January 31, 2023
January 2023
Editorial
January 2023 - This month, we see the result of the holiday season on the economy. Additionally, we see the reverberations throughout the supply chain as China backtracks on its zero-covid strategy. However, as China/US tensions continue to rise, India is slowly coming to the forefront of manufacturing. In other parts of the world, the United Kingdom deals with a cyber incident that has left its international parcel distribution in shambles.
Global Freight
Global shipping costs are returning to pre-pandemic levels
- In January 2022, 109 container ships remained at the ports of Los Angeles and Long Beach, delayed due to supply-chain bottlenecks brought on by the pandemic - this led to shipping costs to skyrocket.
- By contrast, in January 2023, there are little to no delays and shipping costs have returned to pre-pandemic levels.
- Flexport - a San Francisco based freight forwarding company - is laying off 700 people, 20% of its workforce due to a slowdown in global trade and increase in automated systems.
- This follows other major job cuts within logistic and tech sectors in recent months.
- BYD has ordered several car carriers - ships that transport thousands of cards at once - manoeuvring their own products but also offering services to other car manufacturers.
- Although BYD has not commented on this shift, a subsidiary of the group expanded on its commercial activities to include: “ocean carrier operations, freight forwarding, international shipping agency services, and port cargo handling.”
- Report shows December decline in U.S imports from November, aligns with 2019 levels.
- Key economic indicators (COVID, Russia/Ukraine Conflict, West Coast labor shortage) paint an uncertain picture on their impact of future import volumes.
- The two largest container lines are ending an eight-year vessel sharing agreement as the shipping rivalry of transporting goods heats up.
- The agreement - signed in 2015 - allowed the companies better manage cargo volumes at a time when the industry faced significant losses and excess shipping capacity.
Global Fulfilment
Bed Bath & Beyond’s sales and inventory crash as suppliers tighten terms
- Suppliers advocating for shorter payment terms have potentially cost BB&B millions of dollars in lost sales during the holiday season due to constrained inventory.
- BB&B reported a 33% decline in net sales.
- Nike is looking to clear excess inventory that arrived due to prolonged transit times.
- Factory closures in Vietnam and Indonesia disrupted production.
- Royal Mail has asked people to halt all outgoing international mail due to a cyber incident (11th Jan) that has severely disrupted its distribution centers
- The National Cyber Security Centre is investigating the incident, and it is not known when systems will return to normal.
- Royal Mail has restarted the export of parcels from its backlog but suggested no new parcels should be submitted for now.
- Royal Mail asked customers not to send post that requires a custom declaration.
- DHL has fully implemented a robot picking system at its logistics center for fashion retailer Peek & Cloppenburg Dusseldorf.
- The automated storage and order fulfillment system - Autostore - allows merchandise inventory to be fully monitored and controlled.
Manufacturing
Apple’s $2.5 billion iPhone shipments from India hint at a major manufacturing shift
- Between April and December 2022, Apple exported more than $2.5 billion worth of iPhones from India, double that of the previous fiscal year.
- This increase in exports indicates Apple’s shift from China.
- Hanwha Qcells announced that it will build a manufacturing complex in Georgia to produce components for solar panels and build complete panels.
- If this plan comes to fruition, it will bring some of the supply chain for solar energy to the United States, whereas currently it is largely based in China.
- British manufacturers recorded one of the largest drops in activity since the global financial crash.
- Manufacturing companies saw decreases in output, job losses and a declining rate in the number of new orders.
- Tesla is nearing a preliminary deal to build production facilities in Indonesia; with the capacity of one million units.
- Tesla has signed contracts worth about $5 billion to buy materials for batteries from nickel processing companies in Indonesia.
- Clean technology includes solar panels, wind turbines, EV batteries, electrolysers for hydrogen and heat pumps. Currently, China is dominant in manufacturing capacity for each of these fields.
Procurement & Sourcing
Nippon Steel plans low-carbon raw materials production for green steel
- Japanese steelmaker Nippon Steel is looking to produce low-carbon raw materials including ‘reduced iron’, produced by removing oxygen from the iron ore - resulting in green steel.
- Currently, natural gas is used to produce reduced iron however steelmakers are considering the use of hydrogen, making the whole process free of carbon dioxide emissions.
- Japanese drug maker Shionogi will review its sourcing of raw materials for Xocova - an oral COVID-19 drug - to shift away from a heavy reliance on China.
- Currently, the company relies entirely on China for synthetic chemicals to make the drug but is looking to procure materials from Japan and India.
- Although Indonesia is the world’s number one stainless steel exporter, producers are deprived of raw materials to keep manufacturing going.
- Industrialists are urging the government to amend its policy to save local stainless steel product manufacturers, by importing enough raw materials to make finished products like kitchenware, cutlery, sinks, wash basins among other items.
- British retailer Primark’s CEO - Paul Marchant - has praised the development Bangladesh’s garment sector has achieved in green factories.
- Local manufacturers are capable to supply any quantity of goods, as they have increased their capacities over the years.
- High interest rates, volatile pricing and the war in Ukraine have made it more expensive to finance commodity trade, forcing the industry to hunt for extra capital to ensure raw materials keep moving globally.
- According to McKinsey, the global flow of raw materials is becoming more costly and less efficient - leading to the price of these commodities to surge.
Technology & Automation
McDonald’s unveiled an automated store. Some consumers aren’t loving it
- McDonald’s new test restaurant near Fort Worth Texas, implemented a system where ordering is done through kiosks or an app, then a conveyor belt that brings your order to the window. No humans are involved.
- Not all customers like it, discussing how millions of jobs are now lost, or have personal concerns - like rectifying incorrect orders etc.
- Tesla, does not have the best track record regarding quality control - with missing suspension bolts, panel gaps and glass rooves flying off - the company is looking to implement new automated quality control measures to address quality issues.
- Tesla recently listed a position for a quality inspection engineer, who would be a part of the Vision Automation team - to contribute to Tesla’s inhouse effort to purpose build inspection systems.
- Japan has been developing robots to care for older people over the last two decades, with the elderly population growing and a pressing labour shortage.
- Care robots come in various types, some meant for physical care (e.g. lifting/mobility assistance) or social engagement to prevent cognitive decline.
- It’s unlikely robots will entirely replace humans in this sector but can be used as a tool in coping with the labour shortage.
- Walgreens is considering a sale of its pharmacy automation business - iA - for up to two billion dollars.
- This sale comes at a time when the company is looking to get a bigger hold in the healthcare space.
- One hurdle preventing manufacturers from adopting predictive maintenance procedures is the cost of associated hardware and software; however, these costs have been reducing over the years and is leading to increasing potential in this space.
- Amazon is expanding its offerings in the industrial space beyond its current portfolio, and is introducing Monitron, a predictive maintenance and machine learning products.
- Monitorn is an end-to-end system of sensors and gateways to monitor equipment condition, and transfer data to AWS for analysis.
Sales & Operations
Electric car sales reach record high in UK despite supply chain disruption
- Sales of EV have reached record levels in the UK, even though overall car sales have decreased. 1.6M new cars were sold in 2022, a drop of 2% from 2021.
- Electric cars represented a total of 17% of sales throughout 2022.
- Volvo reported that its sales grew in December but overall sales for the year fell due to supply chain disruptions such as component shortages and lockdowns in China.
- Volvo said fully electric vehicles accounted for 20%, and recharge models (i.e. not fully electric) accounted for 44%.
- BMW fourth quarter sales rose to 10.6%, with supply chain bottlenecks easing.
- Full year deliveries were down 4.8%, with major disruptions in the first half of the year.
- DHL is investing heavily in North American e-commerce operations.
- Retail holiday sales were low, but certain categories such as engineering, manufacturing and high end consumer goods are doing well.
- A quarter of London homes were sold off-market in the last quarter of 2022 - this is more than double compared the same period in 2019.
- Homeowners are negotiating these terms over WhatsApp, shunning mainstream property portals and traditional means.
Company Focused
Warning that thousands of firms face collapse
- The number of firms on the cusp of going bust increased more than a third by the end of 2022, and this number is expected to rise due to high costs - repaying covid loads and consumers cutting back on spending due to the cost of living crisis.
- The number of firms in critical financial distress (more than £5000 in county court judgements) increased 36% in the final quarter of 2022.
- It has been a year since workers at Amazon workers in New York voted to start the company’s first labour union in the United States.
- Negotiations with Amazon over a labour contract for the workers have yet to start, and it is expected to take years before any change is implemented.
- Ticketmaster has faced immense criticism from fans and politicians saying it has too much of a monopoly of the live music market and artificially inflates the cost of tickets with fees and service charges.
- Ticketmaster states it was inundated with bots during the release of the Taylor Swift tickets, and acknowledged that the company should have staggered ticket sales over a longer period of time - rather than have the tickets sell out within the first few minutes then resell for tens of thousands of dollars.
- MacRumors has revealed multiple specification and design differences for the new iPhone, with superior camera, ProMotion displays and the new Apple 3nm A17 chipset will be exclusive to the iPhone 15 pro models. The phones connectivity will be different with WiFI 6E exclusive to the Pro models.
- Apple is taking a risk widening the gap with the regular vs pro models, as the sale of the iPhone 14, and iPhone 14 Plus have been underwhelming - with buyers choosing the Pro models more often.
- Apple supplier Jabil has begun manufacturing components for air pods, as Apple shifts its dependency from China elsewhere.
- India will now, be producing iPhones and Airpods.
Country Focused
EU must do more to tackle antibiotic shortages
- The EU drug regulator needs to take more action to tackle antibiotic shortages according to a letter from a group of European patient and consumer organisation.
- These antibiotics include amoxicillin, the most common antibiotic used to treat bacterial infections - especially in children - has been in short supply since October.
- The end of the freedom of movement act with the UK and the EU, has left about 330,000 less workers in Britain - a reduction of about 1% of the labour force.
- There are fewer workers in lower paying sectors that were previously reliant on EU workers.
- Egg costs globally have surged roughly 60% compared to the year prior, as avian flu has decimated chicken flocks and the fallout from Russia’s war with Ukraine has raise the prices of energy and animal feed.
- In New Zealand, to cope with these rising costs people are hunting for hens online to secure their own supplies of the pantry staple. There has been 65,000 searches for chickens and other related items (i.e. feeders, coops and food).
- President Vladimir Putin said there are shortages of some medicine in Russia, despite the country producing more of its own drugs.
- While prescription drugs are exempt from Western sanctions, delivery to Russia has been affected by transport, insurance and customs hurdles.
- The FDA lists about 120 medical treatments in short supply, citing manufacturing quality issues and supply chain difficulties.
- Even with US efforts to encourage alternative supply chain, it is nowhere near the same scale and quantity as China.
COVID-19
China says it’s open for business after end of ‘zero-COVID’, but other worries persist
- China is back in business, according to the country’s Vice Premier Liu He - stating that the Chinese economy will see a significant improvement in 2023.
- The country abruptly dropped stringent pandemic controls, resulting in a sharp increase in covid cases and mounting deaths.
- Only one in five economists expect supply chain disruptions to have an impact on businesses in 2023.
- This report reflected significant stabilization after covid-19 restrictions, and an integration of war-related disruptions in business planning.
- As China lifted its zero-covid policy, eased travel restrictions and ended mandatory quarantine of those infected - lead to an extreme spike in cases. The amount of people that fell ill in a very short period of time was exponential - leaving the country short staffed in the run up to New Year celebrations.
- Companies have had to prioritise or shift orders as a lack of workers impacted the ability to maintain standard production schedules.
- The pandemic wreaked havoc on China’s supply chain with factories being forced to shut, there was significant disruption to the global supply chain - which created opportunity for India to gear up and be a greater driving force.
- The Indian government supported this growth, and announced plans to invest over $1.4 trillion in infrastructure projects over the next few years to support development in energy, transport and digital connectivity.
Miscellaneous
The importance of digital infrastructure in getting to net zero
- Consumers are looking to corporations to take action on climate change,
- Supply chain visibility is critical to a decarbonisation strategy, and by creating a digital infrastructure to for corporations and suppliers to report their data in a standardized format allows for comparability of information.
- According to experts, supply chain operations are far from normal and will not return to normalcy anytime soon - new pressures are forming daily, with the new focus is recovery from record inflation, shifts in demand, slowing growth, bloated warehouses with incorrect inventories, and supply shortages.
- Traditional supply chain planning assumes that history is a good predictor to model the current state, however recent history has a distorted pattern - and therefore, is unhelpful in this rapidly evolving market.
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