Supply chain disruption fact of the day

The pandemic has exposed the vulnerabilities of the globalised manufacturing supply chain. The most discussed example is the shortage of microchips used in automobile manufacturing.

The Times has an excellent article which highlights the problem,

Catrike has 500 of its three-wheeled bikes sitting in its workshop in Orlando, Fla., nearly ready to be sent to expectant dealers. The recumbent trikes have been waiting for months for rear derailleurs, a small but crucial part that is built in Taiwan. “We’re sitting on $2 million in inventory for one $30 part,” said Mark Egeland, the company’s general manager... The time it takes for parts from one of Catrike’s suppliers to arrive by sea in North America from a factory in Indonesia has jumped to three months, and sometimes it takes four — double what it took before.

The unexpectedly swift and strong rebound in the developed economies led by the United States has exacerbated the supply constraints. 

The logistics market is reflecting the strains,

Container costs have rocketed up. Earlier this month, container shipping rates from China and East Asia to the United States’ East Coast climbed above $20,000, compared with about $4,000 a year ago, according to data from the freight-tracking firm Freightos. Those attractive high prices are encouraging ships to abandon other routes, causing the problem to spread. And shipping issues have been exacerbated by related imbalances: Boats are backing up at ports, and as demand for goods booms in the United States, empty shipping containers haven’t been able to get back to China fast enough.

There are signs that this experience could upend the conventional wisdom on supply chain management,

Mr. Egeland thinks it could take 12 to 18 months to sort out issues across Catrike’s suppliers, he said, and he doesn’t think the firm will ever return to the kind of lean manufacturing process — carrying limited inventory — that it used to use. “It’ll be a hybrid until we get comfortable,” he said. “This is probably the new normal.”

More on the exorbitant logistics cost,

The cost of sending a container from Asia to Europe is about 10 times higher than in May 2020, while the cost from Shanghai to Los Angeles has grown more than sixfold, according to the Drewry World Container Index.

Update 1 (02.10.2021)

From a WaPo feature on supply-chain problems,

This month, the median cost of shipping a standard rectangular metal container from China to the West Coast of the United States hit a record $20,586, almost twice what it cost in July, which was twice what it cost in January, according to the Freightos index... On Sept. 1, 40 container ships belonging to companies such as Hyundai, NYK Line and Evergreen were anchored off California, waiting for a berth. (Less than three weeks later, the number reached 73.) Some vessels sit for two weeks or more, effectively cutting capacity on trans-Pacific shipping lanes and driving up costs.

And it has boosted profitability of shipping companies,

The seven largest publicly traded ocean carriers — including companies such as Maersk, COSCO and Hapag-Lloyd — reported more than $23 billion in profits in the first half of this year, compared with just $1 billion in the same period last year.

Update 2 (29.10.2021)

Supply chain disruption graphics from FT which point to the impact being felt across all sectors. Manufacturing delivery times in developed economies have been worst hit

Sample this response from European manufacturers

And from US retailers

All of which is reflected in container freight rates

Update 3 (16.12.2021)

Some snippets on the health of the global shipping industry. Sample this,

In the decade before the financial crisis demand grew by around 10% a year. The order book swelled to the equivalent of 60% of the entire fleet when Lehman Brothers collapsed in 2008. An armada of new ships, which take at least two years from order to launch, arrived just as growth slowed. In the 2010s the fleet expanded by 100% while demand grew by just 50%... The excess capacity ruined returns for years afterwards. McKinsey, a consultancy, reckons that between 2012 and 2016 container-shipping destroyed $84bn of shareholder value... After years of consolidation the top seven firms now claim three-quarters of the global fleet, up from 55% in 2016, according to Jefferies. On top of that, 2017 saw the birth of three global alliances that now control 85% of capacity across the Pacific and almost all capacity between Asia and Europe.

And this

Simon Heaney of Drewry, a consultancy, says that profits could reach $200bn in 2021 and $150bn in 2022, an unimaginable bonanza beside the cumulative total of around $110bn for the previous 20 years.