementioned retails who depend on the logistics companies and have to manage their costs associated with inbound and outbound domestic freight that are on the rise? Dollar Tree’s freight-market conditions are deteriorating alongside the lack of truck drives that are unable to meet the elevated demand. The latter is the problem for many. The recent cyber-attack on giant meat processor JBS’s operations in North America and Australia left truckers scheduled to haul cows to JBS plants without loads, forcing them to scramble for traffic elsewhere. The ubiquitous shortages concern technology companies as well. Dell and HP expect supply constraints to continue at least through the end of 2021. Having taken the current conditions into the account, the tech giants are trying to adjust their supply chains. Dell has started prioritizing more valuable places for the components it can procure. The company is going to focus on fulfilling orders for long-term customers first. As for HP, the company noted that it is increasing inventories and preparing long-term contracts with suppliers to ensure lasting partnerships and security. Retailers all over the world are admitting that panic buying and pantry stockings have majorly disrupted the industry knocking out manufacturers and producers. To sum up, although the latest quarterly reports from retailers appear to show progress in rebuilding merchandise levels, freight is still delayed at the ports, and transportation capacity remains historically constrained. It is too early and reckless to expert the improvements any time soon in the big picture.
Rates are growing, but the trains move on – figuratively and literally. On Friday 4 June, the first train from Nanjing in China arrived in the Dutch hub of Tilburg. The event has marked the beginning of a new regular line between these two countries.
Asian shipping group SITC International has extended its newbuilding string to nearly 30 ships exercising options for eight more vessels at Yangzijiang Shipbuilding. The tension between Canadian Pacific (CP), Canadian National (CN), and KSC accelerates - 130 stakeholders had filed statements to the US Surface Transportation Board (STB) requesting it reject CN’s proposed voting trust. They are concerned over the likelihood of reduced service quality and infrastructure investments.