Factory orders from China down 40% in relentless slump in demand

U.S. logistics officials are bracing for delays in the delivery of goods from China in early January due to canceled container ship departures and export transfers by ocean carriers.

Carriers have implemented an active capacity management strategy by announcing more empty crossings and suspending services to balance supply and demand. “The relentless decline in container freight rates from Asia, caused by a slump in demand, is forcing ocean carriers to cancel more sailings than ever before as vessel utilization hits new lows,” he said. said Joe Monaghan, CEO of Worldwide Logistics Group.

U.S. manufacturing orders in China are down 40%, according to the latest CNBC Supply Chain Heat Map data. Due to lower orders, Worldwide Logistics told CNBC it expects Chinese factories to close two weeks earlier than usual for the Chinese Lunar New Year – Chinese New Year’s Eve falls on January 21 next year. The seven days following the holiday are considered a holiday.

“Many manufacturers will be closed in early January for the holidays, which is much earlier than last year,” Monaghan said.

Supply chain research firm Project44 told CNBC that after hitting record levels of trade during the pandemic shutdowns, the volume of TEU (twenty-foot equivalent unit) vessels from China to the United States has fallen significantly. since the end of summer 2022 – including a 21% drop in total vessel container volume between August and November.

Asia-based global shipping company HLS warned customers in a recent communication about the shipping business climate.

“It seems to be a very bad time for the shipping industry. We have the combination of falling demand and overcapacity as new tonnage comes to market,” he wrote.

HLS analysts forecast a further 2.5% decline in container volumes and an almost 5-6% increase in capacity in 2023, which will continue to negatively impact freight rates in 2023.

“The container shipping market will be further complicated by economic uncertainty, geopolitical concerns, and increasing market competition,” HLS wrote.

OL USA CEO Alan Baer told CNBC that there are some early signs of an inventory correction. Overall business volume and order flow from Asia continue to be subdued as carriers cancel more ships, and there is little upward momentum ahead of the Chinese New Year. But Baer said: “Space has already tightened, so even if demand is weak, space may be at a premium in January and throughout the first quarter. On the positive side, the depletion of inventories and the need to restart the order and delivery cycle seems to be increasing bit by bit.”

HLS cited trade data showing U.S. imports from Asia plunged in October to their lowest level in 20 months. The spot rate for a container from Asia to the US West Coast has broken even, “with little room for further reductions,” he wrote.

The major west coast ports of Los Angeles and Long Beach saw the biggest drop in trade, according to Josh Brazil, vice president of supply chain insights at Project44, as shippers also redirected some of their shipments to the east coast to avoid the risk of a major labor strike at west coast ports.

HLS expects most carriers to extend their West Coast rates through December 14, keeping them between $1,300 and $1,400 per forty-foot equivalent container (FEU). However, US East Coast rates are expected to drop $200 or $300 to average $3,200-3,300 per FEU in the first half of December.

The recent increase in Covid lockdowns in China continues to impact manufacturing operations and delay cargo releases. There are also local barriers to access for interprovincial and intercity transportation, primarily related to truck driver testing requirements, with trucking capacity largely affected.

The struggle for ship space, cargo spills and slow trucking are tracked by CNBC’s supply chain heatmap.

Pristine (cancelled) crossing data shows that the reduction in vessel capacity on the trans-Pacific route (from China to the United States) continues at a significant rate. Maersk and MSC’s 2M alliance has suspended nearly half of its services on the US West Coast for December. The Ocean Alliance (CMA CGM, Cosco Shipping, OOCL and Evergreen) and THE Alliance (Ocean Network Express, Hapag-Lloyd, HMM and Yang Ming Line) have reduced overall ship capacity by 40-50% until New Year Chinese.

As a result, space for shippers is seen as tight for freight bound for the South West Pacific route and service reliability has declined, with carriers such as MSC and Hapag-Lloyd rolling (not accepting ) freight on crossings in order to save time. According to logistics officials, this creates a two-week delay. MSC said in its latest notice to customers, “ETAs are indicative and subject to change without notice.”

Falling US and EU manufacturing orders are also impacting Vietnam, which has boomed as a manufacturing hub as more trade shifted away from China.

Since the beginning of this year, 12,500 businesses have been shut down per month, a year-on-year increase of 24.8 percent, according to the report from Vietnam’s General Bureau of Statistics. The combination of lack of manufacturing orders and loan interest rates rising from 6.5% to 13.2% in Vietnam has led many companies to close factories instead of signing new order contracts, according to HLS . Canceled ocean crossings to Vietnam are up 50% in December.

In contrast to the drop in orders from China, trade data analyzed by Project44 indicates that the Europe-US route is “one of perhaps the most surprising and certainly the most significant developments since the start of 2020”. , said Brazil.

“This sharp increase cannot be explained by the pandemic alone. But a strategic shift from overreliance on trade with China and geopolitical tensions over Russia are key drivers of the EU trade boom. -United States,” he said.

The global trade map is rapidly being redrawn, with EU-US trade and investment in the United States rising sharply as economic ties between the West and China come under critical scrutiny. This year, the United States imported more goods from Europe than from China — a big change from the 2010s, according to Project 44.

“For their part, European manufacturers struggling with soaring energy prices and inflation are increasingly exporting and investing in the United States,” Brazil said.

Germany’s exports to the United States rose nearly 50% in September year-on-year. The German mechanical engineering sector increased its exports to the United States by almost 20% year-on-year in the first nine months of 2022, according to Project 44.

The CNBC Supply Chain Heat Map data providers are artificial intelligence and predictive analytics company Everstream Analytics; the global freight booking platform Freightos, creator of the Freightos Baltic Dry Index; the logistics provider OL USA; the FreightWaves supply chain intelligence platform; the Blume Global supply chain platform; third-party logistics provider Orient Star Group; global marine analytics provider MarineTraffic; marine visibility data company Project44; shipping data company MDS Transmodal UK; the Xeneta platform for benchmarking and analysis of sea and air freight rates; leading research and analytics provider Sea-Intelligence ApS; worldwide crane logistics; DHL Global Forwarding; freight logistics provider Seko Logistics; Planet, a provider of global geospatial and daily satellite imagery solutions, and ITS Logistics provide port and rail drayage services at 22 coastal ports and 30 railroad ramps across North America.