The Supply Chain Matters blog provides the latest highlights and perspectives relative to the ongoing global product demand and supply imbalance gap that is impacting so many industry areas.
Last week’s news cycle did not provide any optimistic news regarding the existing global product demand and supply network imbalances. Indeed, it raises the now very likely reality that multi-industry supply chain management teams will remain very challenged to support their business support outcomes and goal setting for the remainder of this year.
The combination of global economies now bouncing back from the extraordinary impacts of a global pandemic meeting even more far reaching and cascading supply network and global transportation challenges have widened the demand and supply gap. Once more, conditions are worsening.
While China and Taiwan were the first to bounce back from last year’s global pandemic, lagging immunization rates among certain areas of that region’s populations have led to added infections of the COVID-19 ‘D’ variant that has been predominant in India. Other important manufacturing regions being impacted include Malaysia, Thailand and Vietnam.
New COVID-10 Outbreaks Across China and Asia
Bloomberg, The Wall Street Journal and logistics industry trade media reported last week that fresh COVID-19 outbreaks across China’s Shenzhen province worsened over the past week to ten days, adding to increasing port delays and temporary disruptions among manufacturers in the region.
Data provided by Seaexplorer, a technology platform created by logistics services provider Kuehne+Nagel to the media site Splash, indicates that among major global ports, containerships are backed-up like never before in the history of the shipping industry. As of last week, there were reportedly more than 300 container vessels waiting for berths to open among the globe’s major ports.
A coronavirus outbreak that that was first detected in late May continues to impact Yantian Port, considered one the globe’s busiest container seaports, resulting in continued port disruption.
Supply chain and logistics visibility platform provider project44 indicated in a press release that as of June 7, median dwell times for containers was upwards of 18 days. Port congestion in the South China Sea surrounding Yantian was described as severe with 47 vessels approaching, 22 of which had estimated times-of-arrival noted as “in-the-past”.
The port congestion is now expected to “exacerbate” over the coming few weeks with several container shipping lines announcing the re-routing of vessels to preserve schedule reliability. Industry leader Maersk Line has reportedly diverted 40 container ships from Yantian to other ports. Some accounts indicated that the Yantian port disruption rivals that of the prior Suez Canal blockage in terms of shipping industry implications. Bloomberg cited an analyst indicating that capacity of upwards of 25,000 TEU’s per day could be impacted by the ongoing Yantian Port congestion, which compares to the 55,000 TEU impact during the Suez Canal blockage incident in March. Whereas the Suez incident lasted for six days, the Yantian disruption is now two weeks in duration and could last longer.
As a result, container shipping rates continue to explode with freight rates between China and the U.S. West Coast for a 40-foot container has jumped to over $6,300 according to the Freightos Baltic Index– a rise of upwards of 60 percent this year, and as much as 156 percent on an annual basis. The reported implications are increased blank sailings this month, a potential reduction in available container capacity supply by upwards of 50 percent and possibly no abatement in transportation cost increases.
Also last week, Bloomberg interviewed the chairperson of the U.S. Federal Maritime Commission (FMC) Dan Maffei who indicated that the ongoing global shipping disruption will continue into 2022. Maffei reportedly indicated: “If your business model was just based on the very, very low freight rates that we had for many years, then it may be outdated now.”
That statement correlates with our Ferrari Consulting and Research Group Research Advisory: 2021 Predictions of Industry and Global Supply Chains published at the start of this year. We indicated in Prediction Nine that significantly increasing global transportation costs and eroded serve levels will foster new thinking in supply network sourcing.
Maffei further indicated that a lot of companies are complaining to the FMC about the exploding shipping rates, and his response was with the given significant shipping demand and supply imbalance, there is little the agency can do about it. Such a statement is little comfort.
Bloomberg cited data from Blue Alpha Capital indicating that in the first quarter of 2021, the globe’s largest private and publicly owned container carriers posted profits of over $19 billion, more than their previous all-time quarterly high of $9.1 billion in profits set in the final quarter of 2020.
Potential Exacerbated Semiconductor Component Shortages
At the same time, Taiwan which is a major hub of semiconductor fab and packaging production is reportedly suffering its worst coronavirus outbreak since the COVID-19 pandemic began.
According to reporting by the WSJ, more than 200 employees at King Yuan Electronics, one of the island’s largest chip testing and packaging companies. Have tested positive for the virus this month, while another 2000 employees have been placed in quarantine. Revenue expectations for this month have reportedly been cut by a third. Other semiconductor companies have been responding to their worker outbreaks according to local health officials. However, thus far, TSMC the globe’s largest semiconductor chip fabricator has yet to be impacted, but reportedly there is an outbreak next to this producer’s headquarters in Hsinchu, Taiwan. If the virus impact were to impact TSMC, then the supply disruption is certain to impact multiple industry sectors.
In Malaysia, a production facility owned by Germany based Infineon Technologies was reportedly forced to shutdown earlier this month because of worker infections. The Malaysia Semiconductor Industry Association indicated to the WSJ that ongoing factory lockdowns will reduce output by and estimated 15 to 40 percent.
Rising infection rates in Northern Vietnam are reportedly impacting production of electronic and telecommunications components.
The bottom-line is that while nations such as the United States, portions of the Eurozone and other select countries have increased their vaccination rates significantly among populations, that is not the case for other Asian based nations where a lot of critical supply network support remains.
As supply chain management and business ales and operations teams approach the closing of the first half of the year, retailers and manufacturers kickoff planning and inventory procurement activities in preparation for the traditionally more active second half of the year that includes back-to-school, work, and holiday fulfillment business support needs.
With current post-pandemic product demand continuing unabated, and with optimistic forecasts for greater demand for second half, it is no wonder that concern levels are rising. Some reports indicate that retailers are front-loading their holiday inventory procurement ordering activity to try to compensate for global shipping disruptions. All of these provides added evidence of significant and accelerating bullwhip effect as businesses attempt to do whatever it takes to secure needed components and finished products.
Already, there are increasing signs of price increases being passed along to customers and consumers, leading to further economic inflation.
From our lens there is now little question that 2021 will turn out to be the most significant challenge for industry supply chain management teams, parallel to or exceeding that of 2020. Only this time, the implications for structural changes in strategi and tactical capabilities will be far more compelling.
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