By Richie Lin.      Photo：Andrea Piacquadio

This week is the last week of 2022 and it should be full of joyful atmosphere to anticipate the coming New Year holidays. However, the recession cloud hovering above everybody’s head has washed away the happiness of family reunions. We have heard lots of news about extremely high inventory, postponing orders, delaying payments, and the worse layoffs. A textile factory in Vietnam plan to lay off over 20000 people because of huge decline of orders. Big tech companies such as Google, Microsoft, Micron all announce they will lay-off several percentage of staff. Some customers even said they haven’t got any order forecast until the end of second quarter of 2023 or are forced to postpone the shipments until 2024. The Purchasing Managers' Index (PMI) in November also officially indicates the economy is in contraction cycle. The PMI is based on a monthly survey sent to senior executives of more than 400 companies in 19 primary industries, which have major contribution to U.S. GDP. The PMI is based on five critical survey areas: new orders, inventory levels, production, supplier deliveries, and employment. The surveys include questions about business conditions and any changes, whether it be improving, no changes, or deteriorating. The PMI is usually a number from 0 to 100. A PMI above 50 represents an expansion when compared with the previous month. A PMI number under 50 represents a contraction, and a number at 50 indicates no change. When we look at the PMI closely, we can see the downward trend of its numbers, which kept going down from 55.4 in April 2022 to 49 in November 2022. PMI 49 in November meant many companies are negative on the future of economy and will keep deducting orders and productions. In supply chain, people would talk about the Bullwhip effect. When the end customers order 10 pieces, different part of suppliers would need to order double, triple, or even multiple materials to prepare for the productions. Therefore, at the very top of supply chain, the inventory of materials might be extremely exaggerated. Since suppliers would prepare more for expecting orders, they will also over-reacted if they anticipate the orders will be less and less. This is why we saw the PMI has kept falling for months. High inflation restricted the buying power of consumers, then retailers will cut the orders for whole-sellers, then the orders for manufacturers, then the orders for suppliers. Everybody in supply chain is to stock resources for winter now, therefore there will be less and less international ocean freight and airfreight arrangements. Because the economy is not positive in the coming year, we will not see any positive developments in the logistics industry. According to an analysis of the top ten US container ports, the east and Gulf Coast gateways saw a 9.7% decline in imports last month, compared with November 2021, and the Pacific coast gateways collapsed by a massive 26%. Overall, the top US ports recorded a 17.5% fall in containerized imports last month, compared with November 2021. We have seen the ocean freight and airfreight rates keep going down during these months because shipping lines revised their FAK rates almost every week to attract bookings. However, shipping lines also use blank sailings, slowing down the speed to control the supply of spaces and cut down the operating cost. The 2M alliance of Maersk and MSC has suspended nearly half of its US West Coast services for December. The Ocean Alliance (CMA CGM, COSCO SHIPPING, OOCL, and Evergreen) and THE Alliance (Ocean Network Express, Hapag-Lloyd, HMM, and Yang Ming Lines) have cut overall vessel capacity by 40-50% until Chinese New Year. During these weeks, we could see some customers begin to send bookings for replenish their inventory for the sales for Easter holidays. And because Chinese New Year holidays in 2023 will begin on January 21st, factories need to ship out the containers no later than January 20 if they want the products can arrive at the doors of customers in in March. Therefore, shipping lines are feeling again the pleasure of limited spaces and hoping to increase rates at the beginning of January 2023. At any rate, 2023 will be a year to represent a catch phrase in a TV series saying “The winter is coming”.

FCL market rate reference in week 52:

• Asia main ports to USAWC USD 1800~2200 per 40GP;
• Asia main ports to USAEC USD 3500~4000 per 40GP; 
• Asia main ports for IPI points of USA is USD 4000~5000 per 40GP. 
• Asia main ports to Europe base ports and West Mediterranean: USD 2500~3500 per 40GP.

Airfreight market rate in Week 52:

Airfreight rate might increase abruptly without further notice. The following market rate for your reference. 

• PVG/SZX/HKG/TPE to LAX USD 4.3/kg, 
• PVG/SZX/HKG/TPE to ORD USD 4.4/kg, 
• PVG/SZX/HKG/TPE to JFK USD 5.0/kg.

Appreciate if you could share TGL Blog among your friends who are interested in first-hand market information of supply chain and updated economic incidents.