AEC Industrial Magnetics Manufacturing

 
4699 Interstate Drive
Cincinnati, OH 45246

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The worldwide shipping crisis continues to wreak havoc.  AEC Magnetics' latest shipment of permanent magnets has been offloaded and is awaiting devanning. It will be a lengthy wait. Shipping remains incredibly backed up. Here are today's highlights: Forbes reports ocean freight rates are now 460% higher than one year ago, with several weeks' worth of container ship traffic is stuck in port plus a dockworker, truck and truck driver shortage. Bloomberg reports today the cost of moving cars across the ocean is at a 13-year high.  Today Goldman reported it cut its U.S growth forecast. Consumers are bearing a bigger burden than it had previously recognized. Businesses using just-in-time inventory are at a crisis point; they can't re-supply fast enough, according to the Wall Street Journal. Here at AEC, our shipping agents tell us the shipping crisis will likely continue at least into the first quarter of 2022. Some experts tell the Wall Street Journal it will last well into 2022.  One bright spot:  Shipping containers are starting to make their way out of Las Angles and Long Beach to ports where there are none, hopefully this will begin the correction of the worldwide container imbalance. Here are the major factors affecting shipments plaguing shipping worldwide.

shipping in portLong Beach/Los Angeles port-jam: A record number of ships--48--were waiting to be offloaded as of September 3 at the port that receives most all of goods shipped from Asia.  Check out a live link to the port, the backup has not cleared.  Worker shortages, the sheer size of the new, larger container vessels, covid protocols, warehouse and devanning space are all slowing down shipping. The Port of Seattle is an offload option for some lines, but most all Asian shippers have dedicated space at Long Beach and the Port of Los Angeles, so the option is not for every shipper. Hours ago, officials signed an MoU to bring a shipping container facility to Coos Bay, Oregon. This option will offer little relief of the current crisis but may be useful in helping to relieve the backup in the future.

shipping containersShipping Containers:  China, a net-export country, resumed shipping earliest in the pandemic. Importing countries slowed or stopped shipping altogether during the pandemic. The world's shipping containers piled up in net import countries. Empty containers are now leaving the ports of Long Beach and Los Angeles at a rate of three empty contaners to one full.

shipping evegreenTerminal Space: The size of new container vessels is considerably larger than previous generations of ships. Some carry ten times the amount of cargo. Not only do these mega-ships take longer to unload, but more their cargo demands more space to offload breakdown and store their contents.  Full container loads (FCL) go to a warehouse and less than container loads (LCL) go to a CFS (Container Freight Station) for devanning.  The amount of FCL and LCL are overwhelming warehouse and CFS facilities.

shipping rail cogestionRailways:  The volume is overwhelming the railways.  Container space is at a premium. Railroads can't accept more containers if their destinations are already full.  Trains have slowed and even stopped some traffic into the U.S. Midwest due to high volume. Chicago railyards were temporarily closed due to the extraordinary volume--volume that had no place to go while awaiting transfer to trucks.  Memphis is an option to relieve the system's stress, but it, too, is at or near capacity.

shipping typhoon
Typhoons:  The typhoon season in China has been devastating.  Major Chinese air- and seaports have reduced capacity or closed.  Factories have taken a hit, too, having to cease operations. Typhoon season does not typically end until mid-December. Forecasters predict as many as 16 typhoons in Asia this typhoon season, a season that has already caused mayhem.

shipping crew covidCovid-19:  The pandemic has affected every operation cited in this article.  Illness and protocols have slowed or stopped many port operations. Ships offloading in China are particularly affected, as its strict protocols have slowed or stopped shipping entirely.  China closed its third-biggest port, and an airport, because one employee was found to test positive for Covid-19. All ships must all quarantine and produce negative Covid-19 results before berthing at any China port.  Ships with any crewmember testing positive may not dock. Ships scheduled for several ports of call must repeat the process. If a positive test result comes back among its crew, the entire ship is offloaded at that port and the crew must quarantiine up to 28 days with alternate arrangements required for cargo.  Any ship that has been to India, or has Indian crewmembers or who has called at an Indian port, has stiffer protocol requirements.  

bill august 24 21"AEC Magnetics' shipping agents have been in direct contact with us every day, giving us updates on our shipments," said Bill Klaus, president of AEC Magnetics based in Cincinnati, Ohio, U.S.A.  "We know when our permanent magnets are offloaded, devanned and shipped by rail.  The delays are real and impact the price and availabiity of our permanent magnets.  Because of our close ties with our China suppliers, and our terrific agents, we prepared as well as we could to adjust our inventory, but the reality is the current situation shows no sign of easing."  

permanent magnet stack aecKlaus outlined steps customers may take to alleviate some of the inconvenience.  "Order now. If you anticipate a need for permanent magnets, get on the books right now.  Advance your usual orders.  If you typically order six months ahead for your anticipated needs, order now.  Order in bulk to offset the price increase the shipping crisis is causing.  We offer price breaks at many intervals, call me and I'll give you those break points.  And consider our free blanket service.  Order in bulk at today's price and AEC will release th magnets to you on your schedule, at no cost.  That way you lock in today's price, you don't have to store them.  We will send you your magnets on a regular schedule." 

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port congestionA record 44 ships were awaiting offloading at U.S. sister ports Long Beach and Los Angeles (see above) as of August 30, the United States' largest ports for goods coming from China, Hong Kong, Vietnam, Japan, Vietnam and Taiwan.  Serious problems are delaying and even stopping shipping, snarling worldwide supply chains. The issues, which are spelled out below, will delay orders."I'm expecting 60-day shipments to take at least 90," said Bill Klaus, president of AEC Magnetics in Cincinnati, Ohio, U.S.A.  "I do not see any relief from the shipping delays until sometime in the first quarter of 2022 at the earliest."  AEC recommends getting any permanent magnetics orders in as soon as possible.  "Those at the front of the line will receive their orders first, and probably at a better price, since these issues are putting pressure on every step of the supply chain."  Klaus added that, since virtually all of the world's permanent magnets come from China, they will be hit hardest.  "We are already facing steep price increases, and since we won't sacrifice quality or strength, our customers will definitely be affected."  Here are the main issues slowing worldwide shipping:

  • Covid-19 port and airport closures in China
  • Typhoon port and manufacturing closures in China
  • Shipping containers stuck in the wrong places
  • Atypical supply and demand patterns
  • U.S. Labor shortage 
  • Railway backups, stoppages and metering due to excessive cargo being shipped
  • Shortage of chassis necessary for trucks to transport containers
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china shippingA series of critical circumstances is disrupting shipping and supply chains worldwide. Ninety percent of the world’s goods are shipped by sea, and two-thirds of those goods are shipped by container. China shipping is most affected. This is particularly bad news for permanent magnetics customers since China mines, processes and exports virtually all of the world’s permanent magnets. The crisis will raise prices and lower availability of permanent magnetic materials worldwide, AEC Magnetics included.

“Orders scheduled for delivery from China in 60 days are pushed back to 90 days, and could go even longer,” said Bill Klaus, president of Cincinnati-based AEC Magnetics, importer of permanent magnetics since the mid- ‘80s.  “The cost of shipping has forced us to adjust our prices. AEC is in a much better position than most to handle this, due to our long history of finding, evaluating and establishing relationships with China’s best permanent magnet manufacturers, however the challenges are significant and out of our hands. My sources report about a 70 percent disruption in China shipping alone, and that’s not taking into consideration the serious disruptions in the western-U.S. ports and U.S. rail stoppages.”    

Klaus emphasized this is not a problem exclusive to permanent magnets. “It is not just magnets,” Klaus said. “Ninety-percent of the world’s goods move by sea, and 60 percent of all cargo moves by container. Bicycles, IT parts, automobiles, computers, smartphones, furniture, appliances to computers, it is coming by sea and by container ships. If you have not noticed, you will.”

“Last week, the World Container Index composite cost of shipping a 40-foot container on major East-west routes spiked to $9,613.  That is 360-percent higher than last year.  Rates on the Shanghai to Rotterdam route shot up 659-percent over last year.  We have been told by our logistics partner to prepare for exceptionally high rates through this year, into 2022. As long as demand continues to rise, which it will, and capacity continues to contract, shipping will remain in critical condition.”

Here are some of the specific stresses affecting shipping.

Another ship 1Typhoon season.  A brutal typhoon season and extreme weather throughout the Asia Pacific region caused shutdowns, disruptions and backups. Shanghai Pudong Airport suspended shipping this month. The port of Yantian, one of China’s major ports which serves its industrial hub of Shenzhen suspended shipping and container drop-off services. The port of Yangshan, a mega-terminal serving Shanghai, and a chain of smaller ports nearby, closed this summer. Major flooding closed manufacturing facilities, rendered mines inoperative and damaged manufacturing plants in China. Typhoons presented a danger for carriers already at sea, with at least one carrier en route to the U.S. hit hard enough for its containers to be blown off the ship.  Ports are working extremely hard to reduce the backup, but with two dozen or more carriers waiting to unload and meteorologists forecasting 16-18 typhoons in the Northwest Pacific and South China Sea before the typhoon season ends, relief is not imminent. 

southchinashippingCovid-19:  Chinese officials partially closed China’s third-largest container port located at Ningbo last week.  A dockworker at Ningbo’s Meishan terminal was found to be infected with the delta variant of Covid-19. Meishan accounts for fully one-quarter of Ningbo’s shipping capacity. It remains closed with a “re-evaluation of its status” expected later this week. Ningbo ships automobile and IT parts worldwide and is a major exporter of permanent magnets. This follows two other Covid-19 China port closures this summer. Covid-19 severely limited crew changes, finding and transporting crews and offloading itself. China requires Nucleic Acid Amplification, or NAAT, Covid-19 tests for everyone aboard each ship before granting permission to dock and discharge. Ships wishing to discharge at multiple Chinese ports are prohibited from proceeding to the next Chinese port if a confirmed Covid-19 case is found, even if the affected crew disembarked. Then, the ship is required to discharge all of its cargo at the first port of entry or wait 14 days in quarantine before seeking permission to discharge at the second port. The logistics of moving the cargo is complicated by arranging for import and transport on the fly. Plus, all ships inbound from India, or has bunkered with or has any connection to an Indian ship or crew, is mandated to quarantine for up to 28 days.  

imageShipping container shortage:  Theoretically, there are more than enough shipping containers to handle global trading volumes. In reality, the availability is incredibly tight because large volumes of containers are stuck in the wrong place. It’s more than ships stuck asea waiting for offloading. The container ship stuck in the Suez Canal earlier this year accounted for a tremendous backup due to container ships stranded behind it.  Also, in the early months of the pandemic, consumer demand tanked, shipping lines cancelled many Asia-North America routes and thousands of empty containers were stuck in the U.S. Consumer demand perked up three months ago but exporters are now facing long waits for empty containers. One Covid-19-related closure in China alone left 350,000 shipping containers sitting empty.  

train intermodalU.S. Transportation: The number of ships waiting to offload in Los Angeles, which handles more than one-third of U.S. imported goods, is typically zero to one.  Today, it’s 33.  While terminal operators and longshoremen work around-the-clock to ease the backlog, they’re continued to be challenged by Covid-19-driven layoffs, container shortages, training, rail stoppages in the midwestern U.S. and the elephant in the room, the tremendous size of the new generation of container ships which have doubled in 20 years. New container ships can accommodate 24,000 containers, enough to fill 44 rail cars.  What caused the mega-ship explosion?  Consumers’ appetite for electronics, gadgets, appliances, shoes, clothing, pretty much everything.  Ninety-percent of it is shipped by sea, and more than half by container ship.  While the longshoremen continue to offload the cargo, inland rail yards are a sticking point. Trains full of clothing, computers, furniture and appliances have been streaming into Midwestern hubs. The system is supposed to work like this: containers are lifted from arriving trains, put onto a wheeled chassis, then hauled away by a big rig and unloaded by the final customer. Empties go back to the yard.  The flood of cargo has overwhelmed this system, however, leaving yards with few chassis.  Containers continue to pile up by the thousands as the containers now are lifted off, placed in storage, and moved a second or even third time before leaving the yard. Union Pacific and BNSF Railway now meter their traffic in and out of midwestern bottlenecks like Chicago to avoid big backups.  That means the backlog has to cool its jets somewhere, at a cost.bill august 24 21

Klaus offers these suggestions to permanent magnetics customers.  “If you are even thinking of permanent magnets, order them.  This locks in today’s price for you and guarantees you will get your magnets.  Consider bulk orders.  AEC offers price breaks for volume orders and this certainly saves money.  Also, blanket orders are a tremendous way to save. Order a certain volume, lock in your price now, and let us release them back you on your schedule. Finally, while we certainly do ask you buy from AEC, no matter where you purchase your permanent magnets be sure they are from a reputable seller. Substandard magnets hit the market during hard times. Do not chance receiving lower strength or quality than you pay for.”   

Please call AEC if you have any questions about the current shipping crisis, your magnetic application or just to say hello.  We’ve been in business for more than 60 years serving customers one at a time, giving all of our attention to learning how we can best help.  If it’s’ magnetic….it’s AEC!

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bill with cakeCongratulations to the president of our company!  Today, August 2, 2021, marks the 39th anniversary of Bill Klaus's "temporary job" at AEC Magnetics.  Or, as Bill would say, my 40th year begins today.  Bill joined AEC Magnetics in a temporary role while he interviewed for jobs. Having just been graduated with two degrees, one in engineering and the other in business, Bill spent the summer criss-crossing the country in search of a career that would challenge his mechanical aptitude and business acumen.  Bill's dad, AEC Magnetics founder Richard Klaus, spent the summer in search of someone with mechanical know-how and business sense.  Bill set aside his short-list of Fortune 100 companies to help his dad's business. Bill's short-list turned into a long-term gig making the world's finest automation equipment for AEC Magnetics. "The excitement of possibilities and solutions has never gotten old for me," said Bill.  "Really loving what you do is the only way you can sustain such a career successfully." bill family
 "Most people have hobbies, like working crossword puzzles or Soduku," said Bill's son, Jack Klaus, a University of Toledo medical chemistry graduate.  "Our dad loves figuring out how to make things work better, more efficiently and finding the right value 'sweet spot.' It is part of his DNA, I think.  Bill's daughter, Jane, who is also an Ohio State business graduate, credits her dad's incredibly deep knowledge base with much of her success.  "Bill Klaus has the most tremendously fresh ideas, flexibility and curiosity, but probably the one thing his customers benefit most from is his patience and listening skills.  My dad is an earnest listener and will take as much time as a customer needs to explain his challenge. It has been my experience that listening and meaningful consideration are not as common as they once were."  IMG 2336
Bill's wife, Patty, who also works with Bill at AEC, says she never stops marveling at Bill's abiity to provide solutions to such a myriad of requests while always being patient and respectful.  "Our tag line should read, 'If it's magnetic...it's Bill Klaus,' because if he's not done it, he's heard it, solved for it, or knows who has.  I can't imagine anyone searching on the internet for a magnetic solution because Bill knows how magnets behave in any industrial setting.  He's designed so many solutions for automation, and shares his advice for free.  He enjoys it more than I can say.  Sometimes I'll have to give him the hairy eyeball when I think he is starting to re-design someone's' entire operation or their kitchen, kind of bind the scope a little bit. He simply loves solving for effiency, value and quality."  Bill and his family are grateful to "Papa" for starting the business 60 years ago and Bill's' family is grateful he lost his short list and gained his long-term success at AEC Magnetics.

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Rare Earth Disks 300 2The world is demanding more permanent magnets.  A report just published by IndexBox says consumers’ growing appetite for electric cars and electronics is fueling the trend.     

China, permanent magnet supplier to the world, is also one of its biggest consumers. Its New Energy Vehicle, or NEV, Industry Development Plan is expected to account for 20-percent of the country’s total vehicle sales by 2024.  Last year, NEVs comprised less than five percent.  Permanent magnets are a key NEV component, used two to three times more by weight than internal combustion engine vehicles.electric car china

It’s not just cars. Permanent magnet demand is skyrocketing due to the rapid development, and increased use of, wind turbines, consumer electronics and household appliances.  China’s tablet computer production increased by 33% in just January through September 2020 alone.  The highest demand is for high-performance, lightweight neodymium iron boron (NdFeB) magnets. 

“China definitely holds all the cards in permanent magnets,” said Bill Klaus, president of AEC Magnetics. “For one, its government subsidizes the Chinese permanent magnetics market. The U.S. government is trying to subsidize rare earths and permanent magnet industries to reduce dependence on Chinese imports, but China dominates the world’s permanent magnet market.”

China owns $1.5 billion of the world’s permanent magnet market.  The United States is far behind at $866 million, followed by Germany which holds $513 million. These three countries combined hold almost $40 percent of the global market.  The next 10 countries combined represent 34-percent of the world permanent magnet market, as estimated by InfoBox:  Indonesia, Canada, the Philippines, Japan, Mexico, South Korea, Viet Nam, Thailand, India and Italy. 

tablet productionThat’s the supply side. The countries who use the most per capita are Germany, with 346 units per 1,000 persons; Canada at 275 per 1,000 and Thailand, 251 per 1,000. 

While China’s spike in NEV production spurs its consumption of permanent magnets, it also looms large as supplier to the world, comprising 51-percent of global exports.  The next highest exporter is Japan at 11-percent share of global exports, then Germany with less than seven percent.   

With demand rising at this pace, AEC’s guidance is for consumers to lock in current pricing, advance orders to ensure availability and to make certain suppliers are accurately representing the product, for instance, substituting lower grade material than promised.  We’ve been dealing with China longer than most anyone in the industry and work daily to maintain relationships with the most reliable suppliers. We know them on a first-name basis, and have trusted them for decades.”

Please check out our thousands of in-stock permanent magnets and permanent magnetic tools, ready to ship today.  And remember, if it’s magnetic, it’s AEC!

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