In this Supply Chain Matters March 23rd edition of our COVID-19 and Ukraine Conflict News Capsule, we provide updates to ongoing industry supply chain developments and disruptions of concern to our reading audience.
Included in this update are the following updates:
Canadian Pacific Railway Work Stoppage Eased
U.S. East Coast Ports the Likely Next Test
China Silk Road Rail Link Disrupted
Foxconn Forecasts Challenging Operating Environment This Year
Canadian Pacific Railway Work Stoppage Eased
After a three-day stoppage of rail operations impacting transcontinental shipments of key commodities and manufactured goods, the Canadian Pacific Railway and the Teamsters Canada Rail Conference have reached a settlement calling for final and binding arbitration of differences.
Canadian Pacific is the sixth-largest North America freight railway, and in December 2021 completed an agreement to acquire U.S. based Kansas City Southern, pending full regulatory approvals which is expected sometime this year.
Upwards of 3,000 rail workers reportedly returned to work yesterday to resume rail operations across North America after a breakdown in labor settlement talks occurred last Saturday. Restoration of full operational service levels is expected to take several additional days.
Canadian and U.S. lawmakers had expressed concerns that with supply chains already highly constrained, the CP Rail stoppage would create an added transportation crisis for import as well as export flows. With the ongoing Ukraine conflict threatening to significantly impact wheat, corn, fertilizer and other commodities, farmers and agricultural industry groups were highly concerned that farmers would face disruption in their ability to compete spring plantings.
A report from CBC Canada indicates that the arbitration process may take additional weeks before completion and that CP Rail executives are well aware of the importance of settling the labor dispute as the rail company awaits approval for the U.S. Surface Transportation Board on the merger with Kansas City Southern.
U.S. East Coast Ports the Likely Next Test
American Shipper reported last week that the number of container ships calling on major U.S. East Coast ports in transit from Asia will surge to a new record high in the coming months.
The report cites data indicating that the volume of Asia-East Coast routings is expected to reach 889,000 TEU’s by the month of June, up 40 percent from 2021 full-year average routings. An added implication is cited data indicating that the average Asia-East Coast container vessel during 2020 and 2021 had average capacity levels of 9,390 TEU’s and that 2022 ship sizes are expected to decline to 8,699 TEU’s, thus requiring added unloading cycles. This was a noted challenge for major U.S. West Coast ports during 2021 in trying to process historic ship backlog levels.
Further noted is that trans-Atlantic container shipping will likely include smaller capacity vessels that previously served Russian ports and will be placed into trans-Atlantic service by various carriers.
Stated drivers of the changed routings from Asia to U.S. East Coast port destinations are the highly publicized disruptions that occurred at the U.S. West Coast ports of Los Angeles and Long Beach throughout 2021. Further, U.S. East and Gulf Coast ports have proximity to a greater concentration of U.S. population, hence avoiding elongated and more costly trans-continental transport and logistics movements.
Unstated but likely very pertinent are concerns by industry supply chain teams of the outcome of planned labor contract renewal talks involving U.S. West Coast dock workers that occur during the upcoming summer period that could provide added disruption for 2022 peak inbound volumes. A separate report from The Wall Street Journal indicates that U.S. importers are resetting inventory ordering strategies to avoid any contentious contract talks this summer. Noted is that 2022 holiday season orders are being pulled forward to have inventory received at U.S. West Coast ports and in inland warehouses earlier.
China Silk Road Rail Link Disrupted
Bloomberg reported this week that more than a million containers scheduled to travel the trans-continental rail link between Eastern China and Western Europe now have to find alternative sea routings because of the conflict restrictions and sanctions imposed on Russia.
Reportedly exporters and logistics services firms now seek to avoid land routes passing through Russia or battle ravaged Ukraine. The situation is reportedly adding to congestion among China’s ports
Reportedly, after land based intercontinental movements surged 70 percent in the first two months of this year, trains heading toward Europe from the Port of Dalian have been “greatly reduced.” In 2021, rail links between China and Europe reportedly moved upwards of 1.4 million containers or approximately 4 percent of global trade. The cost of transporting by rail is roughly twice that of ocean, but the overall transit time is half that of sea travel.
Most impacted appears to be auto industry, petrochemical and high industry supply networks.
Foxconn Forecasts Challenging Operating Environment This Year
Global based contract manufacturing services provider Foxconn Technologies warned last week that prolonged challenges related to COVID-19 virus variant outbreaks, ongoing geo-political developments as well as high rates of inflation collectively present a challenging operating environment in the coming months.
The Wall Street Journal reported that after reporting full year financial performance last week, Company chairman Young Li indicated that it could take months for a clearer picture to emerge in terms of where global supply chains are headed. Inflation was cited as the contract manufacturer’s biggest concern.
Li further indicated that the contract manufacturer will continue to ramp-up its new initiative for the production of electric vehicles and associated battery production for contracted automotive companies.
The CMS reported a 37 percent increase in full year net profits, the equivalent of $4.9 billion due to continued demand for consumer and high-tech electronics. However, net profit fell 3 percent in the all-important October thru November quarter of 2021. The contract manufacturer is forecasting flat revenue growth for this year.
One of Apple’s primary go-to contract manufacturers further indicated that production operations had resumed at the production campus in Shenzhen, under local guidelines that restrict factory workers solely to the campus until local Covid restrictions are lifted.
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