The Supply Chain Edge provides a curated weekly overview of Panjiva's research and insights covering global trade policy, the logistics sector and industrial supply chains and draws from global shipping and freight data.
Inflation keeps growing as shipping rates dip
Shipping rates out of China have likely provided some relief to shippers, even if still elevated. Based on the Shanghai Shipping Exchange's China Containerized Freight Index, rates out of China fell 5.6% since the week of Feb. 11. This represents a rise of 1.3% from the start of 2022 but could indicate a slowdown in rate growth. Rates to the U.S. West Coast and Europe followed this trend, declining 6.1% and 5.6%, respectively, since mid-February, but still remaining up 6.4% and 8.1% since the beginning of the year. The West Coast route has been less volatile over the pandemic period, and the increased drop may be partly attributable to continued efforts to clear congestion, such as the recently announced temporary storage locations for containers.
Freight rates have risen 285.6% since the beginning of 2020; the effects of these increases have been passed through to prices, influencing inflation. In addition, increases in demand — driven by multiple factors, including the business incentive to order more goods — have also added to inflationary pressures. The price of imported goods can easily be tracked using data from the U.S. Federal Reserve. The import price index increased 10.8% year over year in January, exceeding the consumer price index, or CPI, which rose 7.5%. The CPI has been steadier over the past few years, while import prices were affected by the U.S.-China trade war and the COVID-19 pandemic, and so represent a more direct method of gauging business costs.
The other factor driving up supply chain prices has been the shift in consumer preferences since the pandemic started. Consumption of durable and non-durable goods, as tracked by the Federal Reserve, has shot up, increasing 32.6% and 19.7%, respectively, in the third quarter of 2021 versus the equivalent quarter in 2019. Greater demand for goods as opposed to services adds additional strain to supply chains specifically. Goods — certainly durable goods — often require more logistical and physical support in the form of supply chains and storage than services do. The production, processing and transit of goods often have myriad inputs, and constraints to those systems can limit supply.
Adjusting U.S. macro imports to strip out both inflation and long-term trends exposes both seasonality and outliers in import data. Panjiva Research constructed a simple linear model using both time — to account for the long-term trend — and import price data to adjust for inflation. This then leaves both seasonality and error as the remainders, clearly highlighting events such as the trade war and the pandemic. More strikingly, dollar-based imports in 2021 remain near to the model's predictions, indicating that the increase in dollar-based imports can be attributed to those two factors. This leaves supply chain congestion (not captured well by dollar-based import figures) likely to have been more influenced by the changes in consumer discussion and the capacity of supply chain networks.
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Revlon beautifies its supply chains
Revlon Inc., a maker of cosmetics and personal care products, announced fourth-quarter 2021 earnings reporting a 1.8% fall in revenues that fell short of analyst expectations by 4.7%, according to data from S&P Capital IQ. Profits increased and inventories fell, however, indicating that the company may be operating more efficiently, especially as Panjiva data shows that imports in the fourth quarter increased 44.9% year over year. On the company's March 3 earnings call, President and CEO Debra Perelman noted that the decline in sales was "largely driven" by supply chain challenges, which impacted the company's ability to manufacture and deliver its products. Those supply chain headwinds have likely affected its imports, which in both 2020 and 2021 were lower on average than previous years.
The company fought to overcome supply chain challenges, however, with Perelman saying that it "rerouted freight and sourced additional vendors for key materials and components." Panjiva data may shed some light on these changes, with fourth-quarter imports from China and the rest of Asia up 68.0% and 52.5% year over year, respectively, following months of decline. Imports from China have sustained this momentum, increasing 41.0% year over year in January and February combined; imports from Europe rose 81.7% in the same period.
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Volkswagen carrier sinks imports
The Felicity Ace, the Mitsui O.S.K. Lines Ltd.-operated car carrier that caught fire southwest of the Azores in February sunk March 1 after burning for days. The vessel was reportedly carrying nearly 4,000 Volkswagen AG vehicles to the U.S., including cars under the Audi, Porsche and Bentley brands. All crew members were safely evacuated, but concerns remain related to the environmental impact of the wreck as the vessel contains fuel and other hazardous materials from the damaged vehicles.
The carrier has carried Volkswagen Group cars before, tallying up 139 shipments associated with the automaker since 2018. Competitors such as Mazda Motor Corp. and Honda Motor Co. Ltd. have also used the vessel, accumulating 50 and 30 shipments in the same period. Volkswagen has also recently been in the news in relation to the potential IPO of Porsche, while Panjiva data shows that imports associated with the group fell 11.7% year over year in January and February combined.
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Logistics networks shift due to conflict in Ukraine
Logistics companies are shifting to adjust for the disruptions caused by the Russian invasion of neighboring Ukraine. Container line A.P. Møller - Mærsk A/S warned that shipments of foodstuffs and medical supplies to Russia risk being damaged or spoiled due to significant delays at ports and customs because of sanctions-related inspections. In addition, the status of international financial transactions remains uncertain. Containers destined for Russia are also likely to remain undelivered, adding to the pressures on full docks and yards. Further adding to the potential for continued congestion is the refusal of International Longshore and Warehouse Union members to unload any Russian vessels or cargo moving through U.S. West Coast ports. This could leave some shipments in limbo, unable to leave port but still likely subject to detention fees and overstay surcharges.
(Financial Times; Lloyds List)
Ukraine food supplies threatened
The Russian invasion of Ukraine has sparked concerns about global food security; Russia and Ukraine supply almost a third of the world's wheat exports. Prices of wheat have already doubled as shipments have halted, and the conflict could well impact the upcoming growing season. Countries such as Laos, Moldova and Lebanon are all highly dependent on wheat from Ukraine, and spiking prices could be devastating for countries with lesser resources. Even if wheat is planted, shipments may have nowhere to go if internal last-mile supply chains in the country are disrupted by direct military action or by a lack of workers because they have fled the country or are fighting.
Sanctions on Russia mounting
International sanctions on Russia are starting to add up as government actions work their way through legislatures and executives. In the U.S., a bipartisan group of lawmakers is pushing to remove Russia's normal trading relations status, potentially putting it in the same category as North Korea and Cuba and resulting in much higher duties charged on imports to the U.S. Other lawmakers are pushing to ban oil and gas imports from Russia, a move that would likely lead to higher prices until producers in other parts of the world, including the U.S., could adapt. Meanwhile the EU has banned seven Russian banks from the Swift financial messaging network, used primarily for money transfer instructions, potentially cutting the banks off from the rest of the global financial system.
(Inside U.S. Trade's World Trade Online; Nikkei Asia)
Eric Oak is a researcher at Panjiva, a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence.
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