Shippers may experience significant supply chain disruption as the Coronavirus rapidly spreads across China.
As of today, more than 7,800 people have been infected with the virus, with the death toll at 170. The vast majority of those cases have been reported in mainland China, mostly in the city of Wuhan in the Hubei province. The virus has begun spreading to several other countries, with 5 confirmed cases in the U.S., 8 in Europe, 61 throughout the rest of Asia, and 5 in Australia.
This afternoon, the World Health Organization (WHO) declared the fast-spreading Wuhan Coronavirus as a global health emergency. The WHO defines an international emergency as an “extraordinary event” that constitutes a risk to other countries and requires a coordinated international response. The declaration of a global health emergency typically brings more money and resources, but may also prompt governments to restrict trade and travel to the affected countries.
Shutdowns
In an effort to contain the virus, the Chinese government announced that the Lunar New Year holiday would be extended an additional 3 days – from January 30 until February 2. Workers in major cities such as Shanghai and Ningbo, which are closer to Wuhan, have been told to stay home until February 10. Many large pharmaceutical and tech companies have announced that they will remain closed until at least February 8, and many factories have decided to remain closed until February 10.
Travel Bans
Countries and businesses across the globe have issued travel warnings and bans to China, where authorities are struggling to contain the virus. In the U.S., officials at the Centers for Disease Control and Prevention raised the travel warning to China to Level 3 and have warned against nonessential travel to China, while the State Department published an advisory asking Americans to reconsider travel to China.
What Shippers Should Expect
According to Resilience360, a supply chain risk company, the lockdown of Wuhan and 16 other cities in the region has caused “severe disruptions to inbound and outbound air cargo shipments, trucking and rail cargo services, as well as heavy port congestion for vessels along the Yangtze river”.
Wuhan is home to 500 factories and the city’s 11 million people are all under lockdown. All flights out of the city have been cancelled and operations at the Yangtze River Port, which handled close to 1.5m TEU’s last year, have been suspended. The prolonged work stoppage will likely hinder supply chains, including electronics and chemicals which rely heavily on manufacturing and production in the quarantined areas. As two of China’s three largest ports are located in quarantined area, supply chain disruptions will also be felt for all merchandise leaving China.
Ocean Freight
While ocean rates typically stay elevated and capacity remains tight following the holiday as carriers accommodate both the backlog of shipments that weren’t moved before the holiday and new orders placed as the factories startup production, with a week-long extension to the shutdown, the backlog would be double, causing further delays and increased freight rates. Alphaliner, a leading provider of in-depth analysis to the liner shipping industry, reported that “Further blank sailings could be announced in anticipation of a slow recovery in cargo volumes.”
The International Chamber of Shipping (ICS) has advised shipowners to follow WHO measures to limit the spread of the virus, and many carriers have announced the cessation of port call across mainland China.
If the virus outbreak extends factory closures, container shippers should expect increased freight rates as well as more blanked sailings.
Air Freight
While major international airports, including Shanghai, Beijing and Hong Kong, remain open, that could change if the health crisis worsens. In the meantime, airlines have begun reducing flights to China. Both United and Delta Airlines have announced they will cut flights from the U.S. due to falling demand. British Airways and Lufthansa have suspended all direct flights to China. Hong Kong’s Cathay Pacific announced that it “would be progressively reducing the capacity of our passenger flights to and from mainland China by 50% or more from 30 January to the end of March.” Other airlines that have cancelled or suspended flights include American Airlines, KLM, JAL, Air Canada, Finnair, Air China, China Airlines, Air Seoul, Lion Air, Air India, Jetstar Asia, Asiana Airlines, Korean Air, and Eva Air.
Stephan Haltmayer, chief executive of German-based freight forwarder Quick Cargo Service, told the Loadstar that the virus outbreak had already had a “big impact” on business. “Extending Chinese New Year holiday until 10 February has shaken the market up… The backlogs are enormous and the space demand after 10 February will be a challenge. Rates are already going high.”
Ground Transportation
Limited trucking capacity could also lead to cancellations or push rates up.
Frequently Asked Questions
1. Will cargo will be moving through the ports and airports?
Ports, airports, rail, and China customs are operating on a limited basis, with the exception for the provinces of Shanghai, Jiangsu and Zhejiang.
2. Will Chinese Customs be operational?
Customs is also closed during the holiday period, with the exception for emergency medical equipment and supplies.
3. Will the Chinese government declare customs and shipping as essential services?
As of this writing, there has been no announcement. Vessels and airplanes are still making calls, except to the Wuhan area which has been quarantined until further notice. Customs officials are not available for general freight.
About the Wuhan Coronavirus
The Wuhan Coronavirus is a new strain of the Coronavirus family that has never been encountered before. Like other coronaviruses, such as SARS and MERS, the virus usually infects animals but can evolve and spread to humans. Symptoms of the Wuhan Coronavirus include coughs, fever and difficulty breathing, which can lead to pneumonia and, in severe cases, respiratory or organ failure. There is currently no cure for the Wuhan Coronavirus.
The new virus first emerged last month in the city of Wuhan in central China. Many of the infected either worked or frequently shopped in the Huanan seafood wholesale market, which also sold live and newly slaughtered animals.
While human to human transmission of the virus has been confirmed by China’s national health commission, experts say there are still many questions that need to be answered about the new virus, including how the virus transmits from person to person, if the transmission can occur before an infected person shows sign of symptoms, and how dangerous the new Coronavirus is.
Our agents in China are closely following the situation, and we will share updates as they become available.
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Sources:
- American Shipper, 1) Q&A: How Coronavirus threatens container supply chains 2) Coronavirus begins to sicken air cargo sector, experts say, and 3) Carriers begin suspending service to China as Coronavirus outbreak worsens
- NY Times, Containing the Coronavirus: Countries Limit Travel to China
- The Loadstar, 1) Shippers brace for delays as Coronavirus keeps China’s factories closed, 2) Coronavirus a growing threat to global supply chains – pharma being hit first, and 3) Bellyhold cargo stays on the ground as more airlines suspend China services
- WCVB, Coronavirus cases in China top SARS as evacuations begin
- South China Morning Post, China Coronavirus could hit Beijing’s ability to meet US trade war deal import demands
- New York Post, Ex-FDA chief Scott Gottlieb fears China’s Coronavirus cases ‘dramatically underestimated’
- WIRED, The Coronavirus Is a Threat to the Global Drug Supply
- The Guardian, What is Coronavirus and how worried should we be?
