Dear customers and partners,
Our Vietnam operation continues to recover. We are in the process of starting up the kilns which were idled (50%) for the past 9 weeks and aim to be fully operational again in the coming weeks. The situation for our employees is almost back to ‘normal’ with only 5 people staying at the hotel as they live outside the province and cross-province travel is still not allowed. To ensure the continued safety of our employees, we are performing weekly PCR testing to help identify and contain the spread of the virus and we are planning the next vaccination campaign. The situation in Ho Chi Minh City is also gradually recovering.
In India, vaccination rate of our teams continues to increase and we hope to reach 100% vaccination rate by the end of November. Both plants in India continue to run flat out. Fortunately, shipping from India is gradually improving although costs are still excessive.
The lockdown in Sri Lanka ended on October 1st. 80% of the population over 20 years of age have been fully vaccinated. Our plants continue running at full capacity and we start-up of a new kiln is scheduled for November. Shipping out of Colombo remains challenging.
Our team in The Philippines is currently COVID-free. The vaccination rate is 40% and increasing swiftly. This will help to protect the team going forward. The biggest challenge remains shipping our finished goods, particularly to the USA.
The situation in at our plant in China is under control COVID-wise.
In general, the fatality rate per million people of COVID-19 across the region is coming down or relatively low as is shown in the following picture:
Activated Carbon (AC) sourced in China
The situation in China is getting worse. On top of the limited coal supply to AC producers, which drives AC prices upwards, there still is 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. 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.
The Ocean Freight situation has not improved – there are still record numbers of container vessels waiting outside Chinese and US ports to berth to unload and 47 vessel movements have been cancelled in the 4 weeks ahead. 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.
Despite these conditions we successfully managed to ship over 6,000 MT in September, which is more than the monthly average, thanks to the huge ongoing effort from our supply chain team, working closely with our partners. However, finished goods inventory at our factories remains very high. The situation will only improve when overall shipping 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. This link gives more background: https://www.maritime-executive.com/article/congestion-delays and-supply-chain-challenges-will-continue-into-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 no change from last week with the most severe delays being 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.
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. After the large cost increases to North America from India and Sri Lanka over the last 3 weeks, costs have not changed much since last week except for Vietnam to USA, but that is not one of Jacobi’s most used routes. There are now 12 routes with over 500% increase from this time last year, compared to 5 in August.
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. 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.
Most routes continue to have an increasing cost trend, although after an increase last week, China rates are expected to be stable through October. The forward trends are shown best in this heatmap format:
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.
Chief Executive Officer