Brace Yourself, Winter Is Coming

Sept Edition - State of Global Ecommerce Supply Chain
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The recent Delta variant of the Coronavirus is wreaking havoc throughout Asia, shipping,  US ports, and rail infrastructure. With volumes beyond the east to west coast supply chain’s ability to manage, all data points towards the same conclusion – the supply chain congestion crisis in the US is at breaking point and Q4 2021 is only going to get worse.

 

China – Ocean Freight

As Yantian scales back to full capacity, Port officials suspended operations at Ningbo’s Meishan Terminal early Wednesday for 10 days after a single worker tested positive for COVID. Meishan is one of five container terminals in Ningbo and handles about a quarter of the port’s total volume. Chinese authorities say trucking, container yard and dockside activity will remain on hold until the Ningbo Municipal Health Commission can determine the extent of the outbreak.

As of Friday 13th August, 40 vessels were waiting at anchor for a berth at Zhoushan anchorage on August 12th outside Ningbo, and an additional 30 container ships were parked outside the Port of Shanghai, As of 20 Aug, Meishan has started to load and unload vessels that were already berthed. Empty pickups are scheduled to reopen on Wednesday, with the terminal back to full operating tempo by Sept. 1,

At nearby Port of Shanghai, similar covid cases has led to 30 vessels are currently anchored outside Yangshan port, thus shutting down 2 out of China’s 3 largest ports.

Container ships at anchor Monday with a stated destination of Ningbo
Container ships at anchor Monday with a stated destination of Ningbo (Map: MarineTraffic)

China – Air Cargo

Chinese airlines are scaling back their operations. The Chinese government, in response to recent outbreaks plus a positive test of China Eastern Airlines crew members, has forced all overnight cargo charter flights to North America, Paris and Frankfurt, Germany to be suspended until the end of August. According to AIT Worldwide, total international cancellations equates to about a 30% cut in capacity, 

Air China has canceled all cargo-only passenger flights to the U.S. because of the new quarantine measures covering China-domiciled pilots. China Eastern Airlines has suspended passenger freighters, used for dedicated cargo customers during the lull in  air travel.  China Southern also suspended freighters to the U.S. through August and canceled 25% of its European and U.S. freighter flights.

On August 20, several positive COVID cases were discovered at the Pudong Air Cargo Terminal (PACTL), forcing a pause in all ground handling, customs and airfreight services in Shanghai. In response

    • Lufthansa Cargo is not accepting any additional freight for transport to Shanghai between Aug 20 – Aug 27. 
    • Emirates, which canceled two flights to the U.S. and Frankfurt, Germany, from China.
    • Hainan Airlines, which canceled three cargo-only flights to Los Angeles next week. 
    • Polar Air Cargo, a joint venture between Atlas Air Worldwide Holdings and DHL Express. has stopped flying inbound freight to China from the U.S. 
    • S.F. Express has stopped all charter flights to the U.S.  scheduled flights from Shenzhen to Los Angeles from three times to once per week.
    • Qatar Airways, Air Bridge Cargo have diverted future shipments to other airports in China
Cargo disruption at major Chinese airports due to COVID-19 regulations.
Cargo disruption at major Chinese airports due to COVID-19 regulations. (Everstream Analytics)

South East Asia

In Vietnam, a majority of factories are either completely shut down or operating at minimum capacity. Only the factories that are able to meet the strict requirement known as “3 in place” – factory workers work, live and eat at the factory location or hotels/dormitories nearby, are allowed to operate.

Over the past 2 weeks there have been Covid-19 outbreaks at these factories as well. Under pressure from various factories and local industry associations, the Vietnamese Government is reviewing the situation, with a follow up declaration expected in the next few days. But based on the current Covid-19 outbreak in the Southern Vietnam, it is most likely that the Government will extend the strict lockdown, including curfew from 6pm to 6 am, for another 2 weeks.

Quantitatively, manufacturing Purchasing Managers Index (PMI) is a measure of the industry’s rate of growth. An index level below 50 indicates contraction.

    • Indonesia – Indonesia Manufacturing Purchasing Managers Index (PMI) plunged from 53.5 in June to 40.1 in July. An index level below 50 indicates contraction
    • Vietnam is expanding lockdowns as cases and deaths continue to rise. Vietnam’s PMI slid from 53.1 in May to 44.1 in June and improved only slightly to 45.1 in July
    • In COVID-stricken Malaysia, where cases and deaths remain high, the PMI sank from 51.3 in May to 39.9 in June and improved slightly to 40.1 in July, albeit still well into contraction territory
    • In China — the most important source of goods for U.S. importers — PMIs are falling but are not yet in contraction. The official Chinese government figure for July was at 50.4, the lowest since February and down from a recent high of 52.1 in November

US Ports

“The railroads are full. The warehouses are full. Port terminals are full. Ships are coming in and waiting to get worked. The factories are behind in orders.” Gene Seroka – Port of LA Executive Director

According to the Marine Exchange of Southern California, there were 44 container ships at anchor or drifting off the ports of Los Angeles and Long Beach on Friday, a new all-time high. The previous high of 40 at anchor was set on Feb. 1 and matched several times last week.

Pre-COVID, an average of 16 container ships were at berths or at anchor on any given day (with any ships at anchor being a rare occurrence). On Friday, there were 72 box ships either at berths, at anchor or drifting — 4.5 times the pre-COVID level.

According to Maersk, average dwell times in the US have increased by 35%. This essentially translates to 35% less capacity overall, thus exacerbating the container shortage throughout Asia.

container ships at anchor in San Pedro Bay/Ports of LA & Long Beach
container ships at anchor in San Pedro Bay/Ports of LA & Long Beach (American Shipper)

There are now far more ships at anchor than at berth. The Marine Exchange data shows that Los Angeles/Long Beach terminals accommodated an average of 28 ships each day this month. All the rest is overflow that heads to the so-called “parking lot” in San Pedro Bay.

Automatic identification system (AIS) ship-positioning data from MarineTraffic revealed extreme congestion in Southern California, with more than a half-dozen ships forced to drift because anchorage spots were full.

Container-ship positions as of 23 August afternoon
Container-ship positions as of 23 August afternoon (MarineTraffic)

“The expected spike in imports generated by the peak season and pre-shipped cargo is already here, making the operation more complex,” said Hapag-Lloyd on Friday, referring to congestion in Los Angeles and Long Beach. 

The Port of Los Beach’s WAVE report, which estimates future arrivals, predicts volumes will rise in the weeks ahead. It forecast loaded import volumes of 120,928 twenty-foot equivalent units for the last week of September, up 34% from the estimated 89,980 TEUs of imports due to arrive next week.

Signal, the Port of Los Angeles’ planning tool, shows the same upward trend, with import volumes of 178,426 TEUs expected the week of Sept. 12-18, up 49% from an estimated 120,070 TEUs this week.

Another forward indicator is a proprietary index of shippers’ bookings on FreightWaves’ SONAR platform. The index has risen sharply in recent weeks, implying higher volumes arriving at U.S. ports in late September and into October.

Inbound Ocean TEU Volumes Index
Indexed to Jan. 2019; 10-day moving average of bookings as of date of departure. (Chart: FreightWaves SONAR)

US Rails

Port and Rail terminals are taking a very hard line against individual requests to prioritize “hot” containers. The increased congestion is making such requests essentially impossible. Consider that on a typical day, the BNSF Railway has about 30 international stack trains staged along its main lines, waiting for space to open up at intermodal terminals in Chicago, Memphis, and Dallas. The terminals are clogged due to a combination of record volume and importers’ struggling to pick up containers that have been unloaded from inbound trains.

To illustrate the dire situation, BNSF rail has temporarily converted two raiL tracks into a storage area where containers sit awaiting pickup at Logistics Park Chicago, the largest of the rail yards in Chicago.

The number of containers dwelling at the terminal — an average of 7,816 per day in July — has nearly doubled since March. Whilst this might increase storage temporarily, it has obviously reduced the ability to handle trains.

On the east coast and in the south-east, the carrier said there was a two-week trucking delay to add to container dwell times, with further difficulties in sourcing chassis.

 

Floship Analysis

After surging in the first quarter, congestion is still hampered by the vicious cycle of vessel supply vs vessels waiting to offload. The more ships stuck at anchor, the fewer available to pick up export cargo in Asia, forcing carriers to “blank” (cancel) sailings. That dynamic eventually curbed the number of ships at anchor on the West Coast, and simultaneously, U.S. import capacity. New trans-Pacific services have been added since the first quarter, meaning the anchorage numbers are likely to go higher in the current cycle before hitting their ceiling.

In addition to new liner services, “extra loaders” (ships sailing one-off voyages not in a regular service) and charter vessels makes the matters worse, so expect picking up containers in Southern California to hit a new level of difficulty.

Container shortages throughout Asia will likely be a critical issue into Q4, as gridlock in

the U.S. will hamper efforts to get empty containers returned to Asia.As such ocean freight rates are not expected to come down through Lunar New Year 2022

If you are an importer of goods from Asia, continue to plan on delays of 30-45 days beyond an ocean carrier’s posted transit times.

If you’re seeking air freight, Long-haul aircraft could push freight rates near $20 per kilogram on certain trade lanes within a few weeks, making air transport five or six times more expensive than normal for the fall rush. The only time shipping costs have been that high was during the early days of the pandemic when the mass grounding of passenger flights took away a vast amount of cargo space.

Spot rates for air cargo from China to the U.S. and Europe have jumped 10% in the past few days. From what we are currently seeing, prices are likely to quickly move beyond $10 per kilogram, depending on the destination, from the traditional peak season range of $3.30 to $4.

 

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