Channel Feels the Impact of Logistics Costs & Backlog

2021-06-22      |      Hit Count:1554

June 21, 2021  By Barbara Jorgense

While manufacturing has rebounded from the long Covid quarantine, the supply chain has not. Logistics operations – already short-handed – are dealing with a seemingly unending series of disruptions.

And there’s no relief in sight, experts say.

Shipping operations at the Port of Yantian, which were scaled back due to a Covid outbreak, have improved, according to Freightos, but congestion and delays are limiting capacity and keeping freight rates up. Asia-U.S. shipping rates to both coasts are now at least triple their level last June when transpacific ocean prices had already begun to climb.

freight, supply chain, manufacturing, Covid-19, delays, logistics

Source: Freightos Baltic Index; chart reflects year-over-year price per container (FEU)

The impact of the outbreak at Yantian will be amplified because the industry as a whole is already operating at a deficit – just as it was when the Suez was blocked – with no extra capacity to throw at new problems. The Freightos.com marketplace data show ocean shipments now arriving from China to the United States took 42 percent longer than last June and this will probably get worse before it gets better.

Electronics distributors manage the bulk of parts shipments around the world for component makers and OEM/EMS customers. The channel is feeling the impact of rate hikes; is expediting orders because of shipping delays; and is struggling to meet demand.

“Suppliers are communicating significant [10 percent to 15 percent] freight increases into them for the materials required in their manufacturing/packaging processes,” said Dave Doherty, president of low-volume, high-mix (catalog) distributor Digi-Key.  “Similarly, logistics partners have ‘Covid surcharges’ similar to the ‘fuel surcharges’ that were introduced a few years back.”

Catalog distributors typically ship thousands of orders per day. Asia-U.S. West Coast prices (FBX01 Daily) the week of June 14 increased 4 percent to $6,614/FEU --206 percent higher than the same time last year. Asia-U.S. East Coast prices (FBX03 Daily) climbed 6 percent to $9,889/FEU, Frieghtos reported, and are 244 percent higher than last year’s rates.

It’s not just shipping that’s backlogged. Land transportation is stretched thin due to a lack of workers. “There are shortages everywhere – materials, labor, logistics capacity – but there is still great demand with no end in sight,” said Tim Fiore, chair of the Institute for Supply Management’s manufacturing survey committee. Factories report paying more for materials and components but are optimistic due to continuing demand for manufactured goods.

Heavy-duty fleet organizations continue to face major challenges in the retention and recruitment of drivers at “a particularly perilous time,” according to Fleet Advantage, a trucking consultancy. Drivers are needed more than ever to continue moving the shipment of goods, food, medicine and vaccines across the United States.

Distributors are more frequently asked to expedite orders. “There are still significant delays in receiving at U.S. ports which has caused many suppliers to upgrade to air shipments to attempt to lessen customer impact,” said Doherty. “However, the surge of demand has overwhelmed many suppliers’ limited ability to be responsive to these expediting requests.”

In an effort to streamline their output, some suppliers are freezing their backlog within a 90-day window so they can be as efficient as possible to meet existing commitments, he added.  “This leaves very little room to move demand between products.”

Logistics delays are also making the supply chain less efficient, said the ISM’s Fiore. In order to rush deliveries, trucks are not being filled to capacity. A delivery requiring one trip now takes two or more.

logistics, channel, delaysYantain’s port returned to 75 percent capacity in mid-June after weeks of significant restrictions. The shutdown and resulting backlog, though most severe at Yantian, is causing regional congestion as carriers seek alternatives, according to Freightos.

The disruption is also expected to worsen empty container shortages at skipped ports, and the delays will also mean more cancelled sailings and effectively less capacity in June and July even as demand continues to surge.

Distributors are carrying more inventory – when possible – to keep manufacturing lines moving. However, a severe components shortage is hampering supplies as post-Covid demand bounced back more quickly than expected.

Digi-Key’s adding inventory wherever it can get the parts, said Doherty.  Catalog distributors carry every SKU they advertise but not in large volumes.

“We’ve been told that Digi-Key was one of the early distributors to see signs of increasing demand and quickly put additional committed backlog out with our suppliers, which has left us in a better inventory position than some others,” Doherty added.

As a sign of how expensive and desperate the current situation has become for even large importers, Home Depot has chartered its own dedicated container ship to ensure inventory keeps moving as peak season approaches, Frieghtos reported.

At the moment, with demand outstripping capacity, actual costs in the form of premiums and surcharges -- often necessary just to secure a booking -- can mean even thousands of dollars more per container, the firm added.

Guangzhou Sanjing Intelligent Electronic Technology Co., Ltd. will fully support customer for easy and smooth logistics. Guangzhou Sanjing Intelligent -- Your Reliable PCBA Partner.



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