A monthly summary of important trends affecting supply chain, pricing and the PPE industry.
Shrinking Chinese Factory Activity
China's factory activity shrank in November as widespread COVID-19 restrictions disrupted manufacturers' output. According to a private sector survey, China’s zero-tolerance COVID-19 policy weighed on employment and economic growth in the fourth quarter.
The Caixin/S&P Global manufacturing purchasing managers’ index (PMI) rose slightly to 49.4 in November from 49.2 the previous month. The reading marks the fourth consecutive monthly contraction. A ranking below the 50-mark separates growth from contraction.
Greater difficulties with the sector were seen particularly in job employment with unemployment rate hitting its highest point since February 2020, as some workers were unable to return to work due to virus restrictions. Surveyed factory owners also linked delivery time delays to pandemic restrictions, as delivery times fell to the lowest point since May when Shanghai was under lockdown.
However, manufacturers are generally upbeat that production will increase over the next year as they anticipate a recovery in capacity and demand as the pandemic recedes.
Vanguard Safety has not seen a major impact in production with our overseas factories. We continue to service customers at the highest level.
Port Congestion & Freight Pricing Easing
Prices of shipping containers have fallen by two-thirds this year after reaching record highs during 2021. Rates slowly began to decline this quarter and are expected to continue to drop. According to the Freightos Baltic Index, the estimated cost of shipping a 40-foot container from China to the US dropped by 84% since April.
Port congestion has also started to ease. While still at historic highs, the holiday season rush seems to have eased port volumes. Cargo is also being processed at a faster rate than during the pandemic. Before the pandemic, about 3% of global container ships were held up due to congestion. Currently, 8% of ships are experiencing this issue. While that is a sharp increase, it’s better than the 14% in January of 2022.
Port officials are pleased with the cargo clogs clearing. “We’ve had a fantastic recovery from where we were in the summer of 2020,” said Mario Cordero, executive director of the Port of Long Beach. “In that context, I think I’d surmise that we’re having some normalization of container movement here.”
Railroad Industry Unrest
In order to prevent a rail strike, Congress voted to impose unpopular contracts on rail unions whose members already rejected the terms.
Due to a century old law, Congress has the unusual power to enforce contracts on the railroad industry. The Railway Labor Act of 1926 allows congress to regulate labor relations when it comes to railroads and airlines. Under the Act, the government can be a mediator, and attempt to bring the two sides together. The Act also sets up a series of limits and cooling off periods during which unions cannot strike and management cannot lock out workers. If those efforts fail, Congress can step in and impose a contract under which both sides will have to operate.
The planned December 9th strike would have shut down 30% of the nation’s freight shipments and caused shortages of a wide range of items including food, gas, and coal. Calculations show that a strike could have cost the economy an estimated $2 billion a day. If trains stopped running during the holiday season, experts speculated it would result in COVID-type supply chain problems “on steroids.”
The ratified contract includes a 24% pay increase over five years, a $1,000 annual bonus, one paid personal day and a freeze on healthcare costs. However, the new contract does not allow for any paid sick days, which was the sticking point during negotiations. Unlike nearly 80% of U.S. laborers, railroad employees are not currently guaranteed a single paid sick day. Rather, workers need to use vacation time if they are sick or need to see a doctor, which must be requested days in advance. Rail companies would not agree to allow sick days due to their Precision-Scheduling Railroading (P.S.R.) model which aims to streamline operations by transporting more freight using fewer workers and railcars. Any unscheduled sick time would be highly disruptive to this model.
The House passed a contract which included seven paid sick days. However, this was rejected in the Senate. The measure needed 60 votes to pass, but only received 52.
China COVID-19 Protests
Protests against the strict zero-tolerance COVID-19 measures continue in China’s largest cities. Protestors took to the streets in candlelit vigils and boisterous protests, holding up blank pieces of paper to express their discontent and acknowledge the federally imposed media censorship. Some protestors even went as far as to call for President Xi Jinping’s resignation, a demand that is highly unusual in China. Public criticism of the Communist Party or the government can result in harsh penalties to Chinese citizens.
Protests began in the city of Urumqui, where lockdown rules were blamed for hindering rescue efforts in a tower block fire which killed 10 people.
Millions of citizens have been affected by nearly three years of mass testing, quarantines, and snap lockdowns. The zero-tolerance policy included lockdowns of entire communities, sometimes for weeks, after just one positive case was reported.
In an effort to stem the protesting, authorities announced an easing in the COVID policy including a reduction in mass testing, a lessening of quarantine protocols and a pledge to increase the vaccination rate of the elderly. Mass testing will no longer be conducted in areas that are not considered high risk. The change does not dismantle the policy but loosens some of its measures. While cases remain at an all-time high nationwide, officials claim the ability of the virus to cause serious illness is weakening.
How is Vanguard Safety Working Through These Challenges?
We constantly monitor the ever-changing supply industry to ensure that our products are delivered on time and in spec. These are just some of the steps we’re taking to provide the best PPE to our customers.
Highest Quality Products – At Vanguard Safety, we deliver tailored, VGuard® branded products engineered to help our customers expand their business. Our disposable gloves meet 1.5 AQL or higher. All our products exceed FDA requirements and are produced in ISO 9001 certified facilities.
Expanded Reach – We are excited to announce the opening of our newest Vanguard Safety DC near Los Angeles! Located at 131 West Perry St in Perris, CA, this new DC will increase our stock levels and service our customers faster. We have also expanded our sales reach on the west coast by partnering with two high caliber agencies, Lawless Group and Western Maintenance Sales.
Social Responsibility – At Vanguard Safety, we believe in Vision with Values. It’s not just enough to make PPE, we want to make it the right way. Our products are all sourced responsibly, ethically and sustainably. Factories are visited regularly to assess environmental and social impacts on production.
Continued Growth – We’re growing fast! We continue to hire integrally important people to our roster to better serve our customers, including Matt Brady, our new Sr. Director of Operations who will be overseeing our warehouse operations and domestic QC process. In order to align our expertise with our customers’ needs, we’ve also doubled our product offering this year, including over 55 new SKUs of protective apparel, 11 new styles of Chemical Resistant Gloves and 7 new styles of warehouse gloves.