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Supply Chain Industry Insights

April 2023

Welcome to the PGL Industry Insights report for April, 2023.

Is the supply chain back to normal? In this edition, we explore the factors that inform the answer to this question.

The Global Supply Chain Pressure Index (GSCPI), published by the New York Federal Reserve, suggests that supply chain conditions are returning to normal. However, other factors such as reduced consumer spending and full warehouses continue to affect the flow of goods. Eased port congestion is certainly a good thing, but the reasons why are cause for concern.

One key factor is U.S. West Coast labor agreements which have been in negotiations since the previous contract expired in July of 2022. The International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) have reached a tentative agreement on certain key issues for a new labor contract, but details have not been disclosed. This is good news, but until a new contract is in place, anxiety remains high.

In addition, the recent agreement by the OPEC+ group to cut oil output by 1 million barrels per day starting in May has led to an increase in diesel fuel costs. This comes after a period of declining prices since October 2022, posing further challenges for transportation and logistics.

The ocean market has rebounded from the drop in volumes during the Lunar New Year, but the recovery has not been robust. While carriers have implemented rate increases in April, commercial and labor headwinds are affecting the medium-term outlook. Blank sailings, which have cancelled out up to 25% of weekly capacity deployed on trade lanes, have helped maintain high load factors to the West Coast. However, weaker vessel utilizations are observed in the East Coast and Pacific Northwest services.

While some carriers are planning to raise spot rates again on May 1st, it is not yet a trade-wide initiative. East Coast rates may also slip in the coming weeks, as load factors remain underwhelming, even after recent rate increases brought them closer to long-term contract rate levels.

With the latest in supply chain news, we’re seeing something approaching normalcy when it comes to port activity, but the future is not yet written and as we see, many factors influence the grand scheme of things. In the meantime, PGL will continue doing what we do best, delivering peace of mind, 24/7/365.

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Supply Chain Industry Insights

March 2023

Welcome to the PGL Industry Insights report for March, 2023.

We in the global logistics industry continue to live in interesting times as the near-future outlook for international shipping provides both hopeful and pessimistic potential outcomes.

One major concern for tans-Pacific ocean carriers exists in the acceleration of blank sailings to prevent container spot rates from falling further, while the industry braces itself for an unprecendented influx of new container ships that will be entering service with a surge in deliveries in the second quarter of this year and continuing throughout 2024 and 2025. This fleet expansion threatens to increase capacity concerns moving forward.

Due to increased capacity and a favorable outlook in future activity later in the year, there are concerns that fixed rate trans-Pacific contracts may not hold up to in-the-moment pricing. This could leave lower-bidding, pre-existing contracted cargo left behind on the docks at the first sign of tightening capacity. We’ll continue to monitor the situation.

It’s not all doom and gloom, however, as several reports are pointing toward recovery.

February data points to overall market improvement in terms of seasonality and a better-than-expected rebound after China abandoned it’s Zero-Covid policy leading to stabilizing production conditions.

The world’s largest ocean freight line, Mediterranean Shipping Company is seeing positive signals for trade demand as the U.S. and Europe make positive strides in curbing inflation and China is poised for recovery.

Despite decreases in both imports and exports, Vietnam still enjoyed a trade surplus of $3.6 billion in the first month of 2023 and ties between American companies and manufacturers in India deepen.

No one knows for sure how these factors will stack up in the long run, but we will have our finger on the pulse of the industry, and we’ll keep you posted. In the meantime, PGL will continue doing what we do best, delivering peace of mind, 24/7/365.

Follow us on social media at @ShipPGL

Supply Chain Industry Insights

February 2023

Welcome to the PGL Industry Insights report for February, 2023.

Continuing effects of the global pandemic present themselves as businesses came to rely on airfreight during the pandemic as a way to circumvent lengthy delays caused by port congestion. Now, with ocean congestion clearing, demand for pricier air cargo services has declined. Simultaneously, new vessels are being added to ocean fleets, further complicating things in a time where trade growth is softening.

In China, while trade is opening up following the easing of the “Zero Covid” policy, China is now facing a sluggish market with weak demand and heightened competition from overseas as companies around the globe have explored alternatives such as Vietnam, Mexico and others.

China’s exports fell by 9.9 percent in December compared to the previous December, with some analysts warning that shipments could continue to contract until the middle of the year.

Cathay Pacific Cargo and the Cathay Pacific Cargo Terminal have become the first carrier and first cargo terminal operator to have cargo shipments accepted in Dongguan and transported to Hong Kong International Airport by ship for outbound airfreight. This enables full upstream sea-air intermodal export cargo handling between the Greater Bay Area and Hong Kong.

Turkey’s Iskenderun port was closed for four days due to fire following the devastating string of earthquakes.
In the U.S., talks for a new labor pact between West Coast dockworkers and their employers have stretched into a 10th month. With no agreement in sight & volumes dropping, patience is wearing thin.

The International Air Transport Association said last week that air shipment traffic slid 8% last year from record highs in 2021 and was 1.6% less than in 2019, a relatively weak year for the cargo sector. It predicted air cargo volumes will fall further this year to 5.6% below 2019 levels. Global cargo capacity increased 11% last month from a year ago and is now only 2% below 2019 levels.

We in the shipping and logistics industry continue to live in interesting times, and we’ll be here to bring you peace of mind, 24/7/365.

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Industry Insights Special Report: Moving Past 2022 and Looking Ahead to 2023

January 2023

By Tim Gundlach

As a leading logistics service provider, PGL does more than move cargo for our client/partners. Much of our “value add” is in keeping them advised of current conditions and offering our best advice on what we see coming that can have an impact on their business. As such, thank you for watching and allowing us to share some thoughts on what lies ahead.
First let’s discuss 2022…

It was another highly challenging year for all of us involved in the global supply chain. The story of 2022 cannot be told without discussing “Black Swan Events”. “Black Swan Events” are defined as an unpredictable event that is beyond what is normally expected of a situation but that has potentially severe consequences. The truth is that “Black Swan Events” are nothing new to the logistics business. However, the frequency and severity of facing so many events within such a short period is unprecedented and a “Black Swan event” in itself. In 2022, these events included things such as Chinese covid lockdowns of entire cities, massive port and rail congestion, actual or threatened labor strikes, geopolitical events such as the war in Ukraine, blockage of the Suez Canal, etc. All of these events would have profound consequences on their own, but when combined caused additional layers of complexity resulting in a “bull whip” effect going from one extreme to another in a short period of time.
As we enter 2023, let’s examine the current status of the two of the major modes of international transportation:

Ocean Transportation:
With the sudden rise in capacity and drop in demand, rates have plummeted reaching near pre-pandemic levels. With the abundance capacity, Steamship Lines are increasing blank sailings to help mitigate further collapse in rates. Labor issues have been pushed down the line for now, and rail congestion issues are clearing up.

Air Freight:
Air Freight volumes ended 2022 with nine consecutive months of decline. Some of the factors leading to this decline are related to the return of supply on the ocean transportation mode as a more cost-effective option for non-urgent or low valued merchandise. The drastic fall in ocean rates is pulling many shipments back to the ocean freight mode. Additionally, the return of increasing capacity via belly space on passenger aircraft now that travel recovery is gaining momentum. Although considered weak by the pandemic era, performance in many regions remain 85% above the pre-covid levels.
Looking to the future, the following are thoughts on what we might expect on the industry and the major events that impacted us in 2022.

Ocean Freight:
Demand should remain well below 2022 level at least until major retailers have cleared out the stockpile of inventory carried into 2023. Growth in capacity can be predicted accurately with an increase in fleet growth by ship builders to the tune of 7% in each of 2023 and 2024; however, it could in fact be as high as 10% if projected vol of fleet scrapping doesn’t take place as expected. On-time performance, which has shown improvement in late 2022 due to a clearing of the port and rail congestion, will continue improvement only hampered by the increase in blank sailings again adding some level of schedule unpredictability although at a much lower level than 2022. Pricing should remain near current levels with some industry experts even predicting a rate war between carriers sometime in 2023.

Air Freight:
For air cargo, the first part 2023 continues with decreased demand due to the economy and increasing supply with the resurgence of passenger travel. Normally, one would expect rates to decline under these conditions however, fuel and inflation are expected to push back resulting in a slow stabilization and the return of near pre-pandemic pricing.

Rail:
There are many challenges facing the rail industry in 2023. One of the biggest is how to improve service and address labor issues. Both shippers and unions are pressing Congress to pass legislation that would give the Surface Transportation board more regulatory authority.

Economy:
Although predictions by financial institutions vary greatly, most have agreed that some degree of recession is on the horizon. Global growth in 2023 is expected to be below 2% which would result in one of the weakest years in nearly four decades. Experts disagree on the severity of the recession and the timeframe for recovery; however, many US companies are now announcing mass lay-offs as a precautionary cost saving measure driven by the weakening economic forecasts.

Labor Strikes:
There were 374 worker strikes started in 2022, representing a 39% increase over 2021. To name only a few there were actual or potential strikes by US Longshoreman, Portuguese rail workers, Airport Workers in the UK, and lockout of tugboat crews in Australia. Fueled by anger over working conditions and high inflation, the low employment rate and worker shortages gave workers more leverage, but this isn’t the whole story. One of the biggest factors was led by wins of other labor unions. The belief being that conditions were right and if your labor union doesn’t secure its biggest raises now, they are leaving money on the table.

Global Conflict:
The Russia-Ukraine conflict has affected the global logistics market on every level. The war has impeded the flow of goods, fueled cost increases and product shortages, and created catastrophic food shortages around the globe. Russia has been destroying Ukraine’s agricultural infrastructure, thereby disrupting the entire supply chain. The Black Sea and Azov Sea had been blocked by Russia, and the Ukrainian grain shipments were hijacked in the early months of the attack. In July, Russia and Ukraine signed a United Nations (UN) deal to unblock Ukrainian grain exports from three Black Sea ports to ease shortages. Despite the deal, Russia attacked Odesa’s seaport with cruise missiles hours after signing the deal. The uncertainty has had a snowball effect on supply chains across the globe.

China Covid Lockdown Policies:
China has reversed its pandemic policies. Even with a 30-40% decline in orders, logistics managers are still having to warn clients of delays in their factories being able to complete orders. This is because with the reversal of these policies, there is now a massive wave of infections impacting the labor force there. Some projections have this as high as 75% of labor being impacted and unable to work. As we enter Lunar New Year celebrations where migrant workers return to their hometowns, the further spread to more rural areas seems imminent. This is already impacting the major Chinese ports. Continued disruption after the Lunar New Year holidays are expected but should gradually improve as China’s population develops some immunity to the virus.

Global Protectionist Strategies:
More and more countries are implementing, or considering implementing, protectionist strategies to stem exports and protect domestic needs. The Chartered Institute of Procurement and Supply (CIPS) says the trend is one of global concern. It has identified food and oil as common targets for protectionist schemes, but that the range of product categories affected is expanding. These schemes are intended to offer protection during a crisis, but the continuing rise in their adoption can have a huge impact on the freight forwarding industry.

Nearshoring:
The wave of crises that arose over the last five years –from COVID and the China-US trade conflict, to high inflation and the Russian invasion of Ukraine– gave pause to developed economies in the West who have for long been overly dependent on Asia as a source of raw materials and cheap, manufacturing power. Consequently, the terms “nearshoring” and “friendshoring” gained prominence. A recent survey conducted by Capterra which surveyed 300 Small to Medium sized businesses show that 88% plan to or are currently switching at least some of their suppliers closer to the US in 2023. The big lesson for manufacturers in 2022 was: to not put all of their eggs in one basket. Many are considering a “China +1” policy meaning to continue sourcing from China but to also have other suppliers in other countries to diversify risks.
In conclusion: We view 2023 as not the end of the pandemic era, but perhaps the beginning of the end and a return to something resembling a new normal. However, we should remain diligent in remembering lessons learned with one key takeaway: “Always expect the unexpected”. PGL will do our part to keep you updated. As always, my colleagues and I remain available to discuss your particular needs or concerns at any time. We are here for you, please let us know how we can help.

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China’s “New Normal”: Managing Manufacturing & Supply Chain Expectations for 2023

January 2023

On the heels of China abandoning their “Zero Covid” policy, businesses and investors are expecting a surge of Covid cases that will likely cause manufacturing and supply chain disruptions in the first half of the year, if not longer. Savvy businesses will make moves to mitigate the impact of these issues, but it’s not all bad news, as we will explore here.

The two major factors that will have the greatest impact are labor shortages and disruption in logistics.

For the workforce, the challenges come in the form of a spike in Covid cases leading to lost hours availability and technology implementation which could be more difficult to institute with skilled workers to install and maintain this technology being in shorter supply.

When it comes to logistics, trans-pacific trade has evolved to address the impact of Covid in general. The global supply chain shifted from “just in time” logistics and instead implemented “just in case” logistics. This has lead to an industry-wide scramble to obtain warehousing stateside, thereby adding cost. In addition to this, we can expect higher freight pricing and extended timeframes.

To stay ahead of potential supply chain disruptions, companies should explore these three options:

1. Inventory materials and plan ahead. Whether that’s stockpiling raw materials or key components, having greater-than-usual stock on-hand can make the difference when it comes to keeping manufacturing online.
2. Identify alternative suppliers. Doing this work in advance and having “Plan B” conversations can help grease the skids if your primary supplier hits a roadblock.
3. Invest in technology. Simply put, automation, while not an antidote, can have a significant impact on mitigating the effects of the unknown.

Is China’s delayed pandemic too hot to handle for your business? If so, relocating some or all of your production to Vietnam can be a viable alternative. Due to their proximity to China, affordable workforce and well-developed trade agreements, many are finding this option attractive.

So what is the good news, you ask? There are reasons for optimism in the future, taking the form of relaxed travel and quarantine restrictions, allowing for the exploration of new partners that has been limited since the Pandemic began, and, perhaps best of all, lower cost of doing business with expected moves such as tax breaks, government incentives, and free trade agreements.

Though the situation isn’t without its challenges, if the last few years have taught us anything, it’s that business keeps moving, and PGL is here to keep your business moving. Visit ShipPGL.com, and let us help you find peace of mind with your logistics and supply chain concerns.

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Supply Chain Industry Insights

December 2022

By Tim Gundlach

In the United States the biggest concern for November was the possibility of a rail strike on the West Coast. As a result, most ocean cargo was diverted to the Gulf and East Coasts. This shift helped clear the port & rail congestion issues for the West Coast ports and inland rail yards, but shifted those issues to the Gulf and East Coasts. To add to challenges on the East Coast, on November 10th, a late-season tropical storm increased in strength and became Hurricane Nicole. The hurricane made landfall near Vero Beach, Florida then made its way up the East Coast impacting the ports of Miami, Tampa Bay, Jacksonville, Savannah, and Charleston before weakening into a tropical storm and heading back into the Atlantic Ocean.

Simultaneously, the world’s economy continued to slow with steamship lines & airlines pulling capacity from Transpacific routes. The reduction in demand outpaced the reduction in capacity which resulted in a continuous drop in rates for both air and ocean transportation. The increase in blank sailings then began to manifest itself in other ways, like ports becoming clogged with empty shipping containers. The Port of New York and New Jersey were forced to threaten ocean carriers with potential penalties to accelerate the removal of the empty containers which numbered as high as 200,000 in July of 2022.

On November 14th, the Australian supply chain became an area of focus as the nation’s largest tug-boat operator planned a crew lockout over a bitter 3 year pay dispute. This planned lockout would have prevented harbor-towage employees from working, and would result in disruption of operations at 17 ports across Australia. On November 17th, Australia’s Fair Work Commission announced that the lockout would not proceed as planned.

In northwest China, a deadly fire led to the death of 10 people due to “zero-Covid” lockdown measures. Protests spread to major metropolises across China. On Dec 3, it was announced that there would be an easing of testing and quarantine rules.

In Korea, On November 23rd trucker unions began a nationwide walkout causing estimated daily losses of about $224 million USD. This is the second major strike in less than 6 months by thousands of truckers demanding better pay & improved working conditions. On November 29th, the South Korean Govt took the unprecedented step of involving tough strike-busting laws after failing to reach a deal with unions. This marks the first time that a South Korean administration issued an order to force transport workers back to their jobs. As of December 5th, the strike organizers said that they would defy the order.

Back in the US, the rail strike was delayed by the Brotherhood of Maintenance Way, pushing it back to early December. Meanwhile, more than 400 business groups joined in pleading with Congressional leaders for quick action. Although President Biden and Democrats had been unwilling to block a strike in September, this time they felt that they had no choice but to act. As of December 5th, Congress is introducing legislation to keep workers on the job.

Here is what we can expect as we enter December:

1. We expect continued slow demand to continue with flat or declining rates until early January when there may be slightly higher demand due to the Lunar New Year which will take place on January 22, 2023.
2. Various labor issues are likely to continue in parts of the globe.
3. In China, although there is some easing of the zero-Covid policy, the next few weeks could be difficult for the Chinese economy. With the significant risk during the winter months just prior to the Lunar New Year Holiday, further restrictions would probably be imposed nationwide again impacting manufacturing and cargo transportation.
4. Transportation related issues due to the Ukraine conflict remain unchanged.

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PGL Crating Tips with Sean Connolly

November 2022

Here’s a PGL Crating Tip: be as specific as possible!

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Supply Chain Industry Insights

November 2022

By Tim Gundlach

The effects of the Covid-19 pandemic continue to be felt in the global supply chain. As a result of unpredictable sourcing and transit times, the reliability of traditional “Non-peak” and “Peak” seasons in logistics is no longer applied. The global supply chain shifted from “just in time” logistics and instead implemented “just in case” logistics. The end result is warehouses becoming choked with products in preparation of the upcoming holiday season.

Suddenly the world which could not move products fast enough just as quickly faces a dramatic drop off in global demand due to global inflation and recession concerns as well as concern of escalation of the conflict in Ukraine.

The most recent concern in the United States was the potential for longshoreman and rail strikes. This routed cargo away from the West Coast, sailing to alternative ports on the Gulf and East Coasts. This influx of containers created berthing delays and port congestion in those areas. As of this video, US rail and labor unions are threatening a strike as early as Nov 19th, 2022.

So what’s next?

The short answer is nobody knows for certain… and it depends on how issues shape up on topics like West Coast port labor fights, Gulf and East Coast port congestion and the geopolitical arena with regard to the world economy, energy shortages in Europe, and the state of conflict in Ukraine.

Overall, we are confident about a few things going into November: (1) Ocean and air rates should remain flat or decline in the next month (2) The US Govt cannot allow labor strikes to occur as it would be detrimental to the US Economy (3) Port congestion and chassis issues should improve in time. (fingers crossed)

As always, PGL remains available to discuss particular needs and-or concerns at any time, in our continuing effort to assist in mitigating risk to our partners.

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Tim Gundlach, PGL’s Trade Lane Manager for the Asia-Pacific region, breaks down the 2021 supply chain crisis and how it has affected the global supply chain and logistics industry.

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For more information, call 833-SHIP-PGL

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Nothing exemplifies the challenges involved in the shipping and logistics of large, sensitive equipment better than the crating and delivery of aircraft simulators. All flight simulator moves start with a detailed bid that covers the steps and expenses necessary to accomplish a move of this nature. The extensive experience that PGL has in moving this type of equipment leads to a comprehensive bid that includes the communication and visibility that is so crucial to successful delivery. Once on the job, PGL can supply the rigging equipment to the site along with the operators and credentials necessary to perform in a controlled environment for the crating and loading processes. Crating begins with engineer consultation to create a fully-customized solution that is unique for each aircraft. Special attention is paid to load limitations for both width and height, as well as accommodations for these sensitive parts. Everything is tightly packed to avoid shifting, and heat wrapped in a 32 mil poly to prevent moisture intrusion. Everything is tarped rail-to-rail with no exposed marine wrap to keep the avionics safe. Throughout the process, PGL keeps you informed every step of the way. For international moves, our partnership with TALA, The Aerospace Logistics Alliance, offers the transparency and peace of mind necessary for the task. From rigging and crating in a controlled airport environment, to successful delivery, PGL has the experience to go beyond 3PL with full-service delivery on a global scale.

For more information, call 833 Ship PGL