Transatlantic Ocean Rates Still Elevated as other Lanes Level Off
Strong demand has kept Transatlantic ocean volumes and rates elevated. Container prices are 19% lower than a year ago, but due to the increased volume seen at the East Coast ports, rates have not decreased as substantially as other ocean corridors. For example, rates to ship a 40 foot container from Asia to the West Coast have decreased by 80% since April of 2022.
Ex-Asia ocean rates continue to stabilize, with transpacific prices well below 2019 levels. Our Vanguard Safety team is managing carriers in order to reduce capacity and potentially put upward pressure on prices, while rates have been stable.
Reports of workers causing small-scale disruptions at West Coast ports are the latest development in labor negotiations that have been stalled for months. This volatility continues to push volume to the East Coast and Gulf, hence the high numbers seen at the East Coast and Gulf ports.
In an attempt to stave off similar issues seen on the West Coast, union locals at East Coast ports that represent dockworkers at 36 ports from Maine to Texas have opened contract talks with employers. This is well ahead of the current multiyear agreement which isn’t set to expire until next year. Maritime officials say the early start to negotiations is a signal that both sides are eager to get a new contract done in order to avoid the disruptions seen on the West Coast.
PPE Market Challenges, Improvements and Outlook
- Lead Times – Lead times are averaging 122 days, which is an improvement from the 180-day lead time at this time last year.
- Tariffs – The section 301 tariff, the Covid exclusion items, will end at the end of February. Specific to Vanguard Safety, as of March 1st, the 7.5% tariff rate will resume for Isolation Gowns (6210.10.5090) and our VGuard® Lab Coats (6210.10.5010).
- Gloves Market Outlook – The global market was valued at $6.9 billion in 2019. As the industry recovers from Covid “tailwinds” the market is projected to reach $14.8 billion by 2027, growing at a CAGR of 10.4% . The market outlook is a revision from prior market research updates, exceeding 14.5% CAGR.
Source: AlliedMarketResearch.com
- Raw Material Costs and Global Demand - Nitrile raw material and latex manufacturing costs have both increased due to labor and natural gas increases. Conversely, FOB costs have remained flat for the past several weeks.
- Malaysia WRO and Labor Shortages - We continue to review and capture market opportunities as our competitors have been managing bans and fines specific to Withhold Release Orders (WRO).
2nd Chinese COVID Outbreak Conjectures Possibly Overblown
With a large number of the Chinese population traveling throughout the country for Lunar New Year, supply chain managers fear a crippling second Covid outbreak. Yet experts are forecasting a shorter and much less severe disruption than the first wave.
As China relaxed restrictions in its Zero Covid policy late last year and reopened its economy, there were reports of major outbreaks at factories and ports. Reduction in their workforce has caused heavy congestion at Chinese ports, as shown in the below heat map.
Source: CNBC.com
Shanghai medical researchers projected in a recent study that major Chinese cities would already be through the worst of Covid by the end of 2022, while rural areas and remote provinces would see the worst infection spikes during mid-to late January.
However, a top Chinese government scientist asserts that with up to 80% of the population already infected with Covid, the chances of a major outbreak over the next two to three months are remote.
Sustainability in Post-COVID World
PPE is critical in order to provide a protective barrier against infectious disease. However, much of the PPE used today is single-use, made of plastic-based synthetic fibers. During the pandemic, the proportion of masks found in litter increased 80-fold, while the increase of disposable gloves and wipes found in the trash doubled.
Here at Vanguard Safety, we are cognizant of our role in trying to create more sustainable solutions to this single-use issue. We are in the process of adding a new nitrile biodegradable disposable glove, which will degrade by 90% in 490 days without any change to the glove’s fit, form, or function. This is a vast improvement from regular nitrile gloves, which could take over 100+ years to fully degrade in a landfill.
Slowing Domestic Warehouse Construction
Construction of new warehouses is slowing as developers grapple with rising interest rates and declining leasing activity, potentially prolonging an ongoing shortfall in logistics space.
U.S. industrial construction starts fell 24% in the fourth quarter of 2022 compared with the previous year, according to data from real-estate analysis firm CoStar Group Inc. Developers began building about 137 million square feet of new warehouse space, the lowest amount of new space to start construction in a quarter since the beginning of the pandemic.
The slowdown in construction could create both a decrease in vacancy rates and, consequently, space shortages. The slowdown is a sharp shift from the furious pace of warehouse expansions during Covid. During the pandemic, In order to accommodate the surge in e-commerce orders, companies leased a record-high amount of space. However, as the spike in online shopping has somewhat receded as consumers deal with inflation, retailers have slowed their leases in order to accommodate this trend.