This is an edited excerpt from memos broadcasted on our Telegram channel. To access all content and see others like them as they come hot off the presses, go here.
We reported Q4 2021 that throughout 2022 the shipping crisis will continue for various reasons and have many secondary consequences.
1. Increased order volume to combat the factory production blackouts.
At the end of last year, we issued an emergency memo regarding government mandated factory production blackouts. We broke this before the mainstream.
We also predicted a large panic increase in order volume as a consequence, with companies looking to get in as many product orders before CNY.
This happened, resulting in China:USA trade surplus hitting ATH since 1950.
This panic buy was not a simple knee jerk reaction, but a sustained effort that will continue until CNY.
Exports increased 20.9% YOY last month, only dropping slightly from the November 22% at the beginning of the factory blackouts.
2. Increased order volume feeding into shipping delays and price increases.
Asia- US West Coast container freight rates Jan 2022 are 218% higher than Jan 2021.
We have outlined before that approximately 7 freight ship companies acquired a dominating position in the shipping container space, increasing their vertical integration.
Because of this, the pricing, on the whole, has no incentive to shift or compete for lower rates.
(However this does create a major opportunity when negotiating with smaller freight forwarders who have secured better than market rates by contract with them. Requires digging.)
The heightened order volume leading to CNY, combined with the myriad of port problems detailed elsewhere, will only see continuing strain on pricing and lead times with no overall incentive for the head of supply chains to react and the inability for the tail to do so.
3. Covid events continue to play a role.
China’s ‘Covid Zero’ policies will continue to have major effects on production and shipping, already seeing major ports like Ningbo and Tianjin being affected this year. Some effects are also not as visible.
Example: In Zhejiang Province, where we SB&P have a large factory presence and our China offices, covid restrictions may not halt production in factories, however often travel and shipping to other Provinces is delayed or restricted during these government covid countermeasures.
Actionable Suggestions:
Those at the Agency Client level have a boutique production and logistics strategy planned, implemented, and executed by us.
For others, much will depend on your order volumes, but the following will be applicable to all:
A.
Post-CNY Mania
Many were caught with their pants down and completely surprised by the factory blackouts.
Where normally they believed that had around 3 more months to place orders before CNY, many are now facing a period of *half a year* or more without receiving new inventory.
It is essential to secure factory capacity as soon as CNY ends. You may very well be in competition with large brands with large order sizes.
There are only two ways to circumvent this: Money and Influence.
Many factories will allow you to jump in the production line by paying a fee, but you must suggest it. Or you connect with an agency that has influence on the factory to secure your placement.
B.
Freight Forwarders & Logistics
You will want to discuss with whoever is handling your shipping what your needs are in terms of pricing and speed. There are ways to speed through the ports and shipping lanes, at a cost. Large or small will depend on your situation.
There are creative opportunities available but you must discuss with your forwarder.
Example:
We found it faster AND cheaper to divert a clients shipments from usually coming into California ports and into LA warehousing to instead going to the USA East Coast (where shipping costs and congestion has stayed lower comparatively) and then transport by rail to their location.
This is an edited excerpt from memos broadcasted on our Telegram channel. To access all content and see others like them as they come hot off the presses, go here.
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