Dear customers & partners,
Recent developments in the world have worsened the ocean freight situation. The blockage of the Suez canal and the swift recovery of the US economy are hindering shipping lines’ efforts to improve the current imbalance of container availability. Our expectation is that ocean freight delays and costs will remain highly impacted for the rest of the year. Unfortunately, the freight surcharges will remain in place longer than we hoped. Average costs from Asia to Europe/North America are shown in the graph below:
While in many parts of the world the peak of the 3rd wave has been reached and vaccination programs are being rolled out, in other parts of the world infections rates trend upward and new peaks are still to come, such as in India and Brazil. In India, where we have 2 plants in Tamil Nadu, the situation is as follows:
- The number of infections has reached 200,000 registered cases per day – the actual number is most likely higher – and we expect the number to continue increasing (the number of new cases as a share of the population is still much lower than in Europe, and the death rate is around 10 times lower).
- We anticipate regional lockdowns going forward, but no complete lockdowns – industries will likely be allowed to operate and we are working very closely with the local authorities and industry associations to enable this. We are nevertheless building stocks of charcoal and consumables, and supporting our suppliers to build up shell stocks too.
- We have reinstated the stringent rules of a year ago. Our priority is to ensure health and well-being of our employees and avoid interruptions to production.
- Fortunately, the vaccination program is going well in India – 10% of the adult population has received a first dose – and especially in Tamil Nadu where there is good healthcare across the state. 60 of our employees have been vaccinated so far, including all employees above 45 years old, and our goal is to have our entire workforce vaccinated by the middle of the year.
Among the other countries where we produce, the Philippines is probably the country with the highest rate of new infections per day at over 10,000 per day which is well above Indonesia and Malaysia. Fortunately, Mindanao is less affected than Luzon and while we continue to follow strict measures, currently our operations are not troubled. Our first employees have been vaccinated in China (where 10% of adults have received a first dose of the vaccine) and vaccination has also started at a slower pace in Sri Lanka, Malaysia and the Philippines.
In Europe and the USA, infection rates are still quite high but at the same time vaccination programs are being rolled out which gives us confidence in the containment of the virus during spring and summer.
Local travel restrictions in the different parts of the world vary significantly. This makes it a challenge to update our travel policy going forward. What will remain in the coming period is that business travel is only allowed when deemed absolutely necessary. Also, no visits will be made without prior approval by the Customer in question.
As things progress, we expect our (international) travel policy to be adjusted with reference to developments in the following elements:
- COVID rules in the country of destination
- COVID rules in the country of origin
- Vaccination status of the employee (employee safety)
- Vaccination status and perception of the receiving party, internally and externally (safety of the receiving party)
For the time being, we keep travel to an absolute minimum in order to guard safety for all. As vaccination programs are expected to be implemented and restrictions are expected to be lifted, our travel policy is expected to be adjusted accordingly in due time. Also, our policy to work from home when possible remains in force.
The blockage in March of the Suez canal has severely intensified the disruption of global shipping lines. It has caused increased port congestion at all destinations as the held-up vessels arrived closer together, resulting in increased port congestion. As a result, the shortage of empty containers and vessel availability has worsened. Overall, there are increasing delays, longer transit times and additional upward cost pressure.
It is impossible to forecast when the situation will normalize again. However, given the severity of the current situation, we do not expect to see recovery in Q2. In the meantime, our logistics teams continue to make every effort to find any available vessel space to maintain our supply lines during these extremely difficult times.
Below is the updated matrix showing the scale of delay risk on the various regional routes from our Asian manufacturing plants. The main change from the last report is increased delays to North America, both to East and West coast destinations, especially from the Philippines.
Please check for current best advice of possible impact on any open orders with critical timing, and anticipate delays and longer transit times when placing future orders. The Global Supply Chain team will work in close collaboration with the sales regions to ensure that all available vessel space is prioritised to the most critical orders.
To illustrate the scale of the cost-uplift in USD from Q3 2020 (reference point) to April 2021, the following table shows the average USD increases on the main routes from Asia to the destination regions. The main changes since the last update are cost increases from China to Europe and from Sri Lanka to North America.
Overall, since the ocean freight disruptions started to negatively impact costs back in September 2020, the largest USD cost increases have been to Europe from China, Vietnam and the Philippines.
Looking to the future, it is of course impossible to predict, however to give an indication of the short-term cost trend, the following table shows the direction of cost: up, down or stable, expected to materialize in the next 2 weeks. Compared to the last report, this shows more routes where costs are expected to increase further – current cost quotations for May departures from China to Europe indicate another rate increase.
Jacobi group policy is to continue using all available vessel space to secure supply to our customers. Please be assured, our logistics team is working diligently to control the costs for vessel space and ensure the lowest possible freight surcharge. Unfortunately, even with their great effort, the surcharge will remain high and we will continue to request compensation for these additional charges. Jacobi group policy is to continue using all available vessel space despite these high costs. Our overriding objective is to secure supply to our key customers.
Thanks you for your support and cooperation.
Stay safe, stay strong.
Remko Goudappel CEO