The Chinese New Year holidays began on New Year’s Eve January 31st and ended on February 6th. However, container manufacturers will be closed until mid-February as usual. According to China’s Ministry of Culture and Tourism, a total of 251 million people (down 2.0% from the same period last year) went on domestic trips during the seven days of the Chinese New Year holidays. It seems that most people chose to travel nearby considering current COVID-19 situation.
The Beijing Winter Olympic Games started on February 4th, and the opening ceremony, which made full use of China’s information technology, was spectacular. Beijing hosted the Summer Olympics in 2008, becoming the first city to host both the Summer and Winter Olympics. I suppose this was made possible because of Beijing’s climate, which is -8℃ in winter and 31℃ in summer, as well as thorough lockdown as counter measures of COVID-19 and ample finances of China. I think China’s enhancing national prestige has greatly encouraged it.
The results of the competitions are being reported day and night, and the impact of skiing and skating as winter sports on the Chinese people will be beyond imagination. In the future, as the popularity of skiing and skating increases in China, and as more people come to enjoy them, related goods will also sell well. More young people will go skiing in winter, and this will help boost domestic demand.
The U.S. Labor Department’s January employment report released on February 4th shows that the number of nonfarm workers increased by 467,000 from the previous month, much higher than the market forecast of 150,000. Unemployment in January was 4.0%, 0.1% worse than December’s 3.9%. Meanwhile, wages rose, with average hourly wages up 5.7% year-on-year, the strongest growth since May 2020.
In the U.S., 25 states, or 50% of the nation, will raise their minimum hourly wage in 2022. President Biden has signed an executive order raising the minimum hourly wage to $15 for companies that contract with the government. The private sector is also implementing wage increases to cope with labor shortages. Amazon raised its minimum hourly wage from $15 to $18. Retailer Wal-Mart raised the average hourly wage for its 560,000 employees in the U.S. to $16.40. Financier JPMorgan Chase decided to raise salaries by 10 to 20% for young employees who have been with the company for several years. Deere, a major agricultural machinery company, succeeded to raise wages by 20% and to increase bonus in November 2021 by means of a strike. The movement to raise wages is spreading across the U.S.
On the other hand, the savings rate, which had risen to a record high of 34% in April 2020 thanks to U.S. government support, dropped to 8% in December 2021. The decline is greater for lower income groups, raising concerns about the weakening of U.S. personal consumption power, and raising wages is the solution. I am convinced that the effect of higher wages will eliminate the job mismatch and bring further economic growth to the U.S. The strong U.S. economy will lead the world economy in the future.
On the WTI crude oil futures in New York, crude oil temporarily rose to $92 a barrel on Feb. 4th, the first time in seven years and four months since October 2014. The market believes that the $100 mark is now a reality. High prices of resources and raw materials, as well as high labor and logistics costs, will increase the cost of products, goods, and services, which will become a factor for inflation. To stop this to a minimum, we will need to actively invest in research, development, or beneficial projects, unlike Japanese companies which tend to accumulate their profits as retained earnings. Raising salaries is also a beneficial investment. If a portion of profits is always reflected in salaries, it will create strong purchasing power, which can be a sustainable development goal (SDGs).
Currently, container vessels are being held up at shore for berthing for long periods of time worldwide, and the large number of vessels waiting for berth and the port infrastructure problems especially at the LA/LB ports in the U.S., is a symbol of the weakness of the U.S. social infrastructure. The disruption and confusion in the global supply chain should be resolved as a national project as soon as possible. High ocean freight rates, the nearly 100% container utilization rate of container leasing companies, and the uneven distribution of containers around the world all stem from the problems symbolized by the LA/LB ports in the U.S. Expert organizations forecast this problem will not be solved until the end of 2022 or even 2023. This could be the cause of inflation in the U.S. and possibly worldwide.
Three major alliance shipping lines on the North American West Coast would be on their toes these days, as the share of non-allied carriers has been increasing since mid-2020. As a result of the lockdown and plant closures caused by COVID-19 pandemic, the global supply chain was disrupted, and congestion and chaos at ports around the world have led to a voyage omission of Alliance containerships. That in turn resulted in lower services and a shortage of vessel space, ending up to higher ocean freight rates, which have caused a huge container shortage in China and Asia, failing to meet the strong stay-at-home demand and revenge-spending. By late February 2022, the share of non-allied shipping companies is expected to grow to 38%. On the East Coast of North America, the share of non-allied carriers is said to be around 10%. On European routes, the three major alliances have an overwhelming share of the market. However, looking at the activities of the non-allied carriers, I don’t think they can afford to be easygoing.
As of the end of January 2022, the price of newbuild containers was $3,400 per 20f, down $150 from $3,550 per 20f at the end of December, a decline of 4.2%. After topping out at $4,000 per 20f in June 2021, the price of newbuild containers dropped $600, a decline of 15%. New container production in January was 466,851TEU (Dry: 443,707TEU, Reefer: 23,144TEU). Newbuild container factory inventory was 812,636 TEU (Dry: 749,338TEU, Reefer: 63,298TEU), 6,008TEU decreasing from the end of last month.
In January, 472,859TEUs were released and exported for lease or as carriers’ own container. You can imagine how great the export demand was before the Chinese New Year. However, it seems that Chinese container manufacturers are very clever about lowering container prices and are deliberately refraining from raising prices to secure sales volume.
The number of new containers manufactured after February onwards will decrease due to seasonal factors such as lower winter demand, the closure of many plants during the Chinese New Year, and the lockdown due to Omicron variant, and the price of new container will also show a more gradual downward trend. On the other hand, to prepare for the summer demand, to order new containers at this time of the year when the price of new containers is falling is one of the ways for container leasing companies to procure new containers. This is in line with the intention of container manufacturers who do not want to stop their container production lines. This approach may greatly contribute to the supply chain that does not stop logistics throughout the year.
(Translated by Ms. Chizuru Oowada)