Global supply chains have endured a lot after the last 18 months of disruption since the Covid-19 pandemic struck – and the theme of congestion and delays are only continuing as new difficulties arise with every passing month.
As the global peak season rolls on, the eyes of many businesses are on the Asia-Pacific, with Golden Week only just behind us and a very different Chinese New Year ahead. Here’s the current logistics picture for the region and what we’re doing to keep your cargo moving:
The container crisis continues…
Containers are perhaps the single most important resource in our global supply chains – but they are also at the mercy of many different factors.
For example, if ports or warehouses are low-staffed due to Covid-19 outbreaks, containers cannot be emptied; or if there aren’t enough trucks to move containers, or the vessel capacity to return empties – then these containers sit idle and can clog up terminals.
This exact situation has played out in the UK’s Port of Felixstowe – which has seen intense congestion. As the number of containers at the port rose, container collections dropped without the drivers to get them moving out – with the port at one point having almost 50,000 empty containers on the terminal.
The current status of container capacity on Transpacific routes
As the container shipping situation is worsening, the total availability of vessels is now operating at significantly lower effective capacity due to port congestion. External reports suggest that effective capacity is estimated to decrease by 10-25% (Lloyd’s list and Splash 247) due to current disruption. While the number of idle vessels is less than 1% - which means that any vessel that can sail right now, is sailing. Globally, RBC Capital Markets estimates that 77% of ports are experiencing congestion heading into the holiday season.
For Asia, space remains tight on all routes out of the region, and this is expected to continue in the weeks ahead, up until the beginning of 2022. In Greater China, power outages and blackouts have impacted manufacturing outputs and supply chains – but demand for space is still high. Additionally, even as China may be potentially impacted by the power restrictions, Vietnam demand increases as they have emerged from lockdown. Factories are reportedly back to 40-50% staffing, up from 10-30% in the previous week. As province-to-province travel continues to open up, we expect to see increased demand from this area.
Why do we see continued ocean freight demand?
Despite the congestion and capacity demand globally, more containers have moved globally in 2021 than in the same period in 2019. In fact, 15.2 million TEU (Twenty-foot equivalent unit) were shipped in August. This is 620,000 TEU more than August 2019. And, yet the demand for container shipping continues. This is primarily driven by increased consumer demand and higher incomes in the United States, fuelled by government support throughout the pandemic. Retail sales in August were up 12% year on year, while e-commerce demand is up 30% versus pre-pandemic levels (National Retail Federation and McKinsey). Consumer savings level was at 9.6% in the summer, which is also up significantly versus pre-pandemic levels. These factors together with the pre-holiday rush, indicate that demand is here to stay for now.
What we are doing together with Maersk to alleviate the container delays
However, this does not mean that the number of empty containers is shrinking! Ports, haulage companies and vessel operators are working day and night to get empty containers turned around for customers. For Twill customers a number of actions are underway, via our colleagues at Maersk, to alleviate the strain. For example, additional vessels are being added and services from Australia and North Asia are bypassing ports in Korea and Japan to turn vessels in Greater China. And more actions are on the way:
We are placing a strong emphasis on transporting empty containers to the main Asia ports – where demand is strongest.
We are regularly profiling vessel intake to ensure as many containers are being transported from locations where this is a surplus.
We are deploying empty sweeper vessels, dedicated to moving empty containers back to Asia.
Alongside this, Maersk is continuing to invest in adding new containers to its growing fleet to support strong demand.
“With congestion and delays causing ripple effects across the Asia-Pacific right now – we encourage customers to collaborate closely with partners. Whether it’s reaching out to us at Twill to explore alternative shipping routes and transport solutions or staying in contact with your suppliers to ensure your cargo is hitting its delivery deadlines, good collaboration and communication will give you greater control over your supply chain and the ability to mitigate delays to your shipments.”
How upcoming events will impact logistics and ocean freight
With Christmas and Chinese New Year approaching, demand for container shipping will continue to be strong well into the first quarter of 2022. This means logistics and ocean freight will further be challenged and customers need to be aware of seasonal events as well as the evolving shipping situation.
For example, during Chinese New Year celebrations, almost all factories and manufacturers in China will be closed. However, the impacts can be seen weeks before, as factories work flat out to complete orders before they close. That means manufacturers will have no time or capacity to provide quotations or take on new orders in the weeks running up to Chinese New Year. Following the public holiday, it can often take four to six weeks for these factories and manufacturers to get back to their normal production levels.
2021 proved to be an unusual year with almost no lull in demand for vessel space during the Chinese New Year period, and whether or not 2022 is the same remains to be seen. This is why it is crucial to understand clearly from your suppliers what their plans are for this period.
Therefore, we recommend you do supply chain forecasting for 2022 now. Ideally, you want to prepare your cargo ahead of time, and you will need to calculate extra time to make sure your cargo arrives on time. That’s why we have compiled an easy-to-understand guide to supply chain forecasting.
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