While freight rates on major East-to-West ocean shipping routes have climbed higher through the second and third quarters, carrier service levels and on-time arrivals of container ships have plummeted amid increasing demand to close the holiday season. Through the end of the third quarter, on-time carrier reliability was below 50 percent on shipments from Asia to the U.S. East and West Coasts and down 69 percent for Asia to Northern Europe, according to data from Sea-Intelligence Maritime Analysis.
A report from CBX Software cited Sea-Intelligence Maritime Analysis in revealing that container ships were on average five days late in September and have continued to reduce capacity through the Covid-19 pandemic, which has kept prices high but left importers frustrated.
Importers are also dealing with port congestion, particularly in highly trafficked areas such as the Port of Los Angeles, on top of unpredictability in inventory forecasting and replenishment. Based on limited capacity, container shipping rates and service are unlikely to improve until well into 2021, the report says.
The Q4 2020 Retail Sourcing Report Forecast said that although it appears the supply chain is on the road to recovery through the fourth quarter and into the year ahead, companies still face a rocky road getting there.
Global trade in the third quarter dropped 5 percent year over year, and while this is a big improvement from the second quarter’s 19 percent year-over-year drop, overall world trade for the full year is still expected to contract by 7 to 9 percent relative to 2019, according to data from United Nations Conference on Trade and Development (UNCTAD).
China carries Asia-Pacific region in economic, trade growth
The silver lining is that these numbers reflect a better-than-expected outcome, with manufacturing in Asia recovering more quickly than expected and demand for goods continuing to strengthen in North America and Europe. The International Monetary Fund (IMF) forecasts a 2.2 percent economic contraction for Asia in 2020, with China keeping the region afloat with 1.9 percent growth.
After the market’s exports plummeted in the first quarter, they have since picked up in the remainder of the year, with UNCTAD projecting overall year-on-year growth of around 10 percent.
Chinese imports also grew strongly through the third quarter, reaching 13 percent growth in September. China also carries a Purchasing Manager’s Index (PMI) of 53.0 in the month (higher than all East Asian markets, with a reading above 50 indicating growth), with new manufacturing business growing at the fastest rate since 2011.
On the other hand, both South and West Asia saw imports drop by 23 percent and exports declined by 29 percent during the month. Vietnam, which saw PMI jump from 45.7 in August to 52.2 in September, remains the only other Asian country seeing economic growth. In the third quarter, the nation’s GDP rose by 2.62 percent, with exports increasing 11 percent.
Garment producing countries such as Bangladesh and Cambodia continue to be hard hit by cancelled orders and factory shutdowns, which have resulted in mass unemployment, growing hunger concerns and social unrest. Meanwhile, the economies of the Philippines (8.3 percent), Thailand (7.8 percent) and Pakistan are all set to contract in 2020, according to the IMF.
But apparel-related inspections plunge 15 percent
While sourcing and global trade picked up dramatically through the third quarter to meet demand, inspection and audit trends suggest that the recovery scramble has meant a sacrifice on sustainability and social compliance, according to data from quality inspection provider Qima cited in the forecast.
Demand for inspections in China grew at the rate of 11 percent in the quarter year over year, driven heavily from U.S. and European buyers in the electrical and electronics sectors.
However, there was significantly lower demand for inspections—actually decreasing 15 percent—in the Chinese textile and apparel sector, as apparel production continues to shift to lower-cost countries such as Bangladesh, Vietnam and others.
Overall, Southeast Asia saw a pickup in demand for inspections of 10 percent year over year, with growth in Myanmar, Indonesia, the Philippines and Vietnam, all of which took business from China. South Asia also saw growing demand for inspections and audits, led by Bangladesh where inspections grew 86 percent in September.
When it comes to inspecting products, it appears that apparel and textiles are the most examined merchandise worldwide, according to the Qima data. As a percentage of total inspections, adult garments were the top products inspected in China, Vietnam, the Philippines, Bangladesh, Pakistan, Turkey, India, Egypt, Peru, Nicaragua and Mexico.
While China’s adult garments only comprise 12 percent of total products inspected due to the country’s range of manufacturing capabilities, countries such as Egypt (90 percent), Peru (88 percent), Nicaragua (79 percent) and Mexico (70 percent) see the overwhelming majority of their inspections come in that category.
Cotton production dips in October, but prices see stable increase
The CBX Software report also cited Cotton Inc. data to touch on the decline in global cotton production, which has dipped slightly from 117.2 million bales in September to 116.3 million bales in October. While the big four of India, China, the U.S. and Brazil largely held firm in their production, Pakistan saw production slip from 6.2 million bales to 5.8 million bales. The rest of the world saw a month-over-month decrease in output from 24.7 million bales to 24.2 million bales.
The declining global cotton production coincides with an increase in global mill-use (1.5 million bales to 114.2 million) throughout the third and fourth quarter of 2020. This has led to a 2.7 million bale reduction for 2020/2021 forecasts, which still leaves cotton stockpiles as one of the highest on record.
Prices have increased steadily since pandemic-induced lows in early April and have held steady partly due to Hurricane Delta, which impacted the U.S. cotton belt. The New York Nearby, which represents contracts for future cotton deliveries, tabbed cotton at 67.6 cents per pound as of Oct. 9, a significant increase over the 62.6 cent per pound average in the 12 months prior. Similarly, the A Index, which is the derived as an average of the five cheapest prices among commonly traded cotton varieties, saw cents-per-pound increase from 71.2 to 73 as of Oct. 9.
While indicators are that cotton prices should continue to rise into 2021, volatility could arise from the transition to the Biden administration, ongoing U.S.-China (and U.S.-Vietnam) trade tensions and the length of recovery from Covid-19, the report concluded.
As prices for cotton continue to rise, synthetic fibers such as nylon and polyester fell dramatically throughout the third quarter on lower oil prices, currency devaluations and lower demand for finished goods from Asia, Europe and the U.S. Synthetic fiber prices in Asia fell by more than 20 percent year over year, with polyester most responsible for the loss.