The U.S. supply chain is now facing two trade hurdles
- A pileup of German import containers are expected to extend into the first quarter of 2023.
- Meanwhile, Shanghai factories have suspended production due to power rationing.
- Sichuan, home to some large lithium producers, is also shuttered due to government power rationing
Two of the major trade lanes for U.S. shippers are under strain this peak season. The heatwave in China has shut down key manufacturing and the growing backlog of European imports is expected to spill over into the first quarter of 2023.
Negotiations between the trade union verdi and the Central Association of German Seaport Operators (ZDS) remain inconclusive. This is the tenth round of negotiations. The last date set by the courts is August 22nd. If both parties fail to reach a compromise in this tenth round of negotiations, the port workers could strike again.
"If no compromise will be made, we can expect further strikes which will, even more, worsen the already stressed situation in the Northern Ports," explained Andreas Braun, Europe, Middle East, and Africa ocean product director of Crane Worldwide Logistics. "Congestion, vessel schedule, and intermodal operations are already a mess and further strikes will just contribute to it. We will not see a change back to a normal situation before Q1 2023."
The CNBC Europe Supply Chain Heat map shows the impact of the stalled labor negotiations.
The labor strife is also being felt in the U.K. Beginning on August 21st 1,900 dock workers at the Port of Felixstowe, the U.K.'s largest container port, are planning on strike after talks failed on their ongoing pay dispute. The strike would last until August to Monday 29th August. Approximately 40 percent of all containers that arrive and depart from the United Kingdom are processed at Felixstowe.
The Port of Felixstowe handles more than 4 million TEUs per year. A Felixstowe strike action would impact many business entities across the United Kingdom. The port is owned by Hong Kong-based CK Hutchison Holdings.
Reviewing the Bills of Lading using ImportGenius from July 1- August 12th, CNBC identified numerous containers filled with Guinness Beer and Whiskey for Diago, breakfast cereals for Kellogg, medical devices, pork shoulders for Pilgrims Pride, flooring, tires for Pirelli Tire, and Bens Rice for Mars Food.
"If the strike does proceed, there will be significant disruption to supply chains throughout the United Kingdom," explained Braun. "Vessels will see delayed berthing windows, congestion at the terminals but also in the hinterland depots will increase, subsequently, shippers and consignees will face massive delays in getting their transportation executed. The one-week strike will take at least 2-3 months to recover."
The high temperatures in China are forcing some manufacturers to shut down production for six days because of government planned power cuts.
In a joint announcement released by Sichuan Provincial Economic and Information Department and State Grid's Sichuan Electric Power Company, industrial power cuts have been expanded to 19 cities and jurisdictions in the province, from Monday to Saturday.
Power limit notices for manufacturers in Changzhou, Nanjing, Nantong, and other regions in Jiangsu province have Worldwide Logistics alerting import clients in an email that, "The sudden orderly power consumption notice has made the supply chain more challenging under (the) current situation of (the) COVID -19 epidemic."
In Worldwide Logistics email it also noted Shanghai has reported some factories suspending production due to power rationing.
SEKO Logistics Jasmine Wall told CNBC that, "Heavy-industry enterprises, such as those that produce aluminum and copper, are the most impacted. Some office buildings and shopping malls in Shanghai were also affected. Since August 6, Zhejiang Province has started C-level 12.5 million kilowatts of power limitation measures. Some factories in Ningbo, Wenzhou, Yiwu, and Quzhou are required to work for only 3 days in a week. Factories in Anhui, Changzhou, Nanjing, and Nantong of Jiangsu Province are also influenced."
Hon Hai Technology Group told the Global Times on Monday the power restrictions at a Foxconn plant in Chengdu had limited impact on production. The Chengdu factory is one of the locations where Apple watches and computers are manufactured. CATL (the lithium battery supplier for Tesla) is another manufacturer impacted. Sichuan is home to some large lithium producers. Intel also has manufacturing in Sichuan.
Solar cell companies are also reported to be impacted by this energy curb.
Meanwhile, trucking throughout the country is slower than average because of the truck driver Covid testing requirements. Trucking delays as a result of the different testing measures in the various cities have increased the movement of raw materials and Chinese exports from days to weeks.
These delays do not help the supply chain with the seven day holiday of Golden Week in October.
Also on the horizon are the additional expected cancelled sailings around the holiday which limits vessel capacity.
"Based on the latest issue of Sea-Intelligence's Blank Sailings Tracker, the number of blanked (cancelled) sailings on major U.S. import trades remains constant, and the outlook for the coming 10-12 weeks is very close to being back to "normal"," said Niels Madsen, Vice President of Product and Operations at Sea-Intelligence ApS. "It should however be noted that carriers have not yet incorporated (hopefully) planned blanked sailings in connection with up-coming Golden Week ex China, so it is expected that the number of blanked sailings on trades ex Asia will increase in weeks 40-42."
The CNBC U.S. Supply Chain Heat Map shows a slight reprieve this week with vessels at anchor.
"We're seeing an 18.5% drop, from 70 down to 57 vessels waiting for berths at East Coast ports," explained Josh Brazil, VP Supply Chain Insights for Project44. "The queue especially at NY/NJ has improved from 15 vessels to 9 vessels over the course of the week. 30 vessels are still queued at Savannah and 23 are anchored at Houston. However, it's too early to tell if this improvement is a long-term trend, especially as we head into peak season."
The wait time for import containers however at the Port of Oakland is still in the low double digits.
"The Port of Oakland's marine terminals are still clearing out the backlog as a result of the trucking protests which shut down the Port for a week a month ago," explained Port of Oakland Maritime Director, Bryan Brandes. "Import dwell still remains a critical issue at the Port and we need the imports moved off to allow the lines to restore the services to better service our exporters and importers."
Reviewing the Bills of Lading, some products sitting at the ports include empty wooden barrels for Robert Mondavi Wine, numerous containers filled with auto parts, Melissa and Doug puzzles, Italian furniture and wine, and flooring.
The dwell time of empty containers also continues to be a problem for ports on both coasts. In a recent letter to the Federal Maritime Commission, The Harbor Trucking Association, a coalition of intermodal carriers serving America's West Coast Ports, identified 87,000 empty containers are lingering at the Los Angeles and Long Beach ports, including near-dock depots for empties, as well as sitting at trucker yards or other sites across Southern California.
These chassis holding empty containers removes the chassis out of the pool to be used for the pick up imports or drop off of loaded exports. Charges are also accrued by the motor carrier and customer for the wait time. The FMC has been investigating reports of ocean carriers charging per diem container charges even when the shipper or trucker cannot possibly return the container due to terminal congestion.
Port of Los Angeles Executive Director Gene Seroka told CNBC that the port continues to move record amounts of cargo while working down the backlog of ships by 85% since January.
"Even with our current rail challenges, our marine terminals are more fluid than last year," said Seroka. "That's due in part to our Port Optimizer and improved data that's providing more insights into our cargo compared to just a year ago."
Seroka explained there are approximately 34,000 containers waiting for rail in Los Angeles, and he'd like to see the number closer to 9,000. Rail-bound cargo is waiting about 8 days on the docks compared to about three days pre-COVID.
"Cargo owners must pick up their cargo at inland rail terminals faster than they are today," Seroka said. "That will allow railroad operators to bring more assets back here and load additional cargo."
On the East Coast, Port of New York and New Jersey officials tell CNBC the average empty container dwell is 30 days. This pales in comparison to its processing of import containers, which is 8.2 days and export container wait time of 8.3 days. Port officials say their container imbalance since January of 2021 is 210,000 containers. These empty containers are accumulating in and around the port complex.
The rows of empty containers take up important land capacity at the port and restricts trade fluidity. With port delays increasing, logistics companies are keeping an eye on air as an alternative to ensure holiday delivery.
"Due to the vessel delays on the USEC, the potential for additional blank (cancelled) sailing in September and October may create unanticipated space and capacity constraints," explained Alan Baer, CEO of OL USA. "These reductions may limit importer's options for any seasonal rush cargo and force companies to use air vs ocean."
Goetz Alebrand, Ocean Freight Head for the Americas region of DHL Global Forwarding, told CNBC he has never seen so much interest from the air freight industry.
"Right now, I would say the retailer's will do anything in their capacity to make sure that the supply is there when it's needed, for the holiday season," said Alebrand. "I think everybody who is a stakeholder in this logistics market is doing their utmost to make sure that Christmas is going to happen this year. We have seen cargo go on planes that was not originally planned as air freight. Naturally the retailers want to meet the seasonal demand. Right now, we see air capacity, especially out of China and out of Vietnam as a hot market."
- Pippa Stevens and Eunice Yoon contributed to this report.
The CNBC Supply Chain Heat Map data providers are artificial intelligence and predictive analytics company Everstream Analytics; global freight booking platform Freightos, creator of the Freightos Baltic Dry Index; logistics provider OL USA; supply chain intelligence platform FreightWaves; supply chain platform Blume Global; third-party logistics provider Orient Star Group; marine analytics firm MarineTraffic; maritime visibility data company Project44; maritime transport data company MDS Transmodal UK; ocean and air freight rate benchmarking and market analytics platform Xeneta; leading provider of research and analysis Sea-Intelligence ApS; Crane Worldwide Logistics; and air, DHL Global Forwarding; freight logistics provider Seko Logistics; and Planet, provider of global, daily satellite imagery and geospatial solutions.
China, 'factory of the world,' losing more of its manufacturing dominance, latest data shows
Four global trade trends flashing consumer weakness for a market already fearing recession
Another Covid surge in China is the global supply chain's biggest fear, but it may be overstated
Why driving big rig trucks is a job fewer Americans dream about doing
Freight rates from China to West Coast down 90% as global trade falls off fast