Maersk Asia Pacific market update (August 2022)

We expect that supply chains will come under further strain in the next few weeks especially in Europe where labor unrest and the impact of climate change add to port congestion and cargo delays. In the UK, an eight-day strike by dock workers at Felixstowe, Britain’s busiest container port, that started on August 21, will be felt up until at least mid-September as vessels are delayed and some cargo diverted to ports including Antwerp and Le Havre according to Maersk’s contingency plans. Low water levels on the River Rhine, a key transport artery into central Germany and Switzerland, are adding to cargo congestion in Rotterdam, Hamburg and Zeebrugge. But there are brighter spots, China increased foreign trade volumes in the first six months despite COVID-19 lockdowns in major cities including Shanghai. And Maersk is strengthening its logistics operations with an agreement to acquire project cargo logistics specialist Martin Bencher.

Market Trends

China’s foreign trade of goods increased by 9.4% to 19.8 trillion RMB in the first half of this year, according to data from the General Administration of Customs. Exports rose 13.3% to 11.14 trillion RMB while imports climbed 4.8% to 8.7 trillion RMB, despite the impact from recurring outbreaks of COVID-19 including a two-month lockdown in Shanghai.

Member countries of the Association of Southeast Asian Nations (ASEAN) were China’s largest trading partner with imports and exports rising 10.6% to 2.9 trillion RMB, followed by the European Union with imports/exports up 7.5% to 2.7 trillion RMB. Trade with the US, China’s third largest trading partner, grew 11.7% to 2.5 trillion RMB. China's imports and exports to countries along the Belt and Road Initiative surged to 17.8%, while trade with China’s fellow members of the Regional Comprehensive Economic Partnership agreement posted a 5.6% gain.

Trending Topic

Martin Bencher: Maersk has extended its logistics capabilities after reaching agreement to acquire Martin Bencher Group, a Denmark-based asset-light project logistics company. Martin Bencher specialises designing end-to-end project solutions for its customers in key industries such as pulp and paper, renewables, power, construction and mining, oil and gas and cranes and infrastructure. The acquisition is expected to be completed by the first quarter 2023 following the granting of all regulatory approvals. Maersk hopes this intended acquisition will create further opportunities for our customers to have an integrated end-to-end logistical network.

Project Logistics: As part of the Martin Bencher acquisition, Maersk is updating its project logistics strategy with the creation of Maersk Project Logistics (MPL) that will operate as a solution-based global product. Maersk Project Logistics will augment the company’s existing project logistics services by offering the combination of solution design, special cargo transportation and project management services. It will build on existing infrastructures and know-how across the existing project logistics business in sales and marketing, ocean and L&S Special Project Logistics (SPL).

Macroeconomics: Recession risks are rising in the US and Europe after short-term indicators turned negative in Q2. In the US, underlying demand held up more firmly than expected in Q2 although indicators suggest sharply weaker growth going forward amid growing inflationary pressures. Eurozone PMI surveys declined sharply in July and consumer sentiment hit a pre-COVID all-time low. With price indices running very high, the Eurozone appears to have entered a period of stagflation. The US Federal Reserve and the European Central Bank will likely increase interest rates further to combat inflationary pressures, a move that put further downward pressure on housing markets.

For Technology and Electronics Customers

Technology & Electronics customers manage a budget, equivalent to 15% of the revenue to support the company’s growth ambition i.e., mostly centers around (steadily/significantly) growing their business in the Asian market.

Hence, most successful and sizable Asia-Pacific based customers would work towards at least one of the three growth ambitions:

• Keep growing in Asia
• Uprise in Asia
• Go Global

For the last 18 months, the logistics/supply chain challenges of Asia-Pacific customers have extended at both ends and customers have experienced disruptions in nearly each and every step of their supply chains; which called for need of making fundamental changes in the way they are looking at and managing logistics and supply chains.

Technology companies are re-examining their value chains to improve resilience and agility. However, they still face challenges as the bottlenecks from the start of the decade persist. Today, a growing number of industry leaders and their lead logistics partners consider digitization a strategic imperative for supply chains, with 61% of respondents in a recent report mentioning it as a source of competitive advantage.*
*Source: Gartner, April 2022

Along with technology, some distinct themes are providing companies within the industry with pivotal opportunities to grow:

Complexity of sourcing components

• Speed to market has become critical for success due to increasingly high consumer demand and shorter product life cycles.
• Research shows that many industries are competing for similar components, fueling more shortages. Companies are, in turn, rethinking just-in-time (JIT) strategies.*

Digital transformation is gaining speed

• Studies show that digitalization is gaining speed to reduce costs, streamline business processes and bring more transparency.*
• New-age solutions like digital databases and graph analytics are being implemented to create a connected supply chain.

Seamless integration through omnichannel retail

• Current trends indicate that rising customer expectations have reduced delivery times, adding more pressure on companies*
• Companies, meanwhile, are pushing for seamless integration of offline and online channels to create a combined user experience.

A tech-led push towards sustainability

• Growing Environment Social Governance pressures could trigger technology companies to increase their focus on sustainability.
• A recent corporate study showed that companies are realizing the importance of scaling modern technologies for a more sustainable manufacturing process. Circular economies and other emerging solutions are also expected to grow.*

*Source: Bain & Company, 2022

Manufacturing, particularly within the tech and electronics industry, is moving away from a China-focused, cost-centric model, and towards a more diversified, regionalized strategy with a much stronger focus on resilience and agility. This change is driven by geopolitical developments such as the US/China trade war alongside increasing labor costs that have combined to make China a less attractive manufacturing base. Black swan events such as COVID-19 have served to validate this approach with manufacturers quickly realizing the risk of having too lean a supply chain.

Trends: Consumer spending on Technology & Electronics is expected to reach US$ 505 billion by end of this year globally.

In this positive trend, the Asia-Pacific region (including India) represents 47% of the global sales of Consumer Electronics vs. Europe (19%) and North America (18%).

Same level of high representation of Asia-Pacific region (47% including India) has also seen for Consumer Appliances category vs. Europe (20%) and North America (21%).

And, the Asia-Pacific Technology & Electronics market is forecasted to further grow year on year with CAGR 3% till 2024.

The growth in Asia-Pacific will be led by Eastern Asia, which includes China, Japan and South Korea.

From the production side as well, the Asia-Pacific-based companies dominate the Technology & Electronics vertical – 8/11 CE companies and 3/9 CA companies are from Asia-Pacific.

Chips: The chip shortage has been a problem for the technology industry since the beginning of 2020 and is predicted to still be prevalent well into 2023.

Increased design complexity, talent shortages, supply issues and geopolitical conflicts are resulting in product lead times of six months or more, even with fabs operating at full capacity.

Finding solutions now (short term)

• Coordination and collaboration
  By collaborating and co-engineering with other key players, companies can expand their design and manufacturing centers, attract more talent, and obtain more development ability. This allows for cost saving ventures, as well as more streamlined coordination with previously untapped stakeholders.
• Redesigning and reformatting
  Many companies and manufacturers should look into accommodating older chip technologies, both in production and in engineering. “Used” or “old” chips and older equipment means the ability to reformat chips from an “earlier” generation, allowing manufacturers to use them in new devices.
• Software upgrades
  The same chip found in different products, such as a computer, an interactive home device and a phone, all run on different software, adding complexity to creating software to work with the chip. By moving towards programmable logic ICs, software can play a key role in upgrading existing chips.

Planning for the future (long term)

• Expanding production
  Increasing output isn’t a short-term solution, but a long term one. Fab construction is time consuming as well as costly, usually needing 3 years to build plants. However, many countries are supporting this. With heavy investment in the industry, including a 50% increase noted this year, increasing volume of production is expected in the long term, which will allow for more resilience and agility within production.
• Increased Research & Development
  Research and development in the chip industry can be very time consuming, with extensive work and long timelines. Prior to the current predicaments the industry is facing, this hasn’t been an issue, but the current situation has highlighted a need for more capacity for Research & Development areas dedicated to looking at adapting to supply volatility. This would help avoid bottlenecks and crunches in local and global markets, increasing supply chain resilience and stronger brand positioning.
  In an industry that is becoming more and more aware of its need for agility, flexibility, and resilience, expanding and reworking strategies within research and development will allow for companies to be prepared to upscale and downscale resource supply, production, product allocation and strengthen pricing strategies.
  By redesigning the overall design, companies can reduce the number of specialized components and redesign to use more commonly found components and materials.

The pandemic has changed the perception of logistics. Speed through the supply chain is a skill all tech companies must own to ensure they are prepared to grow in the future. Read Maersk’s e-book to understand how high-tech logistics can achieve speed in today’s global economy. To find out more our 5 ways to enhance speed to market using integrated supply chain strategy, please visit here

Ocean Update

European Ports: Europe’s port situation remains the center of attention for the industry, most of the major European ports in Netherlands, Germany, France and Belgium remain severely congested due to multiple factors including strikes, lack of trucker driver etc. Felixstowe port has just announced an eight-day strike from Aug 21-29th which will cause significant operational delays. Despite various efforts to alleviate the situation, we do foresee the situation to continue and cause delays and disruptions towards customers’ supply chain into early September.

Our teams are working hard to establish a number of contingency measures that minimize the impact of strike action on our customers, including changes to vessel arrival and departure times to maximize available labor immediately before and after the strike. Asia-Europe services will be the most affected. Several sailings will be delayed until after the strike ends on August 29. Two vessels - MSC Sveva operating the AE6 service and Cosco Vietnam operating the SLC service - will omit calls at Felixstowe and instead cargo will be offloaded at Le Havre and Antwerp respectively and shipped back after the strike has ended. A third vessel Vilnia Maersk operating LO1 will omit Felixstowe and call at London Gateway instead. Customers are advised to check the latest situation on our customer advisories webpage - Advisories | News & Advisories | Maersk.

Elsewhere, stevedores have also voted to strike at Liverpool, Britain’s fifth largest container port, which is likely to further worsen supply chain bottlenecks. In Germany, port workers met with German port companies (ZDS) on August 22 for a tenth round of talks on new pay and working condition agreements.

Recent Container Development: Global trade volumes declined by 2.3% y/y in Q2 2022, and demand levels slowed down below the pre-Covid-19 trend. Compared to Q2 2019, average growth was only 1% (CAGR).

Stink Bug (BMSB) Season: Australia’s Department of Agriculture, Fisheries and Forestry (DAFF) has announced it will introduce seasonal measures to tackle Brown marmorated stink bug (BMSB) in all containerized, breakbulk and related ocean shipments. They will apply to targeted goods manufactured in or shipped from target risk countries between September 1 and 30 April, 2023 and to vessels that berth, load, or tranship from target risk countries within the same period. DAFF also confirmed that China and Britain are emerging high risk countries and random inspections will be carried out on goods shipped from China between September 1-December 31 and on goods from the United Kingdom shipped between December 1-April 30. Existing target risk countries include Europe, the US, Canada, Ukraine and Russia, while target risk goods include wood products, most metals, electrical machinery, vehicles, carpets, glass and stone products.

Key Market Outlook Across Trade Lanes

Key Market Outlook Across Trade Lanes

Australia and New Zealand: The market is showing mixed signals with airfreight costs on some trade lanes softening although this is driven by a large drop in air cargo demand into Australia and New Zealand. With peak season expected to start in September, the softer rates are likely to be short lived. Airfreight volumes from China show some improvement but transit times remain extended while the Hong Kong market remains stable into Oceania. Trans-Tasman airfreight costs and transit times are being affected by limited new capacity.

Japan: Narita saw a 12% drop in international cargo flights in the first six months of this year partly due to Covid 19 control policies in China, especially in Shanghai.

Indonesia and Philippines: Inland volumes are expected to rise in the pre-Christmas period. There is sufficient trucking capacity to cater for inland export and import cargo, domestic overland and inter-island shipments during the peak season.

Vietnam, Cambodia, Myanmar: Fuel prices have eased by 5-10% across Vietnam, Cambodia & Myanmar driven by multiple factors. Cambodia and Thailand have signed an MOU on logistics cooperation focusing on logistics costs and performance and strengthening institutional and stakeholder capacity. The scope & level of Infrastructure fee in Ho Chi Minh City has been revised effective 1st of August.

Major Port Update

Remark: Numbers are dynamic and subject to change.