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Two of The Major Trade Lanes For U.S. Shippers Are Under Strain This Peak Season

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EDITOR'S NOTE:

While the effects of pandemic supply chain woes are beginning to fade, the world is about to face another hiccup in the flow of transport from Europe and China. German and UK seaports are both facing labor disputes leading to a strike in the former and a planned strike in the latter. Meanwhile, factories in Shanghai and Sichuan are shutting down due to power rationing as China faces an extreme heatwave. Although it’s not yet certain which sectors of the economy might be affected by the supply chain slowdown or how trade this season might get hampered, we do know that the Sichuan factories are the world’s largest lithium producers; a critical component of electric batteries, cell phones, laptops, and electric vehicles. How this might affect producer prices and for how long is anyone’s guess.

KEY POINTS
  • A pileup of German import containers are expected to extend into the first quarter of 2023.
  • Meanwhile, Shanghai factories have suspended production due to power rationing.
  • Sichuan, home to some large lithium producers, is also shuttered due to government power rationing

Two of the major trade lanes for U.S. shippers are under strain this peak season. The heatwave in China has shut down key manufacturing and the growing backlog of European imports is expected to spill over into the first quarter of 2023.

Negotiations between the trade union verdi and the Central Association of German Seaport Operators (ZDS) remain inconclusive. This is the tenth round of negotiations. The last date set by the courts is August 22nd. If both parties fail to reach a compromise in this tenth round of negotiations, the port workers could strike again.

“If no compromise will be made, we can expect further strikes which will, even more, worsen the already stressed situation in the Northern Ports,” explained Andreas Braun, Europe, Middle East, and Africa ocean product director of Crane Worldwide Logistics. “Congestion, vessel schedule, and intermodal operations are already a mess and further strikes will just contribute to it. We will not see a change back to a normal situation before Q1 2023.”

The CNBC Europe Supply Chain Heat map shows the impact of the stalled labor negotiations.

The labor strife is also being felt in the U.K. Beginning on August 21st 1,900 dock workers at the Port of Felixstowe, the U.K.’s largest container port, are planning on strike after talks failed on their ongoing pay dispute.  The strike would last until August to Monday 29th August. Approximately 40 percent of all containers that arrive and depart from the United Kingdom are processed at Felixstowe.

The Port of Felixstowe handles more than 4 million TEUs per year. A Felixstowe strike action would impact many business entities across the United Kingdom.  The port is owned by Hong Kong-based CK Hutchison Holdings.

Reviewing the Bills of Lading using ImportGenius from July 1- August 12th, CNBC identified numerous containers filled with Guinness Beer and Whiskey for Diago, breakfast cereals for Kellogg, medical devices, pork shoulders for Pilgrims Pride, flooring, tires for Pirelli Tire, and Bens Rice for Mars Food.

“If the strike does proceed, there will be significant disruption to supply chains throughout the United Kingdom,” explained Braun. “Vessels will see delayed berthing windows, congestion at the terminals but also in the hinterland depots will increase, subsequently, shippers and consignees will face massive delays in getting their transportation executed. The one-week strike will take at least 2-3 months to recover.”

China supply chain feeling the heat

The high temperatures in China are forcing some manufacturers to shut down production for six days because of government planned power cuts.

In a joint announcement released by Sichuan Provincial Economic and Information Department and State Grid’s Sichuan Electric Power Company, industrial power cuts have been expanded to 19 cities and jurisdictions in the province, from Monday to Saturday.

Power limit notices for manufacturers in Changzhou, Nanjing, Nantong, and other regions in Jiangsu province have Worldwide Logistics alerting import clients in an email that, “The sudden orderly power consumption notice has made the supply chain more challenging under (the) current situation of (the) COVID -19 epidemic.”

In Worldwide Logistics email it also noted Shanghai has reported some factories suspending production due to power rationing.

SEKO Logistics Jasmine Wall told CNBC that, “Heavy-industry enterprises, such as those that produce aluminum and copper, are the most impacted. Some office buildings and shopping malls in Shanghai were also affected.  Since August 6, Zhejiang Province has started C-level 12.5 million kilowatts of power limitation measures. Some factories in Ningbo, Wenzhou, Yiwu, and Quzhou are required to work for only 3 days in a week. Factories in Anhui, Changzhou, Nanjing, and Nantong of Jiangsu Province are also influenced.”

Hon Hai Technology Group told the Global Times on Monday the power restrictions at a Foxconn plant in Chengdu had limited impact on production. The Chengdu factory is one of the locations where Apple watches and computers are manufactured. CATL (the lithium battery supplier for Tesla) is another manufacturer impacted. Sichuan is home to some large lithium producers. Intel also has manufacturing in Sichuan.

Solar cell companies are also reported to be impacted by this energy curb.

Meanwhile, trucking throughout the country is slower than average because of the truck driver Covid testing requirements. Trucking delays as a result of the different testing measures in the various cities have increased the movement of raw materials and Chinese exports from days to weeks.

These delays do not help the supply chain with the seven day holiday of Golden Week in October.

Also on the horizon are the additional expected cancelled sailings around the holiday which limits vessel capacity.

Originally published on CNBC.

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