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INSIGHT: Global Supply Chain Disruptions Ripple into US Domestic Vitamin and Amino Acid Supply

Source: Feedindo Logo Final

3 February 2021 - The shipping woes that have dogged the US feed sector for months show no sign of abating, with disrupted international trade flows driving up prices and limiting availability, and supply chain disruptions on imported product creating a domino effect for domestic material amid a shortage of trucks, rail chassis, and record weather delays.

“We are all operating at the mercy of the shipping lines,” a US-based Chinese distributor said. “Anyone in the premix business is feeling the brunt of being at the geographic mercy of China’s dominance in this sector.”

The US is a major importer of vitamins and amino acids from China. But what started in China with decreased shipping space has now rippled down to every part of the supply chain and impacted domestic material as well.

Global shipping challenges

“We are now seeing the shipping issues on everything and everywhere. It is not just a China to US Trans Pacific issue anymore. It is tough to get material from anywhere,” a US importer said.

Container freight rates have been increasing for months, with buyers reporting rates doubling and quadrupling.

“The catalyst was the shipping lines when they started reducing space in the spring and summer, but it has now gone down the entire supply chain and affected everything,” a US importer said.

US supply chain

US West Coast ports are increasingly congested, causing delays due to increased traffic and laborers out sick with COVID-19.

As ships get jammed in the West Coast and make way for the East Coast, those ports are seeing delays as well.

“The delays are at every port globally,” a US buyer said.

“From China to Los Angeles, the ocean freight now takes 1 month when it used to take 16-17 days. The vessels can't dock at the port in LA,” a Chinese importer said. “To New York it was 30 days, now it's up to 60 days.”

Once the cargoes are off-loaded to rail terminals, delays continue as the terminals are also backed up and short chassis to unload. The truck driver shortage continues to complicate matters.

“Everything is congested and backlogged even from the point where containers are taken off the cargo and on to rail and then moved to truck to schedule final delivery,” a US importer said. “Rail terminals are overwhelmed and backlogged. There are not enough chassis to load onto, and a shortage of truck drivers. Every link in the line is broken.”

Delayed product

Suppliers were stuck paying added demurrage fees while buyers waited up to 75 days to receive material that typically took 35-40 days.

“[These products] are normally a 35-40-day trip, but now it takes 50-60 days, and sometimes 70-75 days, from China to a Midwest warehouse,” a US importer of Chinese material said. “So many containers are getting caught in the slowdown.”

“Our October production would typically ship out in November and be our December volume in the US, but most of it was just delivered the final week of January,” an importer said. “The only other time we have seen shipping issues like this was a few years ago when the West Coast longshore men went on strike.”

“Whatever commitments [were] made for November were caught up in the shipping slowdown. There is no US inventory. Everything is on the water and in production and will be used to fulfill Q1 commitments. Anything leaving now, they won't have possession of until late March,” an importer said.

A snowstorm in the US Midwest last week complicated matters, adding another few days' delay to delivery times.

This created a knock-on effect as domestic suppliers competed in the same supply chain for rail and truck space.

US amino acid tryptophan was now on allocation, according to buyers.

This week, blockbuster snowstorm Orlena was blasting through New York and East Coast metros, in what weather professionals were calling the biggest snowstorm in New York in five years.

The New Jersey Department of Transportation Commissioner has issued a commercial vehicle travel restriction on multiple Interstate highways in New Jersey, based on the forecast for heavy snow and strong winds.

All Port of New York/Port of New Jersey container terminals and depots were closed on 1 February. More than 80% of flights were cancelled at the airports.

Both New York and New Jersey were under a State of Emergency, including restricting all non-essential travel off the roadways. In addition to heavy snowfall, the East Coast was bracing for coastal flood danger and heavy winds. 

Chinese Q1 deliveries

“It is the industries that depend on Chinese product suffering the most,” a US distributor of Chinese product said. “The slowdown worsened recently because Chinese exporters were scrambling to get bookings before Chinese New Year.”

China will be shut from 11-17 February for the holiday. As a result of lockdown measures implemented to slow the spread of COVID-19, logistics have halted earlier compared to the same period in 2020.

“I have not seen many offerings out there for major vitamins since Chinese cannot ship more for Q1 delivery. The massive delays of shipments and Chinese New Year basically closed Q1 business already. Anything that leaves China before the end of January will be for Q1, then everything after that will not be for Q1,” a US-based Chinese distributor said.

US March supply to be challenged

But the product arriving in the US in late January/February would not be enough for US premix supply, a buyer said.

“I agree that some spot material will arrive in February, however I don’t think that will be enough to greatly affect the spot price. February is not the problem. March will be the problem since there will be few shipments moving out of China over the extended Chinese New Year and added travel ban,” a US buyer said.

In a newsletter from the Chinese Shipowners Association, a travel ban was noted, but it could not be verified.

“Also be aware that we were advised this past week that the Chinese government, as of 21 January 2021, will ban all internal transportation for six weeks to mitigate COVID-19 spread through the Chinese New Year,” the newsletter said.

“I get plenty of offers for material to ship from China and I am given some optimistic ETAs, but what actually happens as far as when it arrives versus what is promised is greatly different,” a US spot buyer said.

COVID-19 impact

Market participants expressed hopes that the Chinese New Year holiday would help to alleviate the situation. Chinese factories customarily shut down for the two-week period. This could potentially allow a lull for ships to move back to Asia and gluts at some US ports to clear.

These hopes may be dashed by signs that controls on travel amid a spike in China domestic coronavirus infection rates could result in fewer factory closures than expected, meaning the situation could continue into the next quarter.

The Chinese government has placed various cities and provinces back into lockdown on the back of higher infection levels. One of the provinces affected is Heilongjiang in northern China, where many amino acid plants are located.

The extent of the demand backlog for shipping containers means that, even in the event of more widespread production stoppages in China, prices could remain significantly higher than normal for some time.

“It took 3-4 months to build this squeeze, so I think it will not be an overnight fix. It will take several months to return to normal, probably mid-to-late Q2,” a US importer said.

Desperate measures

Many customers were doing their best to determine how to manage the delay in deliveries needed for production.

Buyers were desperate for material and calling on distributors several hundred miles away, willing to pay premiums for small volumes such as prompt pallets, or if at all possible use air freight to get vitamins to the states sooner.

The resell market for vitamin E was robust, with small quantities going for as high as $15.00/kg DDP US as buyers struggled to maintain their own production.

To compare, vitamin E was assessed by Feedinfo at $8.00-9.00/kg DDP in the US spot market at the start of January.

US vitamin A spot values were rapidly rising and have reached $85-89/kg DDP US, according to Feedinfo. Earlier this month, deals for February delivery were completed in the mid-$70s/kg.

The US pipeline for vitamin A was empty to the point that buyers were air freighting from China and Europe to cover their immediate requirements. Air freight is much more expensive than shipping by sea, but buyers were in desperate need of material and prices as high as the low-$90s/kg were heard. Offers for delivery by ship in late March were in the low-to-mid-$80s/kg DDP US.

“The most crucial thing is no producers are offering at this moment. Supply for vitamins remains a challenge due to logistic problems,” a US distributor of Chinese vitamins said.

“It’s hard to get 'true' prices right now as shipping delays are causing everyone to hold tight and raise prices,” a US spot buyer said.

“We have nothing to sell as we are empty, so always difficult to judge if you are sidelined,” a US distributor of European vitamins said. “In my opinion, in many products you can more or less charge what you want in the US (right now) if you are having prompt availability.”

US boom/bust cycle

One supplier warned that this could be a repeat of the boom and bust for spot vitamins and amino acids seen in the US in 2020.

“This time last year we were all at IPPE [International Production and Processing Expo] when the news came out of China about the virus and lockdown,” a US importer said. “The US buyers panicked and bought several months' supply at artificially high prices. But then, China recovered quickly and started producing again sooner than expected. Then, by summer, US distributors were sitting on overpriced material and prices began to drop.”

Vitamin and amino acid prices began to fall mid-year in the US.

“My conclusion is that most US buyers convinced themselves that they could ride the vitamin market values down from summer through autumn and into December Q1 bid season. However, supply tightened significantly in the last month as shipping delays in the trans-Pacific voyage added 15-20 days to each shipment out of China. Spot prices started to rise as normal supply volumes started to dry up,” a US importer said.

“Now a significant cross-section of the US premix sector will start Q1 without normal vitamin inventories on the floor. They may have the volumes on the books but they’re now dependent on supply chains starting in China.”

An importer warned that history could repeat itself, though in different circumstances.

“I think the boom/bust cycle is going to happen again. The buyers will go out and secure supply for Q2 at prices artificially high and then summer will come, and distributors will have plenty of vitamins, but no one will be buying because they have plenty, and plus, demand drops off in the summer,” the importer said.

US buyers were also counting on new production to ease the tight vitamin supply.

“The new DSM joint facility could come in with volume and change things. If they come in with significant volume, they will push the export market,” a US buyer said.

Full output from the Yimante plant in Jingzhou, Hubei province (a joint venture between DSM and Nenter), is not expected until April-May, which was later than some buyers had anticipated.

“For now, the high spot prices are a result of lack of availability and the true level of desperation in the market,” a US importer said.