Dear customer & partners,
Recent developments in the world have worsened the ocean freight situation, so our expectation remains that ocean freight delays and costs will stay extremely high for the rest of the year. The same is expected for our raw material costs.
Although we see the light at the end of the tunnel from a pandemic perspective, the tunnel is long. As you have seen in the news, the spread of the virus in India has flared up to enormous levels. The situation in the North is dramatic, especially close to the big cities. Fortunately for Jacobi, the general situation in Tamil Nadu is relatively good, but we see increased infection rates close to our plants. Also in Sri Lanka, infection rates are on the rise again. That is why we go back to updating you on the situation in our Asian manufacturing plants on a regular basis:
After several Covid-19-free months, we have been hit by Covid-19 again in our Asian operations with 5 cases in Sri Lanka, 2 in India and 1 in the Philippines. Fortunately, there has been no spread inside the factories thanks to the stringent internal rules we have continuously maintained, despite the “relaxing” happening outside. Strict social distancing, fast and extensive testing and preventive quarantines have been key
to prevent contamination inside the factories.
• India – The pandemic has spread exponentially in India and we expect the situation to worsen in the coming weeks. Tamil Nadu is not among the most affected states and benefits from relatively good medical infrastructures, but a partial lockdown was declared as of April 30. Although industries are allowed to operate, we have re-imposed the most stringent rules again, including stopping most contractor work at the factories and brought back special employee transport arrangements. As the Government may impose a full lockdown in the coming weeks, we are preparing ourselves to be authorised and able to continue operating. We have started a vaccination program in the plants and have currently vaccinated 10% of our team above 45 years old. We are working with the authorities to continue vaccination of all our employees, although it is uncertain how long it will take. In the picture below, our country manager in India is sharing our stringent Covid-19 rules again and explaining the importance of vaccination for the safety of our people, to protect the community and to keep our operations running.
• Sri Lanka – Our operations in Sri Lanka are facing the most challenging situation: we currently have 90 employees in preventive quarantine due to lockdowns in various communities, and we’ve had to move back again to 12 hour-shifts operation.
• The Philippines – The Covid-19 situation remains milder in our region than in Luzon. Our main challenges remain the delays and cost of ocean freight.
• Vaccination – Vaccination of our employees is progressing in China and India, thanks to a close collaboration with the authorities. In the Philippines, Vietnam and Sri Lanka, vaccination is starting much more slowly nation-wide but we nevertheless raise awareness about vaccination in all our operations.
• Projects – Our capability expansion projects are all moving forward despite some delays due to personnel in quarantine, logistical challenges and the inability to bring certain contractors on site.
• Business Continuity Plan – The present new wave of the pandemic in India and Sri Lanka is enabling us to “test” our Business Continuity Plan. We are thankful that we are able to ensure the health and safety of our personnel while running at full capacity, with enough raw material. We are also working on increasing our safety stocks of consumables and chemicals. It is clear however that the situation will remain extremely challenging and stressful for months to come.
The closure in March of the Suez Canal severely intensified the disruption of global shipping with more port congestion, shortage of empty containers and vessel availability much worsened. Overall, there are increasing delays, longer transit times with additional upward cost pressure.
It is impossible to forecast when the situation will normalize. However, given the severity of the current situation, we expect the situation to remain for the rest of the year. In the meantime, our logistics teams continue to make every effort to find any available vessel space to maintain our supply line during these extremely difficult times.
Below is the update of the matrix showing the scale of delay risk on the various regional routes from our Asian plants. The main trend from the last report is further reduced vessel space from the Philippines causing longer shipment delays, especially to North America.
Please check for current best advice of possible impact on any open orders with critical timing, and anticipate delays and longer transit times when making future orders. The Jacobi Supply Chain team will work in a close team effort with the sales regions to make sure that all available vessel space is prioritised to the most time-critical and important 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 further cost increases to Europe from all origins and to North America from China and India.
Overall, since the ocean freight disruption started to hit 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 impossible to predict, but to give an indication of the short-term trend in cost, the following table shows the direction of cost: up, down or stable, expected to be experienced in the next 2 weeks. This shows many routes where costs are expected to continue to increase.
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. Our customers have to be willing to pay the price for this enormous effort. We expect our customers to compensate us for the additional freight costs we are faced with.
Given the extremely high raw material and freight costs, and no signs of improvement, we are forced to implement another price increase of as of July 1, 2021. Also, we will have to hold on to our freight surcharges. It is unfortunate but it is the only way to maintain our service level and protect security of supply to you.
Thank you for your support and cooperation in this challenging time.
Stay safe, stay strong.
Remko Goudappel CEO