Dear customers & partners,
- This week, I’d like to start with good news. After the Ben Tre region in Vietnam lifted its restrictions, we are gradually coming to “new normal” operating conditions at all our Asian plants.
- Thankfully, we have resumed nearly full operations in Vietnam and 95% of our team members have been vaccinated. This is a big relief. Health protocols are still in place and people movement between provinces still impossible.
- While we still experience sporadic COVID-cases at our plants, lifting of the rules in most countries gives us the mean to normalize operations. We are also reaching close to 50% vaccinate rate in The Philippines, and 60% of 2nd dose vaccination in India.
- Despite supply chain disruptions due to the lockdown situations, we have been able to build sufficient stocks of coconut shell charcoal in India and The Philippines. The situation in Sri Lanka and Vietnam is gradually improving and our strong charcoal supply has enabled us to maximize production output, be it at very high costs. Ensuring security of supply for our customers has been our priority all along: we are glad that our efforts are bearing fruit and extremely thankful to our teams on the ground.
- Currently, the availability of coconuts is relatively good due to favourable weather and crop patterns in the previous year. However, the extremely strong demand for charcoal keeps the market prices high. Furthermore, the Government push for charcoal production upgrades in Tamil Nadu, India is still limiting the overall production capacities. Therefore, we anticipate the prices to continue being volatile and remain at a high level in the coming months.
- It is always impossible to predict what happens to the charcoal market due to the number of variables and uncertainties. Especially in the current supply chain crisis that affects Asia, we remain very alert and will continue to prioritize the building of stocks.
- Our capacity expansion projects in Sri Lanka, The Philippines and Vietnam are in full swing. Despite delivery delays of equipment, steel and other material price surges and the lack of contractors on site, we are committed to implementing all projects as fast as possible. Our carbonization project in Sri Lanka recently started ground-breaking (see picture below).
- Our biggest challenge remains ocean freight leading to high stocks of finished goods at our plants. Fortunately, we have been able to ship record high quantities from India in September. Also, our plant in Vietnam maintained strong shipping volumes during the lockdown. We continue carrying a large backlog of unshipped finished goods in Sri Lanka and Philippines.
- We have started Q4 with a brighter mood and less pressure than Q3 but the overall context remains extremely volatile and uncertain. More than ever, our priorities remain the health and safety of our people and security of supply to our customers.
The Ocean Freight situation remains severely disrupted, with the recent increased difficulty and higher cost from Sri Lanka and India, especially to North America, continuing. There are small signs of some improvement, which in a normal year would be expected in Q4 as November is usually the time of year when demand for shipping reduces. Following their holiday this week and reduced production activity in China due to power shortages, there is indication of a reduction in costs for China to North America, Although events in China are the main driver of global shipping activity and cost rates, it is too early to say whether this is the start of a continuing downward trend or whether it will lead to reductions from China to other areas. Also the number of vessel cancellations notified for next week has reduced, a sign that some ports may be becoming less congested.
The overall situation will only improve when global shipping demand drops or shipping capabilities (containers and vessels) increase. It is very difficult to predict when this will happen 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.maritimeexecutive.com/article/congestion-delays-and-supply-chain-challenges-will-continue-into-2022
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, Africa and Australia – there are some specific destinations, such as Durban, South Africa and Auckland, New Zealand where no route is currently available from China.
To illustrate the scale of the cost-uplift in USD for Jacobi from Q3 2020 (reference point) to October 2021, the following table shows the average USD increases on the main routes from Asia to the destination regions. The main change since last week is a further increase to North and South America from India. There are now 13 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 but during September routes from India and Sri Lanka have suffered the same high rate of increase. 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, but there are signs of a reduction in cost from China to North America in the second half of October of up to $2,000. It is too early to say whether this is the start of a downward trend or a one-off correction. The forward trends are shown best in this heatmap format:
Activated Carbon (AC) sourced in China
The situation in China continues to get worse. There still is a general power supply shortage which is affecting China’s production industry. 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. As the situation has slightly eased this past week, the next update will be in 2 weeks. 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