511 - Special Market Update - June 2021

Shipping and Logistics

➢ The global supply chain has been whipsawed by the pandemic’s unprecedented consumer demand, increasingly constrained shipping capacity, port congestion, truck driver shortages and rising fuel prices, resulting in cost inflation throughout

➢ Ocean freight space is scarce, transportation costs are at an all time high, yet carrier service levels are at an all time low

INBOUND: Ocean Freight Logistics Importing Products from Asia ▪ Imports from Asia have been at record levels for 10 consecutive months and consumer demand in North America has increased more than 27% in 2021. In April, for example, shipping volume from Asia to North America rose 53% vs. 2020 and 44% vs. 2019. ▪ Limited ocean ship and shipping container capacity and spiking consumer demand have created severe scarcity of available trans-pacific shipping berths, impacting cost and delivery time reliability. ▪ As we predicted last fall, ocean container companies continue spot-market pricing practices in-which container shippers cancel set-rate contracts and price loads apace with demand and highest profitability. Spot pricing rates averaged $1,700 a year ago, climbed steadily to $5,600 this spring, and now exceed $10,000. These higher rates are setting pricing levels for contracts being written now that will run well into next year. ▪ Concern among shippers about being unable to secure space on cargo ships to move their products to North America is very high and shipping companies are bidding-up berth prices to reap profits from this uncertainty. Some experts are predicting per-container rates above $20,000 for deliveries to the East Coast. (Souhang APP) ▪ Covid outbreak at the major Chinese port of Yantian / Shenzhen in late May caused further system-wide delay of shipment processing and container recovery. ▪ Average container shipment invoices from Asia to North America on January 1 of this year were 236% higher than the same date last year, and by the end of May last week, the average invoice was 344% higher. (Freightos) ▪ Transit time for cargo from start of packing in Shanghai through to delivery in Chicago has risen from 35 days pre-COVID to 73 days now. (Flexport)

OUTBOUND: Distribution to Customers across North America ▪ Ground transportation challenges are complicating the supply chain situation for finished goods on both sides of the ocean transport passage to market. ▪ In North America more than 63,000 truck driver positions remain open, limiting the number of available shipping options resulting in route scarcity and record-high contract rates. The truck driver shortage isn’t new, it preceded Covid -19, but the pandemic has worsened the problem and having fewer drivers to meet expanding demand is the central factor driving higher trucking rates. (Coyote) ▪ Additionally, shortages of lumber, another high-import segment affected by pandemic recovery demand, are driving 400% increases in the price of shipping pallets, tacking on several more dollars to each transportation invoice. ▪ Crude oil prices are currently at their highest level since October 2018 and reserve inventories that built during the pandemic are now below historical norms for this time of year. (Barron’s)


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