Disruption Report #37: 200,000 Containers Wait Off the Coast of Los Angeles, Toy Companies Return Manufacturing to China, and Cost of Air Freight At All-Time High

Toy Companies Returning to China

A business contact in China informed me that U.S. and European toy companies who had off-shored some production to other Asian countries were bringing their manufacturing back to China – at least for the near future. It seems that due to the Covid pandemic, output in some of these countries is down 50%.

After my phone call, I almost immediately came upon this headline from Bloomberg News, “Vietnam Electronics, Apparel Sectors Facing 50% Worker Shortages.” Here is how the article puts it:

Electronics manufacturers nationwide are operating with a shortage of nearly 56% of workers and garment makers are facing a lack of 49.2% of employees, according to the government website, which cited labor ministry data. The leather and footwear sector reported a 51.7% worker shortage.

If electronics and garment manufacturers are experiencing this kind of drop in productivity, certainly toy producers are as well. Bottom line, due to its population and infrastructure, China continues to be the safest manufacturing bet, at least for the foreseeable future.

Demand for Airfreight Sending Costs Up

Bloomberg News ran this headline this morning: “The Cost of Air Freight Soars in Rush to Speed Holiday Goods.” The article, written by Siddharth Vikram Philip, states that the cost of flying freight from China to Europe hit an all-time high this week. It also informs us that the cost of flying goods from Hong Kong to the U.S. peaked last month and has stayed there.

Not surprisingly, the stress on containerized freight carriers has prompted concerned importers to turn to airlines.

How bad is the demand for airfreight? Amazon is looking to buy used, long-range cargo planes. That’s how bad. (I am sure they are out there but I have never met a used airplane sales person.)

200,000 Shipping Containers Are waiting to unload in Los Angeles

The ports of Long Beach and Los Angeles are America’s busiest points of entry for ocean freight. They are way beyond capacity as 200,000 shipping containers wait to be unloaded. If you are an importer, your cargo is probably sitting in one of those containers.

One of my sources informed me this week that 90% of his customers goods were either somewhere on the ocean or sitting off the coast of California. He’s feeling a bit anxious.

Gene Seroka, Director of the Port of Los Angeles, who I interviewed on The Playground Podcast, feels, despite the backup, that things are starting to get better due to expanded working days. He told CNN reporter Alexandra Meeks:

“We had 25% of all cargo on our dock sitting here for 13 days or longer [and] that’s been cut in just about half over the last week.”

“North America’s biggest container port faces record backlog,” Alexandra Meeks, Chris Isidore and Vanessa Yurkevich, CNN Business

Seroka believes things will be better by February of 2022. Unfortunately, that’s a little late for this year’s Christmas shopping season.

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