January 31, 2024
January 2024
Editorial
January 2024 - In this edition of our supply chain newsletter, this month brings key insights into the current landscape shaping global freight, fulfilment, and manufacturing news. We delve into the profound impacts of recent geopolitical events on global freight, exploring how Houthi attacks in the Red Sea have disrupted shipping routes. Despite a slight decrease, shipping costs on the Red Sea route remain more than 300% higher than in November, triggering inflation concerns. The consequent surge in air freight demand, particularly on the Vietnam-Europe route, is reshaping supply chain dynamics. We also examine the repercussions on China-US freight rates and the notable stock rise of Samudera Shipping. Additionally, insights into the expansion of Nansha port highlight China's efforts to become the freight hub of southern China. In the realm of global fulfilment and manufacturing, we cover significant developments such as regulatory scrutiny on Amazon's French warehouse surveillance, criminal charges against John Lewis PLC, Southeast Asia's warehouse automation market expansion, and DHL's commitment to sustainability. The newsletter concludes with updates on Apple's supply chain diversification, AbbVie's biologics manufacturing expansion in Singapore, and the potential challenges posed by China's increasing chip production capacity for Western nations.
Global Freight
Red Sea Attacks: Slight Fall In Shipping Costs But Still Over 300% More Expensive Than November - Fuelling Inflation Fears
- Shipping costs on the Red Sea route have fallen slightly but remain over 300% higher than November, with the average container cost from Shanghai to Europe now at $3030, up from $707 mid-November.
- The Houthi attacks on cargo ships have led to this disruption - as a result, there is significantly less vessel traffic in the Red Sea as companies divert routes. These alternative routes are increasing travel costs and time - leading to concerns about inflationary impacts on global supply chains
- Houthi rebel attacks are leading to increased delays and risks in the Red Sea and are driving a surge in demand for air freight - particularly on the major apparel route from Vietnam to Europe - with cargo volumes spiking 62% in the week ending January 14.
- The cost of air freight has not risen significantly yet, concerns are growing that ongoing red sea disruptions, coupled with sustained high cargo demand could lead to a substantial increase in prices thus impacting companies reliant on efficient supply chain.
- Freight rates from Shanghai to the east coast of the United States, have nearly doubled in less than a month due to global inflation and the Red Sea crisis, with a 40-foot container rising from $3,600 to $6,000
- Despite claims of weakened rates and demand on China-US trade, the high shipping costs indicate resilient US demand for Chinese products, driven in part by the rush of Chinese exports before the Chinese New Year, and constraints of the Panama Canal’s shipping capacity during dry season.
- Samudera - a shipping company based in Singapore that operates a fleet of ships that transport containerised and non-containerised cargo throughout Asia and the Middle East - has experienced a significant surge, closing at 73.5 cents on Jan 8th, marking a 24% increase from one month ago.
- This increase is largely driven by the rise in global freight rates due to the Red Sea disruptions - prompting longer shipping routes.
- Nansha port in GuangZhou, China, is rapidly expanding with a new container terminal, on-dock rail, and a large temperature-controlled warehouse - position itself to be the freight hub for southern China.
- Nansha seeks to challenge markets like Hong Kong - particularly in the reefer business - by focusing on automation and connectivity.
Global Fulfilment
Amazon Tracks Its French Warehouse Works To The Second, Regulator Finds
- Amazon’s French warehouse operator faces a €32 million fine from the French Data Protection Authority (CNIL) for employing an “excessively intrusive” surveillance system. This system includes scanners that track worker inactivity and task efficiency, potentially requiring employees to justify every break.
- Amazon plans to appeal - asserting the surveillance systems are an industry standard for safety and efficiency. The CNIL found indicators like quick scanning and idle time to be excessive, leading to constant surveillance and providing Amazon a competitive advantage.
- John Lewis PLC is facing criminal charges for alleged breaches of health and safety regulations at its Magna Park distribution centre in Milton Keynes. The charges relate to failure in ensuring the health, safety, and welfare of employees concerning the risks associated with crossing conveyor belts.
- The company could face prison time or a substantial fine - if found guilty of the charges. The alleged offenses include failing to conduct a suitable risk assessment, maintain a safe system of work, provide adequate information and training, and make a suitable means for crossing conveyor belts as stipulated by Health and Safety at Work Act.
- The Southeast Asia warehouse automation market is expected to grow significantly, reaching USD 1.16 billion by 2028, with a projected Compound Annual Growth Rate (CAGR) of 12.51% over the 5-year period. Indonesia is highlighted as a major contributor to market expansion.
- Factors driving this growth include advancements in technology, the complexity of the production process, a surge in e-commerce activities, an increase in micro-fulfilment centres, automated cold storage, and efficient last-mile delivery.
- DHL Supply Chain has integrated the 50th electric yard truck from Orange EV into its US operations, aiming to replace diesel yard trucks by 2025. The electric yard trucks are expected to eliminate over 2,500 tons of CO2 emissions annually.
- The initiative is part of DHL's commitment to sustainability, with a focus on reducing environmental impact in logistics. Diageo, an alcoholic beverage company, was the first DHL customer to use Orange EV fleet trucks, showcasing a collaborative effort to create a sustainable, low-carbon future in logistics.
- GMB union members at Amazon's new fulfilment centre in Birmingham plan to strike on January 25 over pay and conditions. The strike, involving up to 100 workers, aims to raise awareness of the dispute and recruit more supporters, following a similar action at Amazon's Coventry warehouse a year ago.
- The GMB, seeking union recognition and an end to "poverty pay," reports increased membership in Coventry, totalling over 1,200. While Amazon denies a link between pay increases and strikes, the company faces ongoing industrial action, with workers in Coventry taking 28 days of action in the past year.
Manufacturing
UK Manufacturing Sector Shrinks For 17th Month In A Row
- The UK’s manufacturing industry continued to decline in December to 46.2 PMI according to the S&P Global/CIPS UK survey - as output, new orders and employment in the sector fell.
- Manufacturers expect production to rise in 2024, driven by sales initiatives and new product launches.
- Corning, the official glass supplier for Apple iPhones is investing ₹1000 crore (approximately 161 million SGD) to open a gorilla glass manufacturing facility in Tamil Nadu. The 25-acre facility in Pillaipakkam will initially employ around 300 people with the possibility to expand.
- Corning’s decision to establish the plant in Tamil Nadu, a growing tech and industrial hub, is seen as a strategic move. The entry of Apple’s key vendor into India is expected to contribute to the Make in India initiative.
- China’s chipmakers are increasing production capacity, with a predicted 60% growth in chip production capacity over the next three years. Western trade officials worry about a potential flood of foundational processor chips in the market, impacting prices and profits for non-Chinese companies.
- The US, European, and Japanese governments are contemplating responses to potential Chinese chip overcapacity. Options include tariffs, limiting market access for specific Chinese companies, subsidizing non-Chinese chips, or outright bans on Chinese chips in critical use cases due to security concerns.
- Apple supplier Goertek is investing $280 million to establish a subsidiary in Vietnam aiming to manufacture consumer electronics products e.g. Airpods, smartwatches and virtual reality gear.
- The move is part of Goertek’s development plan and aligns with Apple’s strategy to diversity production outside of China. Other Apple suppliers, like Foxconn, have already invested in billions to relocate facilities to countries such as India, Vietnam, Mexico and the US.
- AbbVie - an American pharmaceutical company - is investing $223 million in expanding its Singapore manufacturing facility adding 24,000 litres of biologics drug substance capacity.
- The expansion located in Tuas Biomedical Park, aims to support current products and emerging compounds in AbbieVie immunology and oncology pipeline creating over 100 new jobs.
Sources
- https://www.cnbc.com/
- https://www.globaltimes.cn/
- https://www.straitstimes.com/
- https://www.rivieramm.com/
- https://edition.cnn.com/
- https://www.northamptonchron.co.uk/
- https://finance.yahoo.com/
- https://www.logisticsmanager.com/
- https://www.theguardian.com/
- https://news.sky.com/
- https://www.hindustantimes.com/
- https://www.ft.com/
- https://www.scmp.com/
- https://news.abbvie.com/