The No-Nonsense Newsletter - Mixed Signals Continue from Shippers and Customers

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The No-Nonsense Newsletter Blog

Welcome to the latest issue of our weekly No-Nonsense newsletter, an easy way to stay updated about supply chain best practices and news to #GetShipDone.

Serious supply chain pressures have clearly eased for most shippers and their customers. However, shipping and air cargo firms continue to give mixed messages concerning rates, capacity, utilization and demand with a “tidal wave” of new container ships on the way.

Semiconductor and chip shortages continue to be a problem impacting many sectors and especially automakers. Companies dependent on chips are taking a variety of steps to mitigate chip shortages - from redesigning products to rethinking procurement and supply chain strategies.

The bright spot? Supply chain is now a regular topic of discussion at the C-suite and boardroom level at most companies.

No-Nonsense Supply Chain News

Kuehne+Nagel CEO says the world remains a volatile place (Bloomberg)

In a recent Bloomberg interview, Stefan Paul, who became Kuehne+Nagel’s CEO on August 1st, was asked if the boom is over for cargo carriers: “In air freight this is not the case at all. And neither in sea freight. Overall I think the rate level will be not as high of course than it was 2021 and 2022; but the average will be greater than before the pandemic.” He also commented: “As an asset-light logistics player, we like complexity.”

Shipping giant Maersk: ‘Significantly less demand’ but ‘no hard landing’ (American Shipper

Maersk CEO Soren Skou does not see a hard landing for his company and has kept earnings guidance unchanged. However, he has implied that carriers with less contract coverage and land-based logistics business have something to worry about. Skou also stated that “demand for end-to-end logistics and integrated logistics has clearly gone up” and that most customers are also “thinking in terms of omnichannel [distribution], fulfilling goods to both physical stories and to consumers directly.”

Air cargo peak season evaporates on low demand, higher capacity (American Shipper)

Despite economic weakness, air cargo rates are still more than twice what they were in 2019. However, several factors are weighing on air cargo transport. For example: More shipments are migrating back to ocean shipping, where spot rates have fallen much further than in air and ocean freight conditions have improved. Air carriers have allocated more space to the spot market compared to the long-term market. Several airlines this year also chose not to offer contracts guaranteeing space allocations to customers because they hoped to take advantage of a strong peak season and rising rates. This tactic has backfired.

Tidal wave of new container ships: 2023-24 deliveries to break record (American Shipper)

After the most profitable two years in shipping history in 2021-22, owners ordered more new container ships than ever before - even as freight rates tumble. However, it was noted that maritime research firm Drewry predicted carriers: “...will look to offload as many older, more polluting ships from the market as quickly as they can. Our base forecast includes provision for a near-record level of demolitions in 2023.”

Supply chain pressures keep inventories high in Q2 (CFO Magazine)

The Hackett Group’s Working Capital Survey, updated for the second quarter of 2022, reveals inconsistent lead times and shipping delays are still forcing companies to maintain inventory.buffers. Shawn Townsend, a director at The Hackett Group, commented: “CFOs need to understand the supply chains and inventory processes from end to end. What is your lead time? What is your customer service level? Where are you picking up order quantities? How is your inventory stocking strategy impacting inventory levels and demand?”

Trade takes people: Navigating new economic normal and year of labor (American Shipper)

A CNBC editor writes: “The imbalance of the supply chain now is based on human error — the over-ordering of products and selling those that people didn’t want — and port congestion — caused by fears of an International Longshore and Warehouse Union (ILWU) strike, which has diverted trade and created bottlenecks. We know trade is slowing down, but the congestion skews the reality of the pullback in orders.”

[ Automotive ]

Refining the supply chain: CFO Jeff Shepherd (CFO Magazine)

After various acquisitions, Advance Auto Parts (one of the largest aftermarket automotive parts providers in North America) was left with “four separate banners, each with its own discrete supply chain” This included four disparate ERP systems. The CFO is streamlining the four discrete supply chains into a single one to assist the company’s margin expansion priorities. They now have one ERP system across all banners and can do cross-banner replenishment with common warehouse and labor management systems now being implemented.

Honda to cut car output at two Japanese plants in October (Autoblog)

Two lines at Honda's Suzuka plant in western Japan will cut production by about 20% in October, while its assembly plant in Saitama prefecture, north of Tokyo, will lower production plans by about 40% for the month. This comes after similar announced production plan reductions of up to 40% in Japan for September. Honda has blamed delays in receiving parts and logistics on COVID-19 outbreaks and semiconductor shortages. Toyota has also announced it will adjust Japanese production by 50,000 units for October.

[ Semiconductor ]

Analysis: How the semiconductor shortage could last into 2024 (FM)

Experts differ on when the microchip shortage will end as companies work to redesign products and rethink procurement strategies.The shortage is a result of the overall digital acceleration that was on the way before COVID hit and may persist late into 2023 or 2024 - having a direct effect on nearly every business. Solutions have included redesigning products to use fewer chips, recycling older chips and having more robust supply chains. That includes signing multi-year procurement deals, prepaying for supply, and creating geographic diversity in suppliers.

Reversal of fortune in the electronics supply chain (E&T)

Malcolm Penn, president of analyst firm Future Horizons, says: “The 17th market downturn has now well and truly started… Human nature says it [how customers buy from suppliers] will revert to normal once this [the shortages] all passes. Building deep relationships in that way can’t practically be done because of the nature of the industry and the way in which so much is outsourced.” Koen Jacobs, VP of industry solutions at o9 Solutions, was also quoted as saying: “In many cases, the issues are multiple tiers up in the supply chain. Therefore, companies should map out the multi-tier supplier network to understand the constraints.”

[ Oil, Gas & Energy ]

LNG shipping rates ‘shooting for the stars’ at $500,000 per day (American Shipper)

Pareto analyst Eirik Haavaldsen has predicted that liquefied natural gas shipping rates could top $1 million per day by Q4. When container shipping spot freight rates topped $30,000 per forty-foot equivalent unit last year (30 times as high as rates during some years pre-COVID), it led to accusations of “price gouging.” In bulk commodity shipping (which has far more experience with rate spikes caused by supply-demand imbalances) there is no pushback. When the freight rate reaches the point where it erases the profit margin on the commodity cargo, the shipper simply refuses to book the trip.

No-Nonsense Chart of the Week

Shipping giants are still rolling in cash - but time is running out

chart of the week 27 Oct

*Source: Alphaliner / FreightWaves

No-Nonsense Quote of the Week

The good thing is that supply chain management has reached the C suite level more than ever before. The topic is discussed on board levels on a regular basis. A couple of years ago, supply chain was not on their radar. Do we have the right partner? Do we have the right solutions? Do we mitigate? This has changed quite a bit the last two or three years.

Stefan Paul (CEO of Kuehne+Nagel)

No-Nonsense Best Practices & Insights

If you're to take advantage of the situation, follow the best practices

Until next time!

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