Supply Chain by the Numbers

- Aug. 25, 2016 -

  Supply Chain by the Numbers for Week of Aug. 25, 2016

Another US Manufacturing Industry Disappearing; Truckload Rates Still Headed Down; China Fortune Cookie Says More Robots; Ocean Container Volumes Continue to Slide



That is how many US manufacturers of light gauge aluminum foil – the type used to wrap foods, pharmaceuticals, and boxes of cigarettes – are left, after Alpha Aluminum recently closed its production doors in North Carolina. The only company left standing: South Carolina-based JW Aluminum Co., after years earlier major aluminum producers such as Alcoa and Novelis exited the light gauge business. The cause: a flood of low cost imports, as usual most prominently from China. The US market for all aluminum foils is worth roughly $5 billion, and is now 36% supplied by imports, up from only 16% in 2007, according to the Aluminum Association, an industry group. The leading supplier is China, whose shipments of foil to the U.S. have risen almost 10-fold, to 265 million pounds, in the last decade, according to an article this week in the Wall Street Journal. A few companies, including Reynolds Consumer Products, which makes kitchen foil in Louisville, Ky., still have large market shares in niche markets, but even the kitchen foils sold under grocery-store names are increasingly made from product that is imported from China. Another US manufacturing industry is withering away.




That's how many industrial robots Chinese companies acquired in 2015, according to new data from International Federation of Robotics. That represented about 25% of all such robots installed. Demand is projected to more than double to 150,000 robots annually by 2018. What's behind the big surge in robot adoption? There are several factors. China's population of workers aged 15 to 59 is starting to shrink, forcing manufacturers to turn to automation. Second, the average hourly labor cost in terms of wages and benefits of $14.60 in China's coastal manufacturing heartland has more than doubled as a percentage of US manufacturing wages, from roughly 30% in 2000 to 64% in 2015, according to analysis from the Boston Consulting Group. So to stay the world's manufacturing giant, China must turn to automation. “China is saying, 'we have to roboticize our industry in order to keep it,'” says Stefan Lampa, an executive at German robotics firm Kuka AG - which is in the process of being taken over by a Chinese company if regulators there approve.


That's how many straight months that the Cass Linehaul Index, which measures US truckload rates before accessorials, fuel surcharges and other fees, has fallen year-over-year, in a sharp reversal of the trend in recent years. Cass said this week that rates in July were down 1.6%. Amazingly, before this five-month stretch, rates had not fallen in even one month since May of 2010, which ended an amazing string of 16 consecutive months of rate decreases coming out of the Great Recession. The analysts at Avondale Partners, which works with Cass on the report, predicts that pricing will remain at -3% to 1% for the remainder of 2016. It's no big secret what is going on – carriers across every mode of transportation called Q2 a very soft freight environment in their second quarter earnings reports. The ATA freight tonnage index fell 2.1% in July, following a 1.6% drop in June. Add in increased driver pay that is reducing turnover, and the supply-demand balance for the first time in years is really in favor of shippers.



That is all that global container shipping volumes will rise this year, even lower than earlier lukewarm projections of maybe 1-3% growth, as things continue to move in shippers' favor. That according to new estimates by the analysts at Alphaliner. That 0.3% growth would be the second lowest annual growth rate since 2009, when a record year-on-year decline saw global container volumes shrink by -8.3% in the aftermath of the financial crisis and recession. Total volumes at the world's top 30 container ports is estimated to have grown by only 0.2% in the first six months of the year, with weak growth recorded across all main regions, leading to the lower full year estimates. But carriers are starting to at long last reduce capacity, years overdue. For example, 7.1 million tons of container ship capacity is scheduled to be scrapped in 2016, about three times the level in 2015. New ship orders have also slowed dramatically in 2016. However, "It will take much more recycling and at least two to three years of no growth in capacity to see some balance between supply and demand," says Basil Karatzas, CEO of Karatzas Marine Advisors Co.