Dimerco insights: Logistics peak season expected to come back in 4Q 2023

Peng Chen, DIGITIMES Asia, Taipei 0


Global supply chains have experienced many disruptions in recent years, pushing logistics company Dimerco to adapt operations to create more opportunities. George Chiou, Dimerco's air freight president, said as OEMs and ODMs destock in the first half of this year, the logistics industry expects the peak season to rise in the fourth quarter of 2023.

Headquartered in Taiwan, Dimerco has expanded to 64 countries over the last 50 years. Semiconductors and consumer electronics are two of the key focuses of the company. In an interview with DIGITIMES Asia, Chiou shared Dimerco's insights and how it responds to the ever-changing global market. Part two of the interview can be accessed here.

Witnessing the rise and fall of industries

China, one of the world's largest markets and Dimerco's focus areas, lifted COVID-19 restrictions in December 2022, causing case numbers to surge. Productions were disrupted. However, the country also has experienced a speedy recovery.

Chiou said productions and ocean and air freights saw their lowest levels before the Chinese New Year at the end of January 2023. But market demands and shipping space supply will gradually resume in the coming months. Therefore, he still has confidence in this year's situation.

According to Dimerco, most of its customers in the consumer electronics segment produce smartphones, laptops, tablets, wearable devices and home workout equipment. They saw skyrocketing demand in the early days of the pandemic. Chiou said Peloton, the US-based exercise equipment brand, chartered dozens of planes to ship its products to America within just a few months.

As for the semiconductor industry, he said Dimerco shipped plenty of equipment to Taiwan and other Asian countries in these two years in response to expansions and tremendous demand growth for chips.

Chiou added that the consumer electronics momentum began to fade after the first quarter of 2022, as a result of the lockdown in Shanghai, the inflation and the Federal Reserve starting to raise interest rates. The demand for semiconductors decreased accordingly in the third and fourth quarters of last year.

However, the president is not pessimistic about the future. He said it is well-accepted that the inflation rate will mostly remain between 4% and 5% in the first half of 2023 and the interest hike would cool down. Moreover, many OEMs and ODMs will keep destocking until the end of the first quarter and adjusting their inventory level in the following quarters.

Chiou said the logistics industry should see the peak season return in the fourth quarter of this year as usual. Year 2022 was an exception: Chiou said there was no busy day in last year's second half.

He also said consumer electronics are shipped through the ocean instead of the air when the inventory level is high, while semiconductor products are always transported by airplanes.

As global logistics cooled down recently, Chiou said some container shipping companies now take the route passing the Cape of Good Hope to Europe from Asia instead of the shorter route going through the Suez Canal. He explained that ocean freight is used as storage to some extent now because fast deliveries are only a little needed. In addition, shipping companies currently offer fewer spaces to prevent prices from decreasing.

Benefiting from nearshoring policies

In 2020, the US Trump administration started to encourage nearshoring - some companies' production and purchase were outsourced to Mexico, Latin America and the Caribbean region to be closer to the US market.

Following the policy, Chiou said Dimerco launched a new service to transport goods through the air from Shanghai or Guangzhou to Los Angeles or Dallas. Afterward, it shipped the freight with trucks to Mexico, where many assembly plants are located.

Chiou said the service reached success in 2022. Customers include China-based car parts suppliers. Combining air freight and trucking service can save about 40% of customer costs compared with chartered flights.

Current US Treasury Secretary Janet Yellen began promoting the "friendshoring" policies in April 2022. Besides moving supply chains closer, the US wants to work with countries it can trust and share the same value.

Chiou said some companies had modified their business plans due to the policies. Vietnam has benefited from the modification thanks to its proximity to China and having free trade agreements with 15 countries.

The president said some supply chains had been moved from China to countries like India and Vietnam. But relocating the clusters will require an enormous amount of investment and time.

He expected that inflation, gas prices, international and geopolitics and conflicts will continue to affect global logistics in the coming years. He said Dimerco will follow the operations of customers and airlines to take business opportunities prudently.

George Chiou is Dimerco's air freight president. Credit: Dimerco

George Chiou is Dimerco's air freight president. Credit: Dimerco