Supply Chain Is Now Facing Two Trade Hurdles

Arca Intl
16 August 22
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  • A pileup of German import containers is 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.

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.

China’s supply chain feeling the heat

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.

In Worldwide Logistics email it also noted Shanghai has reported some factories suspending production due to power rationing.

Hon Hai Technology Group told the Global Times on Monday the power restrictions at a Foxconn plant in Chengdu had a 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’s 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 canceled sailings around the holiday which limits vessel capacity.

U.S. container congestion

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 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 remove the chassis out of the pool to be used for the pickup of 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.

 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.

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 restrict trade fluidity. With port delays increasing, logistics companies are keeping an eye on air as an alternative to ensure holiday delivery.

Goetz Ale brand, 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.