Mixed Messages on Supply Chain Chaos
There are conflicting reports about the state of the supply chain. Consider these headlines from the last week:
“Hints of Progress Raise Hopes for Supply-Chain Normalcy“
“Port of L.A. Chief: Shipping to Normalize in Second Half“
“Maersk CEO sees more supply chain trouble ahead”
Maersk is the second biggest shipping company in the world (we include them in “The Toy Intelligencer Composit Toy Stock Index.”) They are up to their necks in the supply chain mess so we need to listen when Maersk CEO, Søren Skou, speaks. Here is what he had to say:
“Right now the situation does not appear to be getting significantly better. I wish I could say that things are getting better, but right now there’s nothing in the numbers to suggest so…global trade is actually constrained by the shipping capacity that’s available.”
Conversely, Port of Los Angeles Executive Director Gene Seroka (who we have interviewed on The Playground Podcast) is hopeful that this year’s shipping season will peak in June or July, which is earlier than in past years. Therefore, he is looking for shipping to be back to normal in the second half of the year.
Although the two men take somewhat contradictory positions, there does seem to be light at the end of the tunnel. The number of ships sitting off the Port of Los Angeles is down to 78, down from 109 last month.
Rampant Container Ship Construction Could Lead to an Eventual Glut
Over the last two years, the lack of containers and container ships has led to record-setting container ship construction. Here is how “The Maritime Executive” puts it:
Last year saw an increasing number of containerships ordered to operate with dual-fuel systems as the overall orderbook rose to record highs. VesselsValue reports. There was a quadrupling of vessel orders from 2020 to 2021. In December 2021, they highlighted that 555 containerships had been ordered.“ In 2021, the number of container vessels ordered surpassed 2017, 2018, 2019, and 2020 combined.
It takes three years, on average, too build a container ship. As a consequence, by 2025 we could see a glut leading to a sharp decline in freight costs.
A Cap on Plastics Production?
Will the world agree to put a cap on plastics production? It could happen. That’s according to a Washington Post article by Michael Birnbaum and Min Joo Kim entitled, “Plastics production is skyrocketing. A new U.N. treaty effort could cap it.“
Diplomats could agree to caps on plastic production that would forestall the exponential increases that are expected in the coming decades. They could also impose rules to make plastic easier and less toxic to repurpose, amid growing concern that only 10 percent of the material ever made has been recycled.
The plastics issue is not going to go away. The toy industry needs to double down on Eco-plastic and other alternatives.
One of the biggest issues in capaclty is not the tonnage available to ship containers, but the number of round trips completed each year by each existing ship. On my estimation, what use to be near 5 round trips on average from China to West coast/ East Coast ports or to Europe is currently running at 3 to 3.5 round trips, ie a cut in effective capacity of over one third. When this is corrected and then the extra tonnage comes on board, then it will be a buyers market again.