Market Update – October 2021
While the world has adapted to a new normal with initial uncertainties of COVID-19 becoming an accustomed phenomenon, the crisis in global supply chains following the pandemic seems to be here to stay. Before a more desirable balance between demand and supply returns, many shippers believe the constraints with never-ending port congestion, sustained increases in ocean freight rates, as well as equipment and carrier space scarcity will likely get worse before they get better.
In times of heightened volatility, staying engaged with the freight market has become especially crucial to not only assess your supply chain strategies, but also make informed and timely decisions to adapt to the ever-changing market landscape. In our October Market Update, we continue to provide you with a section of highlights revolving around international logistics and global economy and explain how Century can help you build a more resilient supply chain to circumvent the ongoing industry challenges.
Looking back at the ramifications first unleased by the COVID-19 pandemic, very few would have predicted that the initial wave of cancelled vessel sailings in February 2020 would turn into prolonged supply chain crisis with no end in sight. With eCommerce growing at an unprecedented pace and world trade more robust than ever, containerized imports from Asia to the U.S. have remained at historical levels. In September this year, maritime terminals across the U.S. handled a total throughout of 1.59 million TEU, up 2.2% from the same period last year and 13.8% from pre-pandemic 2019. The strong consumer appetite for spending has unquestionably left terminals around the world jam-packed with containers, but the situation has been particularly acute at the twin ports in southern California, which account for over 40% of imported containers entering the U.S. According to the latest industry data, as of October 18, there are over 100 vessels at anchor waiting for an unloading berth at the Ports of Los Angeles and Long Beach, reaching record levels and leaving many American importers understocked for the fast-approaching Black Friday Sales.
In light of the cargo backlog, President Biden announced on October 13 that the Port of Los Angeles will start to operate 24 hours a day, seven days a week through the next 90 days, pledging to ease the mounting pressure on the port’s productivity level. In a joint effort, the largest union representing the dock workers on the Pacific Coast, the International Longshore and Warehouse Union, also said their workers are willing to work the extra shifts to help clear the container backlog during the off-peak hours. While the plan of 24/7 operations is welcomed by the nation’s largest retailers who said they will utilize the afterhours, some shippers remain skeptical. It is believed that the lack of confidence is in part due to the insufficient capacity in the downstream modes, where operators have been already struggling to recruit enough warehouse workers and truckers to process the overflowing inbound cargo volume.
While only time will tell us whether the expanded operating hours can solve the cargo mess at Los Angeles Port, we believe flexibility in your supply chain operations will keep your cargo moving, even during extreme shipping circumstances. With the industry moving towards more “innovative” solutions like 24/7 port operations, we also continue to see customers diversifying their transportation options to get their containers to destinations more promptly. At origins, many of our customers are shipping their cargo from different origin ports with the support of our origin trucking teams or their suppliers, whereas at destination, we encourage customers to consider rerouting their cargo to alternate destination ports and take advantage of better transload opportunities.
To better anticipate the surge in holiday orders, we would like to reiterate the importance of timely vendor bookings and advance cargo planning, which we see as keys to ensuring cargo readiness and sufficient inventory. This will not only allow our origin teams to secure equipment and carrier space as early as possible, but will also allow you advance visibility to better allocate landside resources and ensure your time-sensitive and seasonal merchandise arrives at destinations when expected.
- Following the traditional operations slowdown during the Golden Week holiday period which was amplified because of the power shortage which grew during the second half of September, we have seen a reduction in NVOCC ocean freight rates as a result of the unexpected drop in demand. As of October 15, the transpacific container rates for exports from China to North America West Coast, excluding premiums, totaled $17,377, down 15% from the record $20,586 last month. However, with the holiday season still underway, many industry experts predict that ocean freight rates will remain high, at least until the Lunar New Year break.
- Despite carriers fully deploying their available fleets to satisfy the overwhelming market demand, ocean freight rates remain high and continue to be fueled by strong exports from Asia. In India, in addition to the already high ocean freight rates, MSC recently announced new peak-season surcharges of $3,500 per container from India to the U.S. and Puerto Rico, effective November 1. This is an addition to the $3,500 surcharge and $1,000 GRI per container that the carrier began levying from October 1. Similarly, German vessel operation Hapag-Lloyd also announced GRI of up to $2,000 per FEU for their India-US route from early-October.
- The congestion in North America has spilled over to the East Coast, where the cargo logjam at the Port of Savannah has become more severe. According to the Georgia Ports Authority, the dwell time of import containers has increased to as much as 12 days last month, with over 20 vessels at anchor per day waiting for berthing windows to unload containers. As a result, carriers including CMA CGM, Hapag-Lloyd, OOCL, and ZIM said their vessels serving the transatlantic lane will temporarily stop calling on Savannah and instead reroute to the neighboring Port of Charleston starting late October. Although the volume surge is undoubtedly one of the factors contributing to the congestion, the Port of Savannah is having greater delays compared to other East Coast ports because as a river port, vessels cannot pass side by side and there are tidal convoys that vessels depart port and then new vessels arrive. Additionally, Savannah gets impacted by fog which further delays the river transit by which Charleston does not get affected.
- On the Pacific coast, the ports of Seattle and Tacoma in Pacific Northwest are operating with a more desirable efficiency in comparison to the Californian hubs. As of October 14, there are 20 vessels at anchor or at drift, and the truck turn times in all terminals remain within the range of 1 and 2 ½ hours. The chassis pool is currently at 75% availability.
- Port congestion continues to remain a challenge across Southeast Asia. The downstream effects caused by congestion continue to cause delays in vessel arrivals and are resulting in port omissions for future scheduled ports of call. In Sihanoukville, Laem Chabang, and Singapore, yard density remains high due to unreliable vessel schedules. Further, the ripple effect of the space and equipment shortage has expanded from China to include many southeast Asia origins, where CFS space is now very tight as product sits in the warehouse waiting for vessel space availability.
- As a key transshipment node in the global supply chain, the port congestion in Singapore is at its highest level, causing downstream vessel delays. To untangle the operational challenges, the country has commenced the first phrase of the new Tuas Mega Port last month, adding 2,000 TEUs in yard capacity, which is an addition to the 65,000 TEUs of storage that was rolled out in Keppel terminal in late 2020.
- The port congestion in South Korea’s Busan Port remains unresolved. Since July this year, the yard density in the port has remained at 90% to 95% due to the constraints in carrier space and vessel delays. Compounding this problem has been the record growth in exports from Korea this year which totaled $55.83 billion in September and marked 11 consecutive months of increases and 7 consecutive months of double-digit growth. The port continues to keep CY gate-in to three days before estimated vessel berthing until further notice. Several of our customers are booking carrier space from the Century Express NVOCC as an alternative to move cargo from this origin.
Please refer to the below illustration of Century’s assessment of the operating status at the major origin ports throughout Asia.
- Equipment availability remains low in Asia due to the slow circulation of containers as a result of congestion at destination ports. Our local teams have reported a continued shortage of 40’ HC and 40’ HQ containers, particularly in Bangladesh, Cambodia, Indonesia, Thailand, and Haiphong, and Shenzhen. The scarcity of shipping boxes is especially severe with CMA CGM in multiple Asian origins. In India, the state-owned Container Corporation of India has introduced a “equipment imbalance” surcharge of up to 2,000 Rupees (approximately $26) on all loaded containers it its terminals, effective October 1.
- As fuel prices continue to soar, fuel surcharges for trucking may surface if there is no revision or relief to transporters. In the U.K., the ongoing HGV driver shortage issue was further aggravated by the soaring gas prices as trucking capacity remains low. To combat the shortage of lorry drivers, the government announced that it will issue up to 10,500 short term work visas to lorry drivers and poultry workers to ease chronic staff shortages.
ASIA PACIFIC LOCAL UPDATE
- As reported in our separate customer advisory, multiple provincial governments in China have imposed power rationing in manufacturing industries, further threatening and disrupting the already strained global supply chains. Some factories and business have been required to shorten their operating hours or reduce the use of electricity to preserve sufficient electricity supply. While some factories have reported periodic power cuts, we have not seen severe impacts in the key manufacturing cities in southeastern China. Recent measures announced after Golden Week to improve the situation include the National Development and Reform Commissions instructions saying that all electricity generated by coal-fired plants would be priced via market trading “in an orderly manner” from October 15. In coordination with this, the China State Council announced that it would allow coal fired powered prices to fluctuate by up to 20% from base levels, which is an increase on previous limits established in 2019 allowing for a maximum of 10% increase. High-energy consumption firms would not be bound by 20% increased limit. Residential, agricultural users and public welfare initiatives will continue to be charged a fixed rate and not subject to any increases. This should address the many, coal fired power factories that reduced their output or closed because they were operating at a loss because of because of record high coal prices. In addition, coal imports to China rose to their highest level this year in September, increasing 76% to 32.88 million tons YoY. We will continue to monitor the energy crisis and will closely communicate with your vendors to keep you updated on any potential impacts.
- The COVID-19 situation in China has largely stabilized, although new domestics cases have emerged in the nation’s northwestern region. As of October 20, while there are no areas classified as high-risk, there are 6 medium-risks area in Gansu Province and the Inner Mongolia Autonomous Region. Authorities will be imposing local travel restrictions there, but we believe there will be little to no impact to your supply chain operations. On the other hand, in southeast Asia where countries are less fixated on keeping coronavirus cases zero, we confirm there are no major supply chain disruptions. We will continue to monitor the development and pandemic and provide you with the latest information in our bi-weekly COVID-19 update.
- Although the risks of tropical storms traditionally peak from July to August, two typhoons hitting southern China prompted maritime terminals in Hong Kong and Shenzhen to halt gate operations for two to three days within a week in mid-October, later impacting port productivity and vessel schedules. We have already notified customers whose shipments were impacted.
TRADE & ECONOMIC HIGHLIGHTS
- China’s Q3 economic growth continues to soften due to supply chain bottlenecks and the more recent power crunch. According to the latest data released by China’s National Bureau of Statistics, the country’s gross domestic product (GDP) grew 4.9% from a year ago, slightly lower than the 5.2% expansion that marketers had expected. However, exports remained robust, growing 28.1% in September from one year ago to $305.74 billion, which was on top of a 25.6% gain in August, according to the general Administration of Customs. Growth in imports slowed from 33.1% in August to 17.6% or $238.9 billion in September. Customs spokesman Li Kuiwen commented that “the increase in demand in the global market has benefitted China’s exports and the rise in international commodity prices has pushed up the value of imports.” Power shortages in China due to rising global energy prices and strong industrial demand have forced some factories to cease operations. The manufacturing PMI slipped below 50 in September, falling to 49.6 which indicates a contraction or slow down in production activity.
Besides our suite of tools in VMS® that power your supply chains every day, the following solutions we offer also provide you with alternatives to maximize the efficiency in your supply chain operations and mitigate the ongoing industry challenges.
- Century Express – Century Express holds contracts with multiple ocean carriers and helps you realize schedule flexibility for your shipments. With Century Express as your NVOCC partner, you will have complete visibility to your shipments in VMS® as our NVOCC division leverages VMS® as the operating platform. We also consolidate NVOCC invoicing with your existing invoicing, keeping the number of documents issued for multiples services transparent and at a minimum.
- Warehouse Storage – Besides the normal CFS cargo flow through our warehouse network, we can also work with you to take on dedicated storage space to accept vendor deliveries based on their production schedule. This can help to alleviate pressure at vendor facilities while also ensuring that your cargo can be dispatched as soon as carrier space becomes available.
- Value-added Services – The wide range of value-added services we provide at origin CFS, such as pick and pack, consolidation, and palletization, gives you a one stop solution for greater supply chain efficiency. Century can build direct store loads from our Asia CFS facilities to bypass transloads/DCs and streamline inbound delivery.
- Origin Trucking Solution – With support from your carriers, we are able to arrange trucking to alternate ports where carrier space is more readily available, allowing for greater flexibility in space planning to achieve forecasted departure dates.
- Destination Services – Our physical network in North America extends beyond the primary shipping hubs in California. Our coverage in the Pacific Northwest and the East Coast gives you alternative storage and transload options, as well as other destination services such as pick and pack and cross-docking throughout the United States and Canada.
Talk to your Century Account Manager or contact a sales representative today to understand how we can develop a customized solution to meet your supply chain needs! We will continue to work together with your logistics teams to navigate these unique shipping times through every step in the supply chain.
Disclaimer: The information contained in this newsletter was provided by our partners across Asia and referenced from online sources that were not specifically authorized for third-party usage. The aim of this publication is for informational purposes only. While Century endeavors to validate the authenticity of the stipulated information, Century is not responsible for its accuracy and completeness and does not accept liability or responsibility for any actions taken upon reliance.
- September imports show no relief for stressed US ports
- The White House
- Marine Exchange
- Freightos Baltic Index
- Carriers set record peak-season surcharges for India-US cargo
- The Northwest Sea Port Alliance
- S’pore opens Tuas port storage space, hires 2,500 workers to help ease global supply chain crisis
- National Bureau of Statistics of China
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