The Supply Chain Matters blog provides our latest news capsule edition follow-up relative to updating our readers to prior industry supply chain management developments that we have shared on this blog.
This particular update includes reports of additional production worker wage hikes among certain global automakers along with reinforcement data that this year’s holiday seasonal hiring levels are at a ten year low. Rivian Automotive is now free to sell its EV parcel vans to other parcel carriers, and added reinforcement from multiple ocean container shipping carriers that the existing industry volume declines could extend for two to three years.
Hyundai Motor America To Raise Auto Worker Wages
In our prior Supply Chain Matters commentaries reflecting on the UAW labor union’s tentative collective bargaining agreement with U.S. based automakers Ford Motor, General Motors and Stellantis, that the implications would ripple across the industry.
Hyundai Motor America announced this week that the automaker will raise certain U.S. production worker hourly wages starting in January 2024.
The move will reportedly increase existing hourly wage rates 25 percent by 2028. The hikes are specifically aimed for production workers at the automaker’s U.S. based Alabama and Georgia production facilities.
The announcement comes shortly after Honda Motor announced that it would provide U.S. factory workers an 11 percent pay increase this year. It further follows an announcement from Toyota earlier this month that most of this automaker’s U.S. based factory workers would be provided a 9 percent wage hike. The global automaker who operates non-unionized facilities across the U.S. will reportedly cut in-half the time required for hourly employees to reach maximum pay rate, from an existing eight years, to now four years.
Supply Chain Matters further highlighted an announcement by electric automaker Tesla’s management in Germany who unveiled a package of hourly wage hikes for 11,000 factory workers at the automaker’s gigafactory operations in that country. Tesla further indicated that the company would pay a 1,500 euro bonus in December to offset inflation levels in Germany.
The notion of post-pandemic increased labor activism across multi industry global sectors, and that a rising tide raises all boats seems evident.
U.S. Seasonal Holiday Hiring At Its Lowest Levels
Following up on our Supply Chain Matters posting highlighting the National Retail Federation’s (NRF) November 2023 holiday spending forecast, The Wall Street Journal reported this week (Paid subscription) that the number of U.S. seasonal workers recruited by fulfillment services businesses this year has fallen to its lowest level in a decade.
This report cites data from the U.S. Labor Department indicating that warehouses and transportation companies employed 25,000 few workers in October than the year-earlier period. The report additionally cites the reasons for this year’s low levels of traditional hiring as being the NRF’s indications of lowered expected holiday spending on products and that retailers and logistics services providers can meet additional demand with existing part-time employees. Increased automation of fulfillment services is cited as a further reason.
Rivian Automotive Ends Exclusivity Agreement for Amazon EV Parcel Vans
Last week EV truck designer and producer Rivian Automotive both raised the company’s forecast for overall production this year, and announced the ending of the exclusivity agreement to supply electric powered parcel vans to Amazon.
Reportedly, the EV van producer is now allowed to secure parcel van supply deals to other interested parcel delivery fleet operators. Rivian will reportedly continue to provide EV delivery vans to Amazon through 2030 as part of the company’s 2019 supply agreement to provide 100,000 Amazon branded EV vans by 2030. Delivery of these innovative vans began in July 2022. As readers may or may not be aware, Amazon holds a reported 17 percent stock ownership position in Rivian, hence, the EV maker’s production, revenue and future sales performance adds to the value of Amazon’s equity holdings.
According to a published report by Bloomberg, Rivian expects to deliver 54,000 EV’s this year among its two super premium SUV models, representing 2,000 more than previously forecasted.
Container Shipping Lines Seek to Avoid Rate Wars
Earlier this month Supply Chain Matters published the commentary- Realities Impact the Global Container industry. We highlighted that the realities of higher number of vessels among global ocean container shipping lines that are facing the reality of contracting shipping demand levels are now leading to headcount and schedule reductions.
The specific indicator was industry bellwether A.P. Moeller Maersk in conjunction with the reporting of Q3 quarterly financial performance announcing that the company will cut more than 10,000 jobs amid a current surplus of shipping vessels, sharply lower freight rates and contracting levels of shipping demand.
Late last week Bloomberg reported that the industry is likely headed toward a 2-3 year slump in shipment volumes, hence the need for cost cutting and added efficiencies.
The report observes that in 2021-2022, the largest carriers amassed net income levels totaling $364 billion. These carriers are now likely to see rates drop below existing operating costs and “stay there for the foreseeable future.”
Over the past 10 days, besides Maersk, Hapag-Lloyd and CMA-CGM indicated that they each will be cutting costs. All three reportedly represent one-third of global ocean container capacity. At the same time, ocean container CEO’s are urging the industry to refrain from rate discounting since such efforts in the past have led to industry-wide consolidation and some bankruptcies.
Bloomberg Intelligence credit analyst Stephanie Kovatchev is cited as indicating that Maersk’s free cash flows could turn negative in 2024 and possibly weigh in on the carrier’s existing bond rates. Kovatchev further indicated that what may emerge in the industry is a standoff “between the strong and the weak,” with the bigger players having the financial resources to wait out the industry volume turndown as opposed to more aggressive capacity reductions.
The report concludes that the container industry’s declining container shipping rates cannot stay low indefinitely, because 2024 and longer-term costs and expenses will continue to rise. Some carriers who invested prior windfall profits in other non-freight and global logistics related areas may have a buffer in costs and potential offsetting revenues.
In the short term, drought-conditions that continue in the waters surrounding the Panama Canal continue to face long waits for traversing, or potential detours. Transiting the Suez Canal from Asian ports is estimated to be 15 percent costlier in 2024. Longer-term, the upcoming effect of the EU’s Emissions Trading System, when carbon consumption will be monitored and reported for each voyage will require container lines to introduce more energy efficient vessels in major shipping lanes.
As we have noted in our ongoing perspectives, rates that are currently embedded in prior contracted shipping contracts with carriers and logistics services providers will obviously be reviewed and revisited in the light of existing industry developments.
As to what occurred at the beginning of 2023, this is a buyer’s market relative to trading off or balancing market spot rates with negotiated contract volume rates. Communication among supply chain procurement, planning and logistics teams is thus essential in ensuring that material and customer fulfillment times can be consistently maintained.
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