Raw Material Snapshot:
- Nitrile: Stable, increases expected in the near future.
- Vinyl: Increased the last 2 months, additional increases expected in the near future.
- Latex: Stable, but we are entering wintering season which could affect costs
- Poly: Stable
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Oil:
- After the sharp dip in early November, prices have continued to drop. Oil is currently at $73 per barrel.
- As fighting resumed in Gaza, concerns resurfaced regarding the security of the supply chain. Three commercial vessels came under attack in international waters in the southern Red Sea on Sunday.
S&P Global Oil Index (1 Year)
(Source: spglobal.com)
Over Capacity Leaves Shipowners Floundering
During the booming demand of the pandemic, container operators rushed to order new vessels, believing that the increased volume would last. However, the surge in demand proved temporary, leaving the companies bracing for years of industry damage from weak freight rates and more ships hitting the water than needed.
Shipbuilders have orders totaling 26% of the world’s container capacity, with the peak of deliveries coming over the next 2 years. Over capacity has left dozens of idle or underused vessels with freight rates barely covering sailing costs.
The post pandemic landscape has left shippers reeling. Daily rates are now hovering at 2019 levels, down 95% since the peak of the pandemic in 2021. Maersk, a major player in the ocean freight industry, said last month that they were cutting more than 10,000 jobs across the company. Its Q3 net profit decreased to $521 million from $8.88 billion in the same period last year.
Additionally, the top carriers next year are expected to report a combined loss of $15 billion, driven by prolonged weakness in freight rates, according to London-based shipping broker Drewry. Container rates are expected to make around $43 billion in 2023, down 80% from last year, according to owners and brokers.
Product Market Shortages
The market has been battling out of stocks and shortages on non-woven and polyethylene disposable apparel for the past few months. A few noteworthy products that are experiencing more of these out of stocks are White Nylon Hairnets and White and Blue Polyethylene Sleeves. Some competitors are backordered until March 2024. Vanguard Safety is dedicated to being a reliable head to toe PPE partner and these products are in stock and ready to ship. Please note that inventory levels are fluid, please reach out to your sales rep for availability updates.
Domestic Freight
Due to intense consolidation in the industry and slower shipping volumes, there is excess capacity in the Less-than-truckload freight. While there is still stronger demand in some areas such as Los Angeles, customers have more leeway on the routes and pickups they request.
LTL carriers are starting to issue their annual general rate increases (GRIs) for the coming year. GRIs are used to adjust rates to counter cost inflation and fund capital investments. Most LTL carriers are expected to raise rates by about 5-7.5%. Vanguard Safety is still reviewing the GRIs, however, we won’t be impacted by the changes until the end of Q1 of 2024.
Chinese New Year
Chinese New Year 2024 is from February 10th to February 20th. However, many factories will be closed starting in late January. We are increasing safety stock to ensure we have ample stock during the holiday. Nevertheless, please note that there may be some slowdowns or disruptions due to the impending holiday.
Panama Canal Bottleneck
A severe drought is wreaking havoc on one of the world’s main maritime trade routes.
Water levels in Gatun Lake, the rainfall-fed principal reservoir that floats ships through the canal’s lock system, have declined to unprecedented levels. Authorities say that October’s recorded precipitation was the lowest on record since 1950.
This drought has led to tonnage restrictions and fewer vessels transiting the shortcut each day, causing delays. The canal, which normally handles 36 ships a day, will reduce the number of vessels to 18 a day by February 1st to conserve water heading into the dry season. Those who are unwilling to wait can either pay hefty fees to jump the queue or sail a much greater distance around South America, Africa or through the Suez Canal.
Experts believe it’s unlikely that the canal will be able to increase traffic until the rainy season starts in mid-2024. Vanguard Safety hasn’t been affected by this bottleneck.