Paying for the pandemic’s period of plenty – May 2021 in 10 reports

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The economic boom that has resulted from governmental stimulus programs has generated a period of plenty for manufacturers, retailers and logistics firms in the wake of the pandemic.

That comes with a cost, or rather a range of supply chain cost increases, which have formed the focus of our readers’ attention in May. Our deep-dive into the causes of supply chain inflation and corporate reactions shows price increases are becoming more popular, with case studies for Peloton and Adidas among the most read reports.

Shortages of components have beset Sony while labor challenges in India from the resurgent pandemic have hindered Foxconn. The logistics sector, particularly the freight forwarders, has done well with innovations such as pop-up railyards helping to alleviate congestion.

The pandemic is still firmly present though, raising continued questions about the best way to ensure widespread vaccinations and continued efficient operations of medical supply chains more broadly.

#1 Peloton pays up to step up shipments, faces further challenges ahead (May 17)

Peloton reported FQ3’21 (to March 31) revenues which climbed 140.6% year over year. The firm is still facing shipping challenges, though a 952.8% year over year jump in U.S. seaborne imports linked to the firm in Q1’21 and a further 358.3% surge in April suggests they may be clearing.

That’s come at a cost with CFO Jill Woodworth noting the firm faced “outsized onetime shipping investments to reduce our order to delivery time frame” and that they will “incur logistics costs to pick up returned Treads and Tread +” following a safety recall.

Other fitness brands have been seeing outsized growth with imports linked to ICON Fitness and Nautilus rising by 395.0% and 475.6% respectively in April. Peloton and ICON Fitness also face challenges from an intellectual property infraction suit brought by DISH Networks which could interrupt their ongoing shipment recovery.

ICON and Nautilus run ahead of Peloton

Chart segments U.S. seaborne imports of fitness equipment by consignee on a monthly and three-month average basis. Source: Panjiva

#2 Union Pacific’s pop-up plans could help cut consumer goods congestion (May 11)

Union Pacific plans to open a new rail terminal near the ports of Los Angeles and Long Beach for shipping multimodal freight to the Chicago area. The rail operator will start with a “pop-up” operation which will “reduce truck traffic on California’s road” as well as “cut drayage costs” for importers.

Union Pacific has seen a surge of multimodal traffic in 2021 with handling of containers and trailers up by 8.6% and 29.0% respectively in Q1’21 followed by growth of 34.8% and 52.3% in April. The year-over-year rise partly reflecting comparisons to the pandemic-lockdown period a year earlier.

There were 435,850 TEUs of containerized freight imported to Los Angeles and Long Beach with destinations in the 200 km around Chicago in the 12 months to April 30. Major users of the routing include consumer goods firms which have been expanding rapidly. Examples include Spectrum Brands and Wolverine World Wide with growth of 138% and 15.0% year over year respectively in the four months to April 30 versus a year earlier.

Consumer shipping expanding rapidly, industrials lackluster

Chart segments U.S. imports via LA and Long Beach to the 200km around Chicago by consignee on a trailing three-month total basis. Source: Panjiva

#3 Sony needs to level up PlayStation supplies with shortfall through 2022 (May 14)

Sony has indicated that supplies of PlayStation video game consoles will remain tight compared to demand until 2022. Shipments of consoles have been robust, with U.S. imports of video game consoles and accessories having surged 233.4% year over year in Q1’21. That may include imports that had been held up by widespread U.S. port congestion.

U.S. seaborne imports linked to the Xbox brand climbed 265.3% year over year in Q1’21 and by a further 296.1% in April. This was faster than increases in PlayStation and Nintendo associated items, which rose by 52.2% and 167.7% year over year respectively in Q1’21.

Xbox tops shipment leaderboard

Chart segments associated with Nintendo, PlayStation, and Xbox brands on a monthly and three month average basis. Source: Panjiva

#4 Adidas spends to hurdle supply chain challenges, Puma leaps ahead (May 10)

Adidas reported Q1’21 revenue growth of 20.2% year over year in Q1’21 despite “industry-wide supply-chain challenges”. The firm’s CFO, Harm Ohlmeyer, noted that “freight rates are already up significantly and might see further increases given the container shortages that we have seen” though the firm is still willing to pay those higher costs to ensure deliveries to customers.

U.S. seaborne imports linked to Adidas climbed 17.3% year over year in Q1’21 before rising by 11.0% in April. The latter was however still 13.7% below the same period of 2019.

Adidas’s rival Puma grew more quickly, with an expansion of 200.8% year over year in April equivalent to a 119.3% rise versus April 2019. Nike meanwhile grew by a more sedate 8.2% in April versus a year earlier.

Puma’s accelerating, Adidas and Fila still behind 2019 levels

Chart compares U.S. seaborne imports of apparel and footwear by consignee. Source: Panjiva

#5 Hapag-Lloyd, CMA CGM peak surcharges come without a peak season (May 4)

Hapag-Lloyd and CMA CGM have applied peak season surcharges to shipping rates from Europe to North America of $500 per FEU (forty-foot equivalent units) and $1,000 per FEU respectively for departures from June 1.

For context Hapag-Lloyd’s new rate on Mediterranean to U.S. east coast routes is now $8.275 per FEU. The increases follow a 22.7% year over year surge in shipments to U.S. east coast ports from European ports in April to a record of over 425,000 TEUs.

Notably there hasn’t been a consistent peak season for shipments on the lanes in the past four years. Both CMA CGM and Hapag-Lloyd have seen their volumes handled on the routes grow more slowly than the industry overall recently.

Shipments handled by CMA CGM rose by 5.1% year over year in April while Hapag-Lloyd’s increased by 19.4% while the total for all liners, led by Maersk and MSC, jumped 22.7% higher.

Maersk, MSC lead expansion on Europe-U.S. lanes

Chart segments U.S. seaborne imports from European ports to U.S. east coast ports by container-line. Source: Panjiva

#6 Price hikes, trade cutbacks become more common as inflation worries widen (May 18)

Supply chain inflation has become an increasing preoccupation since U.S. import prices returned to inflationary territory in October 2020. Import prices excluding food and fuels climbed 7.2% on a sequential, annualized basis in April while the index reached its highest since Feb. 2013.

A mixture of rising commodity prices, higher freight costs and shortages of key components including semiconductors are all to blame, raising the question as to whether firms will pass on higher costs. In terms of building supplies that is very much the case, with MDU Resources stating the firm has “been able to pass those costs on in our bids or in our materials side”.

Panjiva’s analysis, using S&P Global’s Textual Data Suite, shows that 56.0% of firms holding conference calls in April and May mentioned inflation as a topic, compared to 48.0% in Q1’21 and 35.9% in Q4’20. Supply chains and logistics more broadly are also increasingly being discussed with 58.7% and 53.7% of calls respectively discussing the topics.

The increase in discussions of inflation has been most prevalent in Household Products and Leisure Products firms, with 100% and 90% of calls respectively discussing the topic. Notably there’s also been a surge in mentions in the semiconductor sector with 77.3% of firms discussing inflation in April and May, up from 26.8% in Q4’20, suggesting pricing may be one solution to the current chip shortage.

There are signs that firms are starting to cut back their supply chain activity in response to higher costs, though only nine out of 20 companies analyzed in depth cut their U.S. seaborne imports in April versus Q1’21. Shipments linked to Steve Madden and Lakeland were down by 55.9% and 45.2% respectively.

Most firms are still increasing their shipments and either passing through higher costs to consumers or absorbing them in gross margins in the attempt to boost net profits. Imports linked to PPG and Lovesac rose by 100.8% and 45.4% showing the theme applies across both industrial and consumer oriented industries.

Supply chain cutbacks becoming more common, but still in the minority

Chart shows change in U.S. seaborne imports in April 2021 versus April 2019 and versus Q1’21 on a daily average basis. Source: Panjiva

#7 DP-DHL, Amazon gain from forwarder boom (May 17)

The freight forwarding sector continues to face a variety of challenges in what is normally the off-peak shipping season. U.S. seaborne imports surged 26.1% higher year over year and by 19.8% compared to the same period of 2019 in April.

While the demand for shipping services is up, employment in the waterborne shipping sector is still 3.1% lower than a year earlier in April, underscoring the congestion challenges. There’s also still a shortage of equipment according to S&P Global Platts, potentially leading shippers to prefer larger freight forwarders.

U.S. seaborne imports handled by DP-DHL and Expeditors surged 51.2% and 46.7% higher year over year respectively. Imports handled by Amazon, principally for Marketplace users from China, jumped 244% to a record 10,580 TEUs, confirming the importance of the consumer boom in the recent expansion of shipping activity.

Freight forwarding boom continues in April, for most

Chart segments change in U.S. seaborne imports by forwarder. Bubble size indicates handling in Q1’21, colors for emphasis only. Source: Panjiva

#8 Biden’s TRIPS waiver support won’t guarantee short-run vaccine boost (May 6)

President Biden has committed the U.S. to becoming “the arsenal for fighting COVID-19” with the release of 60 million AstraZeneca vaccine doses for export and support for the relaxation of intellectual property rules under the WTO’s TRIPS Agreement for vaccines.

Both are vital for vaccine rollouts in emerging markets as well as in America’s own backyard. Mexican imports of vaccines increased by 104% in March versus the prior three months’ average, with 39.2% of imports accounted for by AstraZeneca and Pfizer.

Agreeing new IP rules is likely to take months rather than days to achieve while supply chains also need to be built up. In terms of the latter, U.S. exports of all active pharmaceutical ingredients increased by just 3.0% year over year in March. Importantly though shipments to India rose by 19.2% after declining since October and reached their highest since at least 2016.

Supplies of APIs to India improving, still low

Chart segments U.S. exports of active pharmaceutical ingredients by destination on a monthly and three-month average basis. Source: Panjiva

#9 Foxconn’s India challenge shows limitations of onshoring as a risk mitigant (May 18)

Telecoms imports boom despite Make in India tariffs

Chart segments Indian imports of telecoms equipment and components by importer. Source: Panjiva

#10 ResMed, Baxter show COVID-19 is not the only challenge for medical supplies (May 5)

Medical supply chains have swelled in the past year as a result of demand for products ranging from PPE to ventilators needed to tackle the COVID-19 pandemic. While demand has been challenging there are also increasing supply chain issues.

Ventilator supplier ResMed has flagged “higher freight costs” while diversified supplier Baxter has noted “global supply chain challenges along with the Suez Canal” blockage. U.S. imports of products needed to diagnose and treat the pandemic climbed 5.1% in March versus February on a days-adjusted basis to reach $14.11 billion.

Shipments of PPE surged 26.1% higher sequentially while imports of oxygen therapy equipment reached their highest since the start of the pandemic. In April growth looks set to have continued with a 10.6% increase in U.S. seaborne shipments linked to ResMed compared to Q1’21 while Baxter’s inched 1.9% higher.

Resmed, Baxter continue to expand shipments in April

Chart shows U.S. seaborne imports by consignee. Source: Panjiva

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