Dear customers and partners,
Great news from Vietnam! During the past 8 weeks, 92 employees of our plant in Ben Tre volunteered to live in a hotel close the plant and continue working at the plant in full isolation. The rules set by the authorities did not allow them to go home to see their families as part of the restrictions to contain the spread of the corona virus. The very strict measures have worked and the daily new cases have come down sharply in the Ben Tre Region (see graph).
The restriction are in the process of being lifted and our team will soon be reunited with their families after 8 weeks. Fortunately, we were able to vaccinate all members of the team before they went home (see picture) and hope to have the rest of the team vaccinated in the coming weeks as well.
Due to their spirit and effort, we were able to continue running the plant at 50% capacity. I want to take the opportunity to thank our Vietnamese team and their families full-heartedly going the extra mile for Jacobi and our Customers under very challenging circumstances. Thank you! We are planning to gradually increase output from the plant over time. People movement between regions in Vietnam remains forbidden as the country is still battling with the epidemic, especially in Ho Chi Minh City.
In India, vaccination rate of our teams continues to go up. We hope to reach 100% vaccination rate by the end of November. Both factories in India continue to run flat out. Shipping out finished goods to the USA as well as importing coal raw material remains most challenging. The COVID-situation in Sri Lanka is improving and the lockdown is expected to be lifted as of October 1. The plants continue running at full capacity but shipping out of Colombo remains most challenging.
The biggest challenge for The Philippines remains shipping out finished goods, particularly to the USA. The situation in China is unchanged and overall, the ocean freight crisis and accumulation of unshipped finished goods at our plants are an enormous challenge for Jacobi in terms of health & safety, operations, operating cash flow.
Our Ion Exchange Resins plant in Kotka, Finland is doing very well. In the past year, we invested heavily in Safety, Health & Environment while building a solid foundation for the future. We are currently debottlenecking our capacity for chromo-resins used in sugar applications which will increase our production capacity significantly during Q4 2021.
The Ocean Freight situation continues to deteriorate – there are record numbers of container vessels waiting outside Chinese and US ports to berth to unload. Combined with increased inland haulage difficulties, this is leading to a greater outage of empty containers and extended vessel transit times so reducing capacity even more. To maximise their revenues, the shipping lines are concentrating on servicing movements from China to the main markets in Europe and North America and have cut back further on sailings to India and Philippines especially which are not on major shipping lanes. This is having a growing negative impact on shipping availability from Jacobi’s production locations in Asia.
Inventory of finished goods at our factories are at the highest volume ever due to these delays in outbound shipments. The situation will only improve when demand drops or shipping capabilities (containers and vessels) increase. It is very difficult to predict when this will improve or in what form and when a new normal will arrive, but it is looking likely that we can expect these problems to continue through 2022.
It is currently so difficult to find vessel space for our finished goods to reach our Customers in a timely manner, that I’ve instructed the sales team to discuss the possibility for our Customers to arrange their own transport in case they may have better agreements in place with the shipping lines than we have. This could be valid for large corporations shipping substantially more containers across the globe than Jacobi. Several of our big accounts have already switched to FOB incoterms.
The impact on Jacobi’s supply chain is much longer overall transit times from factory to destination, with continuing difficulty finding vessel space, especially to the USA, and no route space currently available to West Coast ports and South America. Please find below the delay risk table by origin/destination region which shows the most severe delays are to North and South America and Africa, and there are some specific destinations, such as Durban, South Africa and Auckland, New Zealand where no route is currently available from China. There is a small improvement for shipping from Vietnam.
To address these challenges, Jacobi’s Global Supply Chain team is adjusting production output from our multiple production plants wherever possible on a weekly basis to take advantage of the most cost effective and efficient shipping routes to minimize shipping costs and delivery delays. The overall impact of port congestion, container shortage and increased demand is a continued upwards pressure on costs for most routes. Despite the escalating costs, Jacobi policy is to continue using all available shipping spaces to maintain continuity of supply in such challenging conditions.
To illustrate the scale of the cost-uplift in USD for Jacobi from Q3 2020 (reference point) to September 2021, the following table shows the average USD increases on the main routes from Asia to the destination regions. Further to the large cost increases to North America from India and Sri Lanka over the last 2 weeks, the main cost increase since last week is from Sri Lanka to Australia. There are now 12 routes (11 last week) with over 500% increase from this time last year, compared to 5 a month ago.
Until August, the largest increases since Q3 2020, both in USD and % terms, were mainly on routes to Europe, especially from China, the Philippines and Vietnam. This latest cost table shows the rapidly increasing costs now being suffered on routes to North America which is illustrated in the graph below. The largest of these on average are equivalent to an additional freight cost of approx. $700 per MT. Most routes continue to have an increasing cost trend, although after an increase last week, China rates are expected to be stable for the coming 3 weeks. Inland haulage rates are now also increasing significantly, especially in the USA, which is adding even more to the increase in overall freight cost to final inland destinations.
Activated Carbon (AC) sourced in China
The situation in China is not improving. On top of the limited coal supply to AC producers, which drives AC prices upwards, there is also a general power supply shortage which is affecting China’s production industry. Some companies that are heavy users of electricity have been forced to shut down or to operate at severely reduced capacity, driving up prices of chemicals and other raw materials unexpectedly. For direct activated GAC, the latest prices we have received are up 20% on top of the recently announced price increase. Due to the extreme volatility, we cannot confirm the validity of prices as they may change again soon. Therefore, all orders for direct activated reagglomerated GAC, and chemical wood AC will have to be managed on a case-to-case basis for price and availability.
As long as the situation in the world continues to be volatile as a result of the pandemic, I will continue informing you about the situation and the way Jacobi deals with it. We continue working towards our vision of becoming the most sustainable supplier to the industry and secure supply the best way we can.
Remko Goudappel CEO