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Client Advisory: Perpetual Peak Season – June, 2021 Update

As perpetual peak continues we are reminded t​​​​​his is a marathon; not a sprint.

The perpetual peak season across the global supply chain continues as further challenges have hit third-party logistics providers, manufacturers and merchants, with no signs of change in the immediate future.

Having made headway following the significant impact of the Ever Given's blockage of the Suez Canal, whilst simultaneously managing the ongoing impact of COVID-19 and the ecommerce boom; further issues continue to arise. The latest of these has been weeks of disruption at the container terminal of Yantian in South China, alongside port congestion at virtually every major location.

The pattern for the supply chain at present is continually more congestion, volatility in capacity and certainty, and ambiguity. As these metrics increase, the inventory to sales ratio continues to decrease. This is a sustained challenge which will go on for an extended period, and we are working closely with all clients and partners to mitigate the impact, with further information provided in the update below.
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Recommendations and Solutions:

Although it may seem like there are little to no options, the below areas are examples of where and how we’ve been successful on behalf of our clients. Due to the extreme nature of the market today, we need to focus, first and foremost, on our existing clients. Right now our clients have highest priority, above any new business. 

· Forecasts! – Consistency with bookings that match your forecasts will be rewarded with additional future allocations. In this market, consistency is better than volume and that will be the case through all of 2021 (and beyond).

· Alternate Routings – Whether it’s via the East Coast or via Prince Rupert in Canada – keep an open mind on alternate routings – you may be surprised at how many additional options this opens up.

· Transloads – If you find alternate routing terminating in a different city that you’re accustomed to, try focusing on getting your containers anywhere in the United States – and we can assist with transloads and local drayage. Ocean carriers need to limit their IPI points further inland to keep containers moving.   We have our largest transload operations in Los Angeles and Seattle, but we can assist you almost anywhere near a port.

· Airfreight – Of course airfreight is an option, and we’re seeing more clients convert ocean to air to maintain their inventory levels.  This is not a solution for everybody, but as ocean rates climb, airfreight may become more palatable to make sure you follow through on your PO commitments and to keep your product selling and moving.

· Air Charters – For extreme cases, we have also helped clients with dedicated air charters from China and other countries. Please contact your SEKO representative today if this is of any interest.

​​​​Below is some additional information on what’s happening in the market and what to expect the rest of the year.

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​​​​Yantian delays start pendulum swinging between US and Asia

After making inroads in the congestion we saw earlier this year at the Port of LA and Long Beach, delays at the western terminal of Yantian International Container Terminals in South China – one of world’s busiest container ports – caused by a severe COVID outbreak sent productivity plummeting.

With many workers unable to provide labor and local authorities blocking off parts of the region to contain the outbreak, the port was down to processing only three vessels a day – equating to less than 30% productivity.

Although the port committed last week to return to 100% operational capacity following three weeks of closures, the backlog at the terminal rose to around 160,000 containers, with nearby terminals Nansha and Shekou picking up some of the slack to prevent an even bigger queue.

Although returning to full operational capacity is clearly positive, it will not merely be a case of clearing the backlog from the past month, as SEKO’s Vice President of Global Carrier Management & Ocean Strategy Akhil Nair suggests: “The cargo sitting at customer’s factories, on chassis or in temporary warehouses in and around the Yantian area, the expectation is that it will probably take close to one month to clear this backlog or get close to resuming complete capacity.”

The delays seen at Yantian are close to a mirror image of those experienced at the Ports of LA and Long Beach in February, and there is a feeling that ,as congestion clears in Asia, this will simply turn into congestion again in the United States.

As Brian Baskin, Managing Director for SEKO Logistics in Los Angeles highlights: “What remains to be seen in the marketplace from a carrier perspective is that pendulum coming back this way as we hit peak season? We expect to see ships clear in Asia and start heading back this way, and it remains to be seen whether we can keep pace with that wave of volume coming back all at once. It’s a rare time in that you have a concentration of containers which have been stacking up that are all going to the same place.”

Baskin added: “I think over the next year we’re going to see that continue to go back-and-forth and, as the pendulum slows down, we’ll see efficiency get better and better. But, I feel this will be about an 18-month problem between the cycles.”

With it being clear that these issues will not be resolved in the immediate future, we look ahead to market predictions for the rest of 2021 and beyond with further expert insight.

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What’s next – preparing for Q3 & Q4

With such little capacity left in the market and the ‘back to school’ peak on the horizon, followed by the Christmas holiday soon after, no downturn can be expected through the rest of 2021.

This is going to have a continued impact on ocean freight rates, which have already rocketed to over $10,000 for a 40-foot container from Asia to North America, having been closer to $2,000 in October 2020, according to Freightos.

Akhil Nair suggests that the continued rise of these rates is not going to be sustainable for merchants and manufacturers, saying: “At some point in time, my personal belief is that these prices are going to reach a point where, at least on certain types of commodities at the lower end of the spectrum, there is going to be a decision to be made by importers as to whether they hold off their purchase orders, change their source, or look at other options.”

He added that regardless of demand and congestion leveling out at some point, the average rate per container is likely to remain much higher than historically known. This is due to the fact that through the circumstances over the past 18 months, shippers have learned how to match supply with demand much better than they have in the past.

Craig Grossgart, SVP Global Ocean at SEKO Logistics, suggested that this could lead to cost increases in the marketplace, particularly in the United States, where products traditionally are comparatively cheap compared with overseas.

The congestion in China and more longstanding issues between the US and China in terms of increasing duties and tariffs has led some importers to look to diversify sourcing into regions such as Vietnam and Mexico.

As Nair comments regarding the increase: “With people building long-term diversification into their sourcing patterns, Vietnam has got the biggest benefit with over 40-50% growth in trade and export to the U.S. year-on-year; and this is not slowing down.

“The only point I would make here is that countries like Vietnam have a great infrastructure for the current status, but they do not currently have the scale to be able to generate or manufacture at the same quality or scale as China.”

So, while it is wise for importers to look to diversification, both now and in the future, there is no panacea for what China has to offer in terms of its infrastructure.

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Air Freight offers options amid capacity crunch

We have seen first-hand over the past year a huge quantity of items - from hot tubs, to leaf blowers to grills – which would never traditionally be shipped via air freight, all being transported through that mode, due to the strain on ocean.

Although rates for air freight have soared and are far higher than ocean, some importers have been willing to take the hit simply so that they can be the company that does not run out of commodity in their home market. Another driver has been that many manufacturers have existing deals with retailers that include shelf space – if they are not able to fulfill purchase orders then they lose that shelf space, which could in turn equate to a bigger loss than the financial hit of pivoting to air freight.

We are continually working to create capacity to meet our client’s demands despite the international passenger capacity being so heavily reduced on popular business travel routes such as New York to London.

Clearly though, when it comes to capacity, this is going to be a marathon, rather than a sprint.

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