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China power shortage affects manufacturing 2021

China Power Shortage Affect Manufacturing and Supply Chain in Q4 2021

China power shortage has made manufacturing activity unexpectedly slump in September. At least 20 provinces, including many industrial heartlands, have suffered power shortages in recent weeks, with some unplanned and indiscriminate cuts.

What has caused a power shortage in China?

The fundamental reasons for China’s electricity crisis are the high price of coal and Beijing’s green ambition by strictly limiting energy use. As the economy recovered from the pandemic, strong demand from producers and industry has driven coal prices to record highs, resulting in widespread power outages. Meanwhile, Beijing has attempted to tighten emissions standards to meet its climate target.

High coal price and energy consumption limit are the causes to China power shortage.
High coal price and energy consumption limit are the causes to China power shortage.

How does China power shortage impact manufacturing?

China power shortage is putting a strong impact on most economic sectors, including two major sectors, construction and manufacturing. These industries accounted for almost 70% of China’s electricity consumption last year and are crucial to the economy’s recovery in 2021, according to China’s National Bureau of Statistics.

In September, the Purchasing Managers’ Index (PMI), an indicator of economic health for the manufacturing sector, was 49.6, falling from 50.1 in August. The new orders sub-index fell for two consecutive months, “reflecting a slowdown in manufacturing activity and market demand”.

 All factories across China have to restrict their production activity, even some have to be closed completely.
All factories across China have to restrict their production activity, even some have to be closed completely.

According to Bloomberg, nearly half of China’s localities have exceeded the energy consumption targets set by the government and are under pressure to restrict electricity use. The places most affected are Jiangsu, Zhejiang and Guangdong – the industrial trio of provinces that make up for nearly a third of China’s economy. 

China power shortage has impacted production of everything from aluminum and steel to toys and clothing. All factories are being ordered to restrict activity; in some cases, they have to be closed completely. 

Clark Feng, whose Vita Leisure Co. buys tents and furniture from Chinese manufacturers to sell overseas, said electricity shortage in the eastern province of Zhejiang have dealt another issue to businesses. He said fabric makers in the province that are facing production halts have began to increase prices and postpone taking new overseas orders.

Manufacturers in China have started to increase prices and postpone taking new overseas orders
Manufacturers in China have started to increase prices and postpone taking new overseas orders

China power shortage is the next shock to supply chain

China’s power shortage is a big threat that slows down economic growth and disrupts the global supply chain right before the year-end shopping season of 2021. “The shock to the power supply in the world’s second largest economy, the largest producer, will spread and affect the global market,” analysts at Nomura forecast.

More specifically, the decline in production output and the risk of slow deliveries across China will be likely to worsen already tight global supply chains. Power cuts could make Chinese manufacturers adjust their work schedules and challenge delivery deadlines. Besides that, the prices of raw materials and essential ingredients are pushed up further.

 China power outages put foreign businesses on the fence about investing in either China or other Southeast-Asia countries.
China power outages put foreign businesses on the fence about investing in either China or other Southeast-Asia countries.

“Supply disruptions are quite common and will continue to happen in the coming months,” said Cui Li, head of macro research at CCB International Securities.

CNBC also reports that China power shortage has limited or halted production, forcing foreign businesses on the fence about investing in factories elsewhere, said Johan Annell, partner at Asia Perspective, a consulting firm that works primarily with Northern European companies. While China is still a “very strong destination” for manufacturing, he said the businesses are now looking to invest instead in Southeast Asia, particularly Vietnam.

Source: Reuter, CNBC, Bloomberg

FCL LCL Ocean freight Pros and Cons

FCL vs LCL Ocean Freight Shipping: Differences, Pros & Cons

You might hear about FCL vs LCL shipping if you have experience in importing and exporting your goods. This article will shed light on the differences between FCL vs LCL logistics, and also clarify their benefits and drawbacks. Thus, you can arrive at a proper decision on a more beneficial shipping option for your business.

1. What is FCL vs LCL?

FCL and LCL shipping are two common terms used in the international logistics industry for export and import freight cargo by sea.

  • FCL = Full Container Load
  • LCL = Less than Container Load
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FCL logistics is a method of transporting goods in which your shipment occupies a full container (of any size). LCL logistics refers to many shipments sharing container space. It means if your cargo doesn’t require a full container capacity, it needs to be combined with other importers’ LCL shipments and then transported within a container. That’s why LCL shipping is also known as ‘Consolidation’ or ‘Groupage’.

2. Compare FCL vs LCL

Transit time

It is obvious that LCL shipping takes more time than FCL shipping due to consolidation and deconsolidation. To be specific, the service companies have to group many shipments, classify and pack them into containers, then arrange transportation for the goods from the port of loading (POL) to the port of destination.

lcl takes more time and complex process than fcl
LCL shipping has a more complex process and takes more time than FCL shipping

During the customs clearance process, if there is an issue with a certain shipment, it may affect all importers who have cargo in that container, and cause delayed deliveries. Meanwhile, FCL shipments don’t need to be loaded and unloaded together with other shipments, so its transit time is usually a few days faster.

Shipping costs

Normally, LCL costs more than FCL per unit of freight. LCL cost is calculated primarily by volume, usually in cubic meters (CBM), which means the more space you need, the more you pay. Freight agents and shipping lines prefer a full container load (FCL) — it’s much easier for them than calculating how individual shipments can fit in a full container.

lcl shipping prices lcl cost more than fcl
FCL vs LCL shipping prices: LCL costs more than FCL per unit of freight.

Per unit, the costs of LCL shipments are costly as they include additional logistics and management charges regarding shipping multiple goods in one container. According to Freightos, LCL price quotes from freight forwarders entail:

  • Pickup: the cost of picking up your goods from the warehouse or factory.
  • Origin: your LCL shipments need to be loaded onto containers along with other shipments, or consolidated, at a Container Freight Station (CFS), also referred to as container stuffing.
  • Main leg: the cost of the sea journey.
  • Destination: at the destination country, LCL shipments need to stop at a CFS for deconsolidation, also known as unstuffing.
  • Delivery: the cost of trucking your goods to the destination warehouse.

Despite being the main leg of the shipments, this cost may not be the most expensive. Instead, charges at the CFS can be at a premium as they involve significant machine and manpower.

charges at cfs are expensive
The main leg cost of the shipments may not be expensive, but the charges at CFS are.

Risk for goods

Because there are many types of goods packed in one single container, LCL shipments face higher risk of damage and loss than FCL shipments.

When it comes to LCL shipping, you normally don’t have the right to choose where to place your own goods in a container. This can cause harm (contamination, spillage, damage) to your goods in transit when it is packed together with other special goods such as liquids, heavy goods or goods with a peculiar smell.

3. Summary: FCL vs LCL Pros & Cons

From the above analysis, FCL logistics seem to be more economical for importers, particularly in the context of soaring ocean freight rates in 2021, but it cannot be ideal for all goods. Sometimes, LCL shipping would be a better choice if your shipments are low-volume (between 2 and 13m3). Below are the main benefits and drawbacks of FCL vs LCL logistics for your reference.

FCL LogisticsLCL Logistics
Benefits– Faster transit time
– Less potential for damage
– Lower price per unit
– Far cheaper costs than air freight
– Better for shipping small loads
– Less inventory costs & management
– Lower sourcing risk
– Easier to find space during peak season
Drawbacks– Higher inventory costs
– Expensive for small loads
– Unloading can be a hassle
– Few delivery options
– Longer transit time
– Higher cost per unit
– Delays can arise
– Higher chance of damage
FCL vs LCL Pros & Cons

In conclusion, the choice to use between ocean FCL vs LCL shipping methods depends much on the conditions and purposes of the consignees (importers) — including the supply of goods, the size of the capital and the quantity demanded of the consignee or the characteristics of the imported goods such as its suitability for long-term inventory in large quantities.

continuing skyrocket ocean freight rates 2021

Ocean Freight Rates Continue to Skyrocket in 2021

The rising transportation costs have become a burning issue, hitting many sectors and businesses across the globe. As predicted, we will see ocean freight costs skyrocketing further in 2021. So what factors will influence this rise? How are we doing to cope with that? In this article, we will give you a closer look at the soaring freight rates globally.

1. Ocean freight rates continue to set new highs in 2021

Ocean freight rates have soared greatly for all trade routes since September 2020 due to the ongoing impacts of the COVID-19 pandemic.

The freight rates in August reached $10,174/FEU, an increase of 466% on the previous year. Also, the charter prices for container vessels have risen fourfold compared to last August, according to the Freightos Baltic Index (FBX).

ocean freight rates have tripled 1
The ocean freight rates in all trade routes have tripled. (Credit: FBX)

From the data of FBX Freightos, as of July 2021, transpacific rates continued to set new record highs on most trade lanes.

  • Asia-US West Coast rates shot up to $18,346/FEU, more than 6x its level a year ago.
  • Asia-US East Coast costs climbed to $19,620/FEU, 487% higher than last July.
  • Asia-North Europe prices rocketed to $13,706/FEU, which also rose by more than 250% in the comparable period last year.

What’s more, transatlantic rates were increasing in July 2021, particularly on the lanes from Europe to America East Coast.

  • Europe to North America East Coast prices were up by 6% to $6,013/FEU, triple their level a year ago.
  • Europe to South America East Coast rates increased 56% to $3,311/FEU, nearly four times their level last year.
ocean freight rate continues increase until q4 2021
Ocean freight rate continues to increase dramatically until Q4 2021. (Credit: FBX)

There is, however, little sign of a decrease in ocean shipping costs in the short term. Ocean freight rate continues to rise dramatically until Q4 2021 due to two peak seasons. You know international freight is not always smooth, and there are the two busiest times in the shipping year (also known as peak seasons).

The first lasts from mid-August through mid-October, before the peak holiday retail season. The second one is spurred by Lunar New Year in some Asian countries, often in January or February. The global demand is strong during these times, while container capacity can become scarce. That’s why ocean shipping costs are about to set new highs.

peak season lasts from mid-august to mid-october
The peak season typically lasts from mid-August to mid-October. (Credit: JOC)

Let alone there are currently local lockdowns in Asian regions and countries due to the COVID-19 pandemic, which will probably cause disruptive effects on maritime transport and drive the rates further in the second half of 2021.

2. Why are ocean freight rates soaring dramatically?

With the soaring freight rates, 2021 is truly a challenging year for both exporters and importers because around 80% of all global goods are transported by sea. This great increase has been seen after the outbreak and spread of the COVID-19 pandemic. Then is the peak holiday shopping season.

Global imbalances post-pandemic

The trade imbalances are the main cause that pushes ocean freight rates up significantly. When the COVID-19 started to rage, production came to a halt. Countries across the globe lockdown and open up at different times. It caused an imbalance between supply and demand for goods. Moreover, shipping companies had to reduce the capacity on major routes. Port delays and closures occurred. It then led to a shortage of return cargo from destination ports and empty containers for export.

port delays and closures cause shortage empty containers
Port delays and closures have caused a shortage of empty containers. (Credit: US News)

During the recovery time, the increase in consumer demand is stronger than expected, particularly in the sectors closely associated with international trade. Competition for ocean freight capacity has also become intense. Which has pushed the ocean freight much higher than the previous year.

The peak holiday shopping season

Currently, to keep up with the burgeoning consumer demand, retailers are hustling to restock their inventory, particularly for the peak holiday shopping season. But with delays and closures in ocean freight, many have to place peak season orders early. It’s all about avoiding congestion and being ‘stuck’ without back-to-school and other seasonal inventories.

As a result of the increased demand, freight costs have climbed on most lanes, with some carriers adding early peak surcharges to the already sky-high shipping rates.

importers place peak season orders avoid congestion
Importers are placing peak season orders for restock early to avoid congestion. (Credit: KPMG)

3. Solutions to soaring ocean freight rates

There is currently no container production in Vietnam. Therefore, in response to this shortage of containers at ports, steel giant Hoa Phat Group plans to set up its first container factory in the southern region. According to VN Express, it is expected to manufacture 500,000 TEU containers annually. This steelmaker will focus on popular container products, with a length of 20-40 feet. Those containers produced by Hoa Phat will be launched on the market at the beginning of Q2 2022.

hoa phat plans manufacture 500000 teu containers annually
Hoa Phat plans to manufacture 500,000 TEU containers annually. (Credit: Hanoitimes)

Besides that, the UNCTAD has come up with several suggestions for policymakers that can help to reduce the repeat occurrence in the future. Specifically, they are:

  1. Advancing trade facilitation reforms;
  2. Improving maritime trade tracking and forecasting;
  3. Strengthening national competition authorities.

First, governments need to make trade easier and less costly by implementing reforms. It is time to modernize trade procedures and minimize physical contact between workers in the shipping industry. Then supply chains would become more resilient and protect employees better during the pandemic.

governments should modernize trade procedures and reduce physical contact
Governments should modernize trade procedures and reduce physical contact. (Credit: UNCTAD)

Second, governments must foster transparency and collaboration throughout the maritime supply chain. Which helps to improve how port calls and liner schedules are monitored.

Last but not least, governments must ensure competition authorities have the resources and expertise to investigate abusive practices in the shipping industry.

Ocean freight rates are driven up by the ongoing impacts of COVID-19 and the peak season in 2021. To see how the costs are going upward or downward, FBX Freightos is a reliable source for you to get updated with exact information about global freight costs and logistics news.

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