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Coronavirus and Its Impact on Your Global Supply Chain

Many businesses in China have announced delayed openings until at least February 17, while others won’t be allowed to reopen until March 1.

 

The extended Chinese Lunar New Year holiday was scheduled to end yesterday, but new health and safety requirements imposed by the Chinese government in an effort to contain the Coronavirus have delayed many businesses from reopening.  Under the new requirements, companies must wait for government approval to reopen, and many government site inspections, which are required in order for businesses to reopen, have not yet been completed.

Many businesses throughout mainland China have announced delayed re-openings until February 17, with many reporting a staggered return of workers throughout the month.  In Qingdao, the national holiday has been extended until February 17.  Officials in some provinces, including Foshan and Hangzhou, have announced that companies won’t be allowed to reopen until March 1.

As of this morning, the World Health Organization (WHO) reported that the Wuhan Coronavirus has sickened more than 42,968 people worldwide and killed at least 1,018, mostly in China.  Roughly 60 million people in approximately 20 cities have been quarantined, and all ground transportation has been banned in some provinces. Cargo delays have also been reported due to goods being quarantined.

Analysts fear that the outbreak could impact production schedules as infected workers, quarantines, and transportation delays disrupt output, with consumer goods, technology, electronics and the auto sectors being the most vulnerable.

Trucking

Trucking has been severely impacted by labor shortages and travel restrictions, which are preventing drivers from returning to their cities for work after spending the holiday with their families in their hometowns.  While many airports, seaports and warehouses are technically open, the severe shortage of drivers and transportation restrictions are causing freight to pile up.

Many countries have completely or partially closed their borders with mainland China, including Hong Kong, Vietnam, Cambodia, Laos, Mongolia, Nepal, Russia, Pakistan, and Kyrgyzstan, and industry experts anticipate that cross-border trucking could be affected until at least the end of the month.

Many trucking companies have stopped accepting new business and many are rejecting inland province routes in order to focus on tier-1 and port cities so that can make as many deliveries as possible in a day.

Ocean Freight

Many ports in China are reporting port congestion, barge shortages and slow booking releases due to a shortage of staff, and many shipyards have declared force majeure.

Numerous shipping lines have announced additional blank sailings in response to reduced demand.  Sea-Intelligence CEO Alan Murphy reported “within a short span of time, carriers have blanked [canceled] an additional 31 sailings.  This is a sharp and severe indication of the disruption in demand flows from the Coronavirus.”  He also warned shippers to “brace for a backhaul rate spike,” explaining that “the raft of new blank sailings is likely to cause capacity issues for backhaul shippers in Europe and North America in March and April.  They need to start preparing for this situation as well as for a possible spike in freight rates.”

Reefer congestion in Shanghai, Ningbo, Tianjin and Xingang has caused yard density to reach critical levels, forcing many shipping lines to divert cargo.  In addition to the lack of truck drivers available to move cargo through the terminals, the shipyards are also reporting reefer plug shortages due to the overstock of reefer boxes.  A few lines, including Maersk and ZIM, have begun applying a congestion surcharge of $1,000 per container for all reefers to cover the additional cost of re-routing.  Shipping lines are recommending that customers, when possible, ship to other Chinese destinations in to order to avoid the congested ports.

Air Freight

More than 40 airlines have suspended flights to and from mainland China, eliminating 25,000 flights per week, according to data aggregator OAG Aviation Worldwide.  American Airlines has announced suspended flights through March 27, United through March 28, British Airways until March 31, and Delta until April 30.  The suspended flights don’t just affect tourists and business travelers – passenger planes carry more than half of all global airfreight.

 

What Can Shippers Expect?

Many logistics professional are warning customers to expect capacity shortages once factories in China reopen. Shippers should also expect rates to increase based on higher demand for goods.

Many companies outside of China will be affected by the Coronavirus outbreak due to a lack of raw materials and components coming out of China, including Vietnam, Cambodia and many other Southeast Asian countries.  Phil Reuben, executive director of SCALA Consulting, said “Delays to just one specialist small component sourced from China could potentially delay production of goods by several months if the country remains unable to go back to work.  The implications will stretch from potential price increases because of stock shortages, through to a complete lack of product availability.”

Professor Richard Wilding, a professor of supply chain strategy at Cranfield School of Management, said “This is a major disruptive event with global implications for supply chains. Air freight is already down 50%, and we are seeing a backlog of shipping on the Yangtze River.  The consequences are already taking effect, as we are hearing that a car plant factory in Germany has had to close because it does not have the raw materials.  This is a trend that is likely to continue in the short-term.  Companies need to urgently review their supply chain to find out how exposed they are.  They need to ask the question as to where their suppliers and suppliers’ suppliers are located and review other sourcing locations, which although often more expensive can protect from disruptive events such as this.”

Forecasting, preplanning, flexibility and communication are critical for shippers to ensure the healthcare crisis doesn’t severely compromise their supply chains.  Shippers should talk to their logistics service provider as early and as often as possible and should provide details on their shipments, including shipping forecasts, the readiness of cargo for pickup, which shipments actually need to move, and the required time of arrival.  The more informed we are as your supply chain partner, the better OCEANAIR can manage your expectations during this incredibly volatile time.

Shippers should also be open to new routings and gateways.  Shippers may also want to consider using airfreight to quickly restore your supply chain in order to meet customer demand and contractual obligations.  However, the cost of air freight is normally 5 times higher than ocean transport, and demand may cause rates to soar even higher.

While the real impact of the Coronavirus will take time to ascertain, many industry experts estimate that it will take several months before things return to normal.

 

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Sources:

  • World Health Organization
  • The LOADSTAR, 1) Battle for truck capacity looms as China’s factories and warehouses reopen, 2) Forwarders warned of shortage of cargo space once China factories reopen, 3) Coronavirus may be costing container shipping lines $350m every week, and 4) Coronavirus lockdown traps drivers, leaving reefers stranded and a plug shortage
  • Seatrade Maritime News, 1) Ships transiting Panama Canal must report contact with coronavirus outbreak countries, and 2) Container lines hit with $300m – $350m weekly revenue loss from coronavirus
  • Bloomberg, Mortality Estimate at 1%; Canadian Economy Toll: Virus Update
  • The Hill, Chinese health officials label new coronavirus NCP
  • American Shipper, 1) Container lines cut sailings on coronavirus impact and 2) China traders urged to prepare for airfreight capacity crunch
  • Forbes, The Coronavirus Threat to Supply Chains is a Big Risk
  • The Verge, All the ways China’s coronavirus outbreak is affecting tech
  • Container Management, Coronavirus continues to hit supply chain
  • Fox Business, Clock is ticking for companies that depend on China imports
  • ING Think, Coronavirus to hit world trade


 

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