Full Electrons Ahead

Tesla started the year off announcing it almost accomplished its goal of delivering 500,000 vehicles in 2020, falling short only 450 vehicles. Given the significant headwinds passenger transportation faced last year—U.S. vehicle miles travelled fell 14 percent for the first 9 months of the year compared to the same period a year earlier—this shows Tesla has a formula customers want and is able to deliver. [1] Paradoxically, the company’s market capitalization eclipses the combined capitalization of 10 other automakers which produce over 50 million vehicles annually. To scale up, Tesla started production of the Model Y in a new Shanghai facility, and new vehicle assembly operations in Germany and Texas are expected to start production this year. [2]

Beyond Tesla, manufacturing ended the year on a high note. IHS Markit’s Euro-area index was up at 53.8 in December led by Germany where factories had their best month since 2018. [3] In Asia, factory activity continued to gain momentum led by Taiwan at 59.4, it’s highest reading in a decade. South Korea—where manufacturing is considered a bellwether for global trade—continued to expand at 52.9. In China, factory growth eased in December following a three-year high in November. [4] Manufacturing activity in the U.S. continued to accelerate with ISM’s Manufacturing PMI closing the year at 60.7 percent, up 3.2 percentage points from November. [5]

The strength of manufacturing and the rebound of markets in Asia has helped lift rates in the container shipping market to records highs. [6] Cargo volumes in the market have almost fully recovered since plunging in early 2020, and carriers don’t plan to slow down through the Chinese New Year next month. [7] With demand high and a need to bring empty containers back to Asia, Maersk—the world’s largest container line—is planning to cancel fewer sailings than normal around the holiday. [8] Other liners are likely to do the same. [9] In the bulk market, tensions between China and Australian have stranded 71 dry bulk carriers loaded with Australian coal outside of ports in China. China officially blocked Australian coal in December, but problems had been mounting for months. The first of the stranded ships is believed to have been waiting since May of last year. [10]

The first week of the new year also brought a new political and economic landscape in Europe with the U.K. officially leaving the European Union. The eleventh-hour-and-fifty-eight-minute trade deal announced Christmas Eve brings some relief to British companies, and the start of a marathon in understanding and navigating complex new trade rules. Guidance from regulators on both sides of the strait gives companies a few months to sort out the new rules before they need to start submitting U.K. customs declarations and E.U. rules-of-origin paperwork. [11]

In eleventh-hour negotiations of its own, the U.S. saw a new omnibus spending and Covid relief bill signed into law within a day of a government shutdown. This helped stabilize markets in what has proven to be a tumultuous week in U.S. politics. Among the many provisions of the sweeping legislation is an extension of the 45Q tax credit to 2025—which companies can claim for carbon capture equipment—and almost $2 billion for six new demonstration projects of carbon capture technology. Rather than focus on utilities, however, two of those projects are reserved for cement and steel production. [12] Cement and steel are critical materials in modern infrastructure and industrial products, and both are heavily dependent on fossil fuels. Approximately 70 percent of global steel is made in blast furnaces with metallurgical coke—a derivative of coal—and there are no non-carbon alternatives for this process that can satisfy the global demand for steel. [13]

Also in the U.S., the Federal Aviation Administration (FAA) released long-awaited rules for unmanned aerial vehicles (“drones”) last week allowing them to fly over people and at night. Previously, drones were not allowed to operate at night and only allowed to fly over people—not including operator(s) or people inside of buildings or vehicles—with a specific waiver from the FAA. The new rules eliminate these restrictions for some circumstances and add new design requirements including anti-collision lights for night operation and radio frequency broadcast of a unique identification signal for the vehicle. [14] While we are still many years from seeing drones deliver packages to our doorstep, the new rules get us one step closer to commercial drone operations. The regulator also announced a new “Drone Advisory Committee” with members from industry, research, academia, and state and local government including executives from American Airlines and Amazon Prime Air. [15]

Even though drones are not a threat to jobs yet, the coronavirus is continuing to drag on the U.S. labor market led by a plunge in restaurant employment in December. Other areas of the labor market held up with retail, professional and business services, construction and manufacturing all posting gains. [16] On a longer horizon, the Labor Department projects that employment will grow only 0.4 percent over the next decade (2019-2029). This is slower than the decade after the 2007-09 recession—when labor grew 1.3 percent—reflecting slower projected growth in Gross Domestic Product (GDP) and structural shifts in the labor market. Six of the ten fastest growing occupations are projected to be related to healthcare. [17]

Finally, two recent reports show the scope of forced labor in Xinjiang China is bigger than previously thought. According to the BBC, the Chinese government has forced hundreds of thousands of Uyghurs and other Muslim minorities into hard, manual labor in Xinjiang region cotton fields. [18] People are sent to the fields as part of a “labor transfer program,” which research and rights groups say is a system of control, indoctrination and forced assimilation. [19] A new report from BuzzFeed found more than 100 mass detention facilities used for the labor transfer program in the region, with more than 21 million square feet of factory space. [20] Factories in the region supply global brands in the technology, clothing and automotive sectors, including Apple, BMW, Calvin Klein, Dell, Gap, H&M, Nike, Samsung, Sony, Victoria’s Secret and Volkswagen. [21] Several of these brands—including Apple, Nike, and Coca-Cola—came under fire after a report last year on their lobbying efforts to water down a bill in Congress that would ban the import of products made with forced labor from Xinjiang. [22] Based on documents obtained by the BBC, the cotton picked by forced labor in Xinjiang is used widely in the global fashion industry and accounts for a fifth of the world’s cotton supply. [18]


Have thoughts or feedback? Anything I missed this week? Email me at kellen@supplychainweekly.com. You also can reach me on LinkedIn and Twitter.

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References

[1] https://www.fhwa.dot.gov/policyinformation/travel_monitoring/20octtvt/

[2] https://www.bloomberg.com/news/articles/2021-01-02/tesla-delivers-499-550-electric-cars-in-2020-just-shy-of-target

[3] https://www.bloomberg.com/news/articles/2021-01-04/germany-leads-european-manufacturing-to-best-month-since-2018

[4] https://www.bloomberg.com/news/articles/2021-01-04/asian-manufacturing-picks-up-momentum-as-exports-remain-strong

[5] https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/december/

[6] https://www.bloomberg.com/news/articles/2021-01-06/maersk-can-t-yet-see-freight-rate-peak-with-all-ships-in-demand

[7] https://shippingwatch.com/carriers/Container/article12674801.ece

[8] https://www.bloomberg.com/news/newsletters/2021-01-07/supply-chains-latest-container-shipping-lines-go-full-steam-ahead

[9] https://www.freightwaves.com/news/liners-highly-unlikely-to-slash-service-for-chinese-new-year

[10] https://shippingwatch.com/carriers/Bulk/article12673125.ece

[11] https://www.bloomberg.com/news/articles/2021-01-01/brexit-is-a-new-world-businesses-still-need-to-figure-out

[12] https://www.bloomberg.com/news/articles/2021-01-04/will-covid-stimulus-be-the-breakthrough-carbon-capture-has-been-waiting-for-kjigd4i0

[13] Smil, Vaclav. 2016. Energy Transitions: Global and National Perspectives. Second. Santa Barbara, CA: Praeger.

[14] https://www.reuters.com/article/us-usa-drones-faa/u-s-to-allow-small-drones-to-fly-over-people-and-at-night-idUSKBN2921R8

[15] https://www.faa.gov/news/press_releases/news_story.cfm?newsId=25580&omniRss=press_releasesAoc&cid=102_P_R

[16] https://www.bloomberg.com/news/articles/2021-01-08/u-s-jobs-recovery-faltered-in-december-amid-virus-surge

[17] https://www.bls.gov/news.release/ecopro.nr0.htm

[18] https://www.bbc.co.uk/news/extra/nz0g306v8c/china-tainted-cotton

[19] https://www.aspistrategist.org.au/uyghurs-for-sale-re-education-forced-labour-and-surveillance-beyond-xinjiang/

[20] https://www.buzzfeednews.com/article/alison_killing/xinjiang-camps-china-factories-forced-labor

[21] https://www.aspistrategist.org.au/uyghurs-for-sale-re-education-forced-labour-and-surveillance-beyond-xinjiang/; https://www.washingtonpost.com/technology/2020/12/29/lens-technology-apple-uighur/

[22] https://www.nytimes.com/2020/11/29/business/economy/nike-coca-cola-xinjiang-forced-labor-bill.html