Oil platform

Oil supply threat to road freight

May 30, 2022 | ,

While there has rightly been much focus on driver shortages and spiking fuel costs, it is a shortage of engine oil and lubricants that is currently the biggest threat to the road transport of freight.

Road transport is an inherent component in almost every freight movement and the critical collection/delivery method for logistics operations and with EVs almost non-existent in commercial fleets, the cost and availability of fuel, engine oil and lubricants is essential for vehicle availability and operation.

Quite simply trucks are the mainstay of just about every developed economy, because just about every product you consume has been delivered by a truck, in at least one and probably multiple segments of the supply chain.

Soaring petrol and diesel prices have contributed to rising haulage costs which have risen by 16% over the last three years, but it is another type of oil that may finally bring the world’s commercial vehicle fleet to a (literal) grinding halt. 

When the Corona pandemic first spread, global demand for fuel for road traffic and especially paraffin for aviation collapsed, with demand for the latter falling by 82%.

In the refinery process a lot of paraffin is released and these large quantities cannot be stored so refinery capacity was reduced, which means that other refinery products, including the raw materials for producing base oil for lubricants, remain in short supply, which has led to a worldwide shortage of base oils.

In addition many crude oil producers postponed planned maintenance because of the pandemic and with many now shutting down to carry out critical maintenance activities, this has further reduced global supply. 

As the global economy began to recover, oil and fuel demand skyrocketed with shortages occurring everywhere. Almost every industry has been affected, and deficits are growing of the most common engine oils and lubricants, including 15W-40 and 5W-40 heavy-duty engine oils, full synthetic passenger vehicle oil, way oil, hydraulic oils, synthetic gear oils, and EP grease.

By 2021, lubricant manufacturers began to feel the pressure as base oil, and additive supply tightened worldwide. This strain caused seven record price increases from December 2020 to October 2021 for base oils and additives, compared to an average of just two annual price increases over the previous decade. These issues continue to plague the market in 2022.

Adding further turmoil supply chain bottlenecks were exacerbated by fierce winter storms that hit the US gulf coast, which had the effect of several major additive suppliers and their raw material suppliers invoking force majeure due to these extreme weather conditions.

This impacted supply of additives and chemicals for all lubricant categories. Then last summer, a massive fire destroyed Lubrizoil’s Chemtool grease and lubricant manufacturing facility in Illinois. 

Combined with increasing demand as countries (in some instances, temporarily) emerged out of lockdown, prices for both crude and vacuum gas oil (VGO, which is a mix of hydrocarbons produced during the extraction of crude oil) rose significantly, moving the price of lubricants up by a staggering 116% (140% for synthetics).

Supply is not going to increase any time soon. It is reported that suppliers are not just short supplying distributors’ orders but cancelling them altogether, often without notification. For some brands, distributors are finding that some of their suppliers are simply out of the product they need, with supply not being restored for at least six months.

But heavy engine oils and lubricants are not a discretionary purchase, they are essential for the reliable and ongoing use of light and heavy commercial vehicles and orders are being restricted to a limited allocation, with demand outpacing supply in the medium term.

There is one solution and that is not using heavy vehicles, which may well be the case in the US, as the country’s inventory levels of diesel have fallen to a 14-year low, with talk of diesel fuel rationing in some parts of the country.

Road transport cannot be avoided, as part of the international movement of goods, container movements and domestic haulage.

We work with a select number of strategically located long-term haulage partners, to give us access to the widest pool of equipment, where and when it is required

To learn more or to discuss any requirements, please contact Elliot Carlile or Simon Balfe, who leads our transport operations.

Yantian 3

China exports surge even as consumer demand weakens

May 30, 2022 | ,

Container volumes at eight of China’s top ports surged 25% to 16.8 million TEU in April, largely driven by consumers in Europe and the US, but manufacturers are anticipating weakening demand.

According to figures released by China’s Transport Ministry, only Shanghai recorded a decline in sea freight throughput in April, the first full month of the city-wide lockdown that has closed factories and slashed trucking capability and capacity, due to government restrictions in the movement of its Citizens.

Transport Ministry figures show month-on-month volumes at Shanghai fell 19% in April to 3.1 million TEU from 3.8 million TEU in March, while other ports, including Tianjin (+48%) Shenzhen (+43%), Guangzhou (+35%), Ningbo (+32%) and Qingdao (+31%) experienced double-digit increases.

Ningbo’s 32% increase in volumes, to more than 3 million TEU in April, was massively boosted as shippers diverted cargo, to avoid the disrupted trucking and port operations in Shanghai.

With Shanghai starting to ease lockdown restrictions carriers are reporting improving logistics and supply chain performance, with Maersk resuming operations at 25% of warehouses, including facilities in Pudong, the area closest to the main port areas at Yangshan and Waigaoqiao.

Despite the massive volumes moving through China’s ports, manufacturers are bracing for more pain as rising interest rates and inflation combine to increase prices and dampen US and European shoppers’ enthusiasm for goods, with many already shifting towards buying services than goods.

Some manufacturers are reporting that while overall demand remains robust, orders for delivery in the final quarter look weaker, with buyers becoming very tentative in restocking and ordering.

While some of the spending shift reflects a return to normal buying habits, some of it also reflects rising inflation and interest rates, fading government stimuli and volatile financial markets.

The slowdown isn’t a trade recession because underlying demand remains solid and consumers do have money to spend, but the downshift is notable and the WTO lowered its projection for growth in merchandise trade this year to 3%, down from its previous projection of 4.7%, while Asia’s manufacturing sector contracted in April for the first time since June 2020.

Evidence from South Korea, often seen as a bellwether for international trade, is showing an enduring slowdown in exports, with shipments from Taiwan also down and China’s lingering zero-COVID policy creating further hurdles.

While many financial indicators may point to risks in the global economy, amid recession warnings, we’re not there yet and any slowdown will enable global supply chains to shake off any lingering ‘performance’ issues, which in turn will ensure that the recovery, when it comes, will be super-charged by cost-effective and efficient global freight infrastructure.

Whatever challenges your supply chain may face, the long term fixed price and capacity agreements we have in place with our partner carriers mean that we are well positioned to continue to deliver resilient, consistent and reliable supply chain movements.

Metro’s cloud-based supply chain management platform, MVT, simplifies the most demanding global trading regimes, by making every milestone and participant in the supply chain transparent and controllable, down to individual SKU level.

To discuss how our technology could support your supply chain, please contact Simon George our Technical Solutions Director or Elliot Carlile.

Pudong

Demand for Shanghai sea exports may divert to air freight

May 30, 2022 | , , ,

As COVID lockdown measures are gradually relaxed in Shanghai it is uncertain how quickly export sea freight volumes will rebound, but many experts are anticipating a strong and sustained spike in demand creating a backlog of shipping containers, which could once again result in ocean shipments diverting and putting pressure on air freight, which is already experiencing reduced availability due to the lack of passenger aircraft, restricted movement through Russian airspace and carriers not finding the long haul route economically viable.

Shanghai port - the world’s largest container port - has remained open while the city’s lockdowns have disrupted manufacturing, trucking and freight operations for the past two months and the strength of the city’s manufacturing output recovery will determine if freight rates, which have stagnated, will increase sharply as peak season approaches.

While some believe that factories will recommence manufacturing steadily over coming months and ocean container shipping will resume the seasonal ups and downs we’ve been accustomed to before COVID-19, others point to the tremendous amount of cargo that is already awaiting shipment, estimated at 260k TEU, which combined with pent-up demand, can only result in a surge of pressure on container movements from the region.

The port is basically bursting with containers, and if not cleared or substantially reduced, there may be little room for export loading movements to occur as smoothly as they normally do, which in turn could pile on the pressure at Shanghai Pudong (PVG) airport.

Vessel traffic around the port is increasing with currently more than 3% of the global container fleet capacity stuck there and wider congestion is still having a profound impact, with serious congestion in both American and European ports causing sailings to return to Asia late, resulting in additional delays and blank sailings.

Meanwhile the huge backlog of containers at Shanghai grows, with no capacity to shift it and when you have all this capacity constraint and demand on the ocean freight side, cargo will simply begin diverting to air freight, to recover failures and delays in the supply chain. 

Importers who need their products to meet market demand, or to use in production, will use air to get those products as quickly as possible and that will also have an influence on capacity, which is more scarce today than it was two years ago. We know this as distressed sea freight and add this to the planned air freight for higher value products, with peak season due at the end of Q3, then there is likely to be a spike once production flows are recovered in the factories.

This could contribute to already elevated air freight rates, which have remained elevated due to the lack of capacity that followed airspace restrictions and the Shanghai lockdown.

Shanghai is loosening lockdown restrictions now, with the normal manufacturing and logistics environment likely to return in June and when it happens, we expect to see a surge in air freight volumes as shippers expedite products, that are needed on shelves the UK, Europe and the US.

We will continue to closely monitor the situation and update you as changes occur, but we do recommend checking with your vendors, to clarify the status of your orders.

We hope to see supply chains start to flow freely again quickly, as the pent-up demand for delayed goods could quickly create congestion, if operations are not running optimally.

We expect demand for space and spot/ FAK rates to increase very quickly and would suggest you start talking to us now about your potential requirements, so we can put appropriate plans in place.

To discuss how we support and protect your supply chain, please contact Elliot Carlile.

FXT slave loading

Avoiding container demurrage and storage charges over the Platinum Jubilee

May 19, 2022 | ,

As the country prepares to celebrate the Queen’s record-breaking reign, with an extended bank holiday, we consider the potential penalty traps waiting to catch out the unwary shipper during the break and how you can avoid demurrage, detention and port charges.

Shipping lines and ports levy time-based charges, to encourage swift return of containers and to penalise for extended use, or port space used.

Avoiding demurrage, detention and port rent charges, are always a race against time, because the clock is ticking from the minute a ship docks, with inbound containers, or an exporter collects an empty container for loading.

And that clock keeps ticking through bank holidays, which could be critical over the 4 day, Platinum Jubilee. Freight movements and related costs do not stop for weekends, holidays or the arrival and departure of vessels or aircraft, regardless of the circumstances, unfortunately.

As always, we want you to avoid these unwelcome fees, which is why we recommend best use of any free period, by planning ahead, to ensure your documentation is complete and delivery bookings are confirmed and completed before the 2nd June.

The run-up to the extended bank holiday will be particularly challenging for hauliers and we would urge you to coordinate your warehouse slots and labour availability, with booked deliveries, to avoid mishaps and penalties.

For more information on how we can help you avoid demurrage and detention fees, please get in touch with our sea freight team. Led by Andy Smith, Metro's sea freight director, they can advise and recommend the best solutions to avoid unnecessary costs. Sharing your forecasts, will aid scoping and planning, to agree best progression.

Category: Supply Chain

China | Coronavirus | Sea | Supply Chain

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