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The annual celebration of Chinese Lunar New Year, or Spring Festival, begins on January 25, 2020. The celebration, in which the largest number of people on the planet travel to go home to be with friends and relatives, means a weeklong closure for the government and closures of all factories and most businesses throughout the country.
Chinese New Year is observed for the longest period of time in mainland China. However, the Lunar New Year holidays are also observed in neighboring countries such as Hong Kong, Taiwan, Korea, Singapore, Indonesia, Malaysia, Thailand and the Philippines who observe a handful of days during this period.
The closure of Chinese Customs is important because exporters are unable to present their documents for export clearance, so any clearances will have to be made before that date. While there are some vessel loadings and departures which take place during this time, many carriers “blank”–or remove–sailings during the holiday and in the weeks before and after because of reduced manufacturing.
Despite the government taking a seven day holiday, some factories are closed for two to four weeks. This is because it will take this long for factories to receive and plan for new orders and to resume full staffing levels because there are many people who return home who do not return, prompting businesses to hire and train new staff.
For 2020, the combined significant decrease in US imports, plus an earlier than usual Chinese New Year have led carriers to already announce reductions of 137,800 TEU of West Coast capacity and 72,000 TEU of East Coast capacity from January 25th according to information complied by Sea-Intelligence. The announced capacity reductions for 2020 are the highest amount announced in seven years.
In 2018, a total of 254,000 TEU of capacity to the West Coast was removed and experts believe that number will be eclipsed in 2020. Given the size of today’s vessels, this translates into 12.4 average-sized sailings, according to Alan Murphy, whose comments appeared in the Journal of Commerce (subscription required).
This year, our experience has been that while roll pools (the number of containers left behind from a sailing) have been nothing like 2018, the blanked sailings in the third and fourth quarter have meant that departing vessels are close to full. Some bookings made with carriers with two weeks notice or less are accepted but with the conditional statement “subject to roll.”
On lanes such as the Pacific Northwest (PNW) and Canadian West Coast (CAWC), we are seeing blanked sailings every other week.
One of three things will happen when cargo is rolled from its scheduled vessel:
Air cargo is likewise affected because cargo into and out of the country is not moving and for the carriers operating equipment, the reduced flight schedules and frequencies impact both space and pricing because of the simple economics of supply and demand.
For TOC clients, we stress that when capacity and space issues impact our ability to move your cargo, the need to provide us with accurate forecasting to protect space and make arrangements becomes even more critical. When our allocation teams know cargo quantities, port pairs and weekly demand requirements, we can work with our carrier partners to ensure that our weekly protected spaces are utilized for your cargo.
We can certainly move cargo that we are not notified of until the last minute, but this may require us to go to the spot market to secure protected space at a different rate than we have negotiated on your behalf.
For more information about Chinese New Year and the impact it has on cargo capacity, contact your TOC representative to learn more today.
The automotive industry is under siege from a number of trade and economic factors. In the United States, auto makers and suppliers are awaiting a decision from the Trump Administration whether or not to take action under the same Section 301 program that currently impacting importers buying from China. In California, the first manufacturing standards for electric trucks were just announced. Now comes news that Germany’s Continental AG is reorganizing its business and taking a $2.8 billion write down, including scrapping plans for a partial IPO of stock in its powertrain division, as the company accelerates its transition from an internal combustion engine parts supplier to an electric vehicle one.
The Wall Street Journal (subscription required) reports that electrification of fleets globally is being driven increasingly not only by governments and manufacturers, but buyers as well. Global auto sales have also dropped simultaneously in the three largest markets – China, the United States and Europe. The story cites analysts predicting a fall in global auto sales of 4% to 6% this year on top of last year’s 0.5% decline in new vehicle sales. This was the first year that new vehicle sales declined since 2009.
Every major vehicle manufacturer has either launched or will be launching electric vehicles as a cornerstone of their fleets to lower overall emissions and meet consumer demand. US electric truck maker Rivian was the beneficiary of a 100,000 delivery vehicle order from none other than Amazon.
Greg Scheevel, TOC’s Director of Global Development, has been speaking with companies over the past several weeks in the wake of the GM strike and the impact it has had on the industry at large. For those in the business, this transition away from vehicles that are more software than moving parts is being felt up and down the automotive supply chain and companies are working quickly and diligently to meet both the changing demand curve and new vehicle engineering and parts demands.
TOC Logistics International would like to provide the following update regarding the deadline imposed by the International Maritime Organization on the use of low-sulfur fuel.
By now, everyone has heard of the impending deadline of January 1, 2020 imposed by the International Maritime Organization on the use of low-sulfur fuel. Throughout the year numerous stories have been reported and published on oil companies and refiners beginning production, carriers testing it on their ships and more carriers retrofitting vessels with scrubbers to clean the exhaust on the back end rather than using reduced sulfur fuel on the front end.
Everyone – shippers, carriers and economists alike – have been working to quantify and determine the additional costs that would, inevitably, translate into higher fuel surcharges for cargo. In laymen’s terms, think of this as the difference between regular, mid-grade or premium gasoline – the more the product is refined, the more expensive it gets. Low sulfur fuel is no difference. The amount of sulfur in the new bunker is reduced from 3.5% to .5%.
Because of the January 1st requirement, ships will likely be taking on their first loads of the new, lower-sulfur fuel in December, causing many carriers to evaluate the timing of changes to their surcharges.
Many carriers targeted this month – October 1st – for the initial imposition of these new low-sulfur surcharges, or LSS’s. Two of the world’s largest carriers, Maersk and CMA-CGM, have announced their plans which vary based on the duration of the contract under which cargo is moving.
What the trade was spared until the news reached the point of, “This is coming and will have an impact – stay tuned for greater details,” was what carriers went through to get ready. They needed to communicate and plan with global refineries to ensure a consistent formulation around the world. They needed to test that fuel at sea with existing power plants. For those who elected to go the route of scrubbing exhaust, that technology needed to be tested, procured and installed.
In short, the determinations being made on price, indices and matrices that will set dollar levels in this new environment are now coming into focus as the getting-to-market has now been sorted out.