Ukraine requires more ships to relieve grain supply chain
Last week provided some relief for global food supply chains as the first ship loaded with grain left a Ukrainian port since the conflict began. Now, to keep the momentum going, more ships are required, as millions of tons of food is still stuck in Ukraine that need to be transported. However, this is not a simple task, as shipowners do not want to put their vessels in risk of any danger, despite the safe-passage agreement.
So far, six ships that are transporting goods are in circulation, amounting to around 85,000 tons of exports in a week, but this is less than 8% of what would normally be shipped by Ukraine at this time of year. Some cargoes are also being moved by road and rail, but ships have a much higher capacity, so this is where the current focus lies.
One problem for shipowners is the high insurance rates. “Insurance costs should be very high, and without any government assistance it will be difficult to find,” said Benoit Fayaud, an analyst at Strategie Grains in France. Due to the high costs, he also said that “it can be an issue for exports to accelerate.” In response to this, insurance companies are offering non-binding policies to shipowners with war risk rates anywhere between 1% and 5% of the ship’s hull value, according to people involved in the market.
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Ships resume journeys along Taiwan routes despite Chinese military exercises
Shipping in the Taiwan Strait, which is a key route for global supply chains, has been put under pressure due to Chinese military drills. Recently, Beijing began extensive exercises because of House Speaker Nancy Pelosi’s visit to Taiwan. Some shipowners decided to prohibit their vessels from transiting the strait, while others navigated around the risk areas.
Starting this week, shipping operations have progressed as usual, with carriers operating their normal routes. According to shipping experts, the financial penalties for delayed cargoes may be too costly to avoid the strait. If vessels have to take an alternative route, this can also increase the fuel prices which carriers avoid if possible.
The end date of the military exercises is unclear. They were scheduled to be completed on Sunday, but further strike exercises were carried out a day later. Despite this, Toby Copson, global head of trading and advisory at Trident LNG has said that “while it’s a concern, current rhetoric doesn’t justify a hard pivot to extreme measures yet. I don’t think China wants an accident either.” It is hoped that supply chains do not feel the impact of these events too severely.
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Supply chain chaos takes its toll on Toyota
After a year of record profits, the Japanese automaker Toyota has come to a screeching halt, as soaring costs have impacted its earnings. The company reported a large drop in overall quarterly profit from April to June, but despite this, it has slightly lifted its full-year guidance for net income and revenue. Like many manufacturers, Toyota has blamed the pandemic and the global chip shortage for the struggles it has been facing.
Toyota’s profit declined by a considerable 42% to 578.6 billion yen, which is equivalent to $4.24 billion. Its operating profit margin and the net income also fell considerably. The company’s global sales also took a tumble in the three-month period, falling to 2.01 million vehicles. A lack of demand was also highlighted by the fall in worldwide retail sales, which declined by 7.8% overall.
Ongoing supply chain factors are to blame for Toyota’s below-average performance. For example, it has battled with various production interruptions which have lowered its supply of cars and parts. The company’s costs increased as it helped suppliers with the costs for raw materials like steel and aluminum, as it promised that it would help suppliers facing cost difficulties at the beginning of the year.
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Have a great weekend! This is my last weekly wrap-up for the All Things Supply Chain Blog. Many thanks for your readership over the past year! After a short break, we will be returning with more great articles, so keep your eyes peeled!