Mitigating the Crunch: Examining the Current State of Global Logistics
The COVID-19 pandemic continues to have a profound impact on supply chains, and recent world events have brought unprecedented stress to global logistics. However, at Molex, we leverage the latest tools and technologies to acquire the critical knowledge grounded in real-time data to ensure that both our company and our customers are prepared for the unexpected. This provides the intel to optimize international and domestic freight and shipping methods and manage our supply sources to mitigate risk in the global supply chain.
How Global Events Affect Supply Chains
While the world hopes the economic impact of the pandemic lessens as vaccination rates increase, supply chain disruptions are still a reality due to backlogs and regional COVID-19 resurgences. The global semiconductor shortage, which is affecting a broad range of markets and industries, is a prime example of a backlog caused by soaring demand coupled with disrupted operations due to continuing COVID outbreaks. On the other hand, the delays caused by a container ship’s blockage of the Suez Canal this past March remind us that a multitude of additional perils can threaten global logistics at any given time. Best practices in planning, freight optimization, and relationship leverage with carriers, freight forwarders and suppliers can mitigate many of these risks.
Update: Global Air Freight
Global air freight demand is making a strong comeback, with March 2021 standing as the strongest month for air freight in more than two years. However, capacity is expected to remain tight and rates elevated due to the continued effects of COVID-19 causing the grounding of long-haul passenger fleets, which typically ship cargo in their bellies. In fact, overall global air freight capacity is down and demand is up due at least in part, to constrained commercial passenger belly capacity, which is down 55% year to date from pre-COVID May 2019.
Overall, air freight demand is expected to continue to increase throughout 2021 as the production of goods resumes to pre-COVID levels. For instance, Taiwan is largely resuming high-tech manufacturing, which has triggered record export volumes (including capital equipment and semiconductors) to China, Hong Kong, Europe and the U.S. However, as a result of Molex best-in-class planning and strong collaboration with our freight forwarders and carriers, we have managed to keep our air freight cost per kilo below market averages.
Update: Global Ocean Freight
Ocean freight demand is exceeding supply more than previously forecast, with the adjusted 2021 growth outlook now projected at 8.9%, up from a previous projection of 3 to 4%. Ocean freight supply is constrained due to an increase in international trade, port congestion, and a severe lack of containers and available ships in Asia—all of which is expected to continue through 2021.
Increased demand and the impacts of other events such as COVID resurgences have driven month-to-month ocean freight rate increases, with costs climbing to more than $10,000 per container in shipping lanes to Europe and similar rates to the U.S. Volume flows from Asia-Pacific to all destinations remain strong and are expected to persist at least through Q3 2021. Meanwhile, surging volumes from Europe (particularly to the Americas) are resulting in increased rates. Additionally, rising fuel prices significantly influenced rates in Q2 and will continue to do so throughout the rest of 2021.
Ocean freight schedule reliability is down, with only 40% of shipping containers arriving on time globally, and average vessel arrival delays are now reported at six days. This is an improvement from earlier in 2021, but significantly below reliability rates of the previous two years, when more than 70% of ships arrived on time. Blank sailings (when a cargo ship skips a port, region or an entire leg on the scheduled route) are expected to accelerate as lack of discharge windows, ports and terminal congestion issues increase. Vessel stacking will also contribute to capacity disruption. For example, the
Port of Los Angeles has been experiencing heavy ship traffic and backlogs as ships wait to unload for seven days or longer, adding to the ocean freight cycle time.
Consequently, ship arrival times are becoming highly variable. Manufacturers are forced to respond by increasing working capital for inventory and altering their production planning processes to manage these variables and minimize risks to their supply chain.
Taking the Right Actions on Regional Issues
At this time, there are currently no specific issues in the Asia-Pacific North region affecting Molex’s product shipments. Meanwhile, in the Asia-Pacific South region, increased COVID cases in various locations have meant no halting of services for Molex air, ocean or domestic trucking operators, but delays have resulted. For example, a COVID outbreak in China caused the Yantian port to temporarily shut down in March, and although capacity has improved since it reopened, congestion continues.
We’re seeing strong indication that both air and ocean freight capacity in the Americas will tighten in the second half of the year. Ocean freight equipment shortages are impacting all North American exports, but air freight capacity is slowly increasing as some long-haul passenger flights resume. Delays in ocean shipments continue due to both high demand and the resulting backlogs at the Port of Rotterdam, which is causing delays of a minimum 14 days.
Knowledge is power in mitigating the risks of global supply chains spanning all industries. Real-time monitoring, assessment and response to global risks are required processes and skills driven by our acute awareness that supply chain resilience and agility are critical to our customers’ operations and time-to-market schedules. As we all navigate this volatile landscape, Molex will actively monitor the situation, interpret the data and leverage our experience as a global supplier to apply best-in-class risk mitigation that ultimately delivers optimal customer outcomes.