You might have read in the news about Coronavirus which can cause acute respiratory issues in human beings and may even cause death. This virus originated in Wuhan, China in January 2020. As of now, the total number of cases around the world are 28,368 with Mainland China affected by 28,093 cases and the rest in the countries around the world.
We are also hearing a lot about the impact of Coronavirus on the global logistics industry, particularly container shipping lines, freight forwarders, and air carriers. What do you need to know as this illness continues to result in factory closures, travel restrictions, and decreased shipping capacity?
Things to be concerned about:
Most factories in China have closed down their factories and have told their workers to stay home due to coronavirus, where close to 60 million of people are living in cities on lock-down by the Chinese government authorities to stop the spread of the virus. The uncertainty regarding when factories will resume production makes it difficult to determine when the goods will become available again, when the trade volume will increase, or exactly how these factors will affect pricing.
No truckers to transport goods
Some factories in China still have manufacturing assembly lines in operation producing and ready to ship but since most trucking companies in China are closed for business or have no truckers to operate the trucks to transport them to the ports and airports for export because of the coronavirus. This could also mean that the cargoes could be stranded in the warehouses and factories, caused by the shortage of trucking capacity.
Few airlines flying out of Mainland China
Some international airlines or air cargo operators have cancelled or reduced flights operating in and out of Mainland China, where the air cargo transportation is having capacity challenges to ship the cargoes out of China to the customers around the world.
Higher rates for the limited space available by air
Due to the limited capacity, airlines are charging higher freight charges to customers when accepting their cargo for transportation.
No container booking space by sea transportation
Sea transportation is always the first option for many customers to choose, due to the economies of scale, when shipping their cargoes. Due to this virus outbreak, shipping companies are reducing the number of sailings into China, as measures to stop the spread of the coronavirus, which crimp demand for their services and threaten to disrupt global supply chains.
Feeder ports have even less space
Feeder ports in Mainland China have faced space issues, due to limited sailings and voyages both in and out of their ports. Shipments are being rolled at those ports due to restraints on the capacity of the vessels that are still operating.
Chinese factories are working without their foreign employees
Multinational companies are pulling out their expatriate executives from their Mainland China factories and businesses, causing inefficiency and low productivity at those places. Most of them are suspending their employees’ business trips to China amid concerns about the outbreak of the fast-spreading coronavirus, as Ikea and many other companies have recently said:
Longer lead times due to shortage of labor
Some Chinese factories are closed with the workers advised to stay home or living in lock-down cities across Mainland China because of the coronavirus. Therefore, production will slow down and lead times will be much longer due to this limited human resources capacity. Labor shortages have occurred because of the transport suspensions and quarantine measures which have hindered migrant workers from returning to their jobs after the Chinese Lunar New Year holidays.
Perishable goods spoiling from sitting at the port for long period of time
Perishables goods, such as seafood, fruits, and other edible cargoes, which are ready to be shipped, are also in the risk of being spoiled as they are having challenges to secure space bookings on vessels out of China and/or a lack of personal to ensure the port is operating at its fullest and therefore building up a backlog at the ports.
14-day quarantine on vessels destined to US
The US Government along with other countries has issued a proclamation that non-passenger commercial vessels that have been to China (excluding Hong Kong and Macau) or embarked crew-members who have been in China (excluding Hong Kong and Macau) within the last 14 days, with no sick crew members, will be permitted to enter the U.S. and conduct normal operations, with restrictions. The vessel owners/operators are to report any illness/deaths of their crew members within the 15 days prior to the arrival of the US ports. This could delay the vessel berthing and unloading operations at the US ports because of the coronavirus.
That might not affect so much the vessels that are calling US directly as the average transit time to USWC is 14 days, but that might be the case for the non direct vessels that won’t be allowed to stop at the connecting ports to call before being on the sea for 14 days and that might have a significant delay in the ultimate arrival of that vessel to US ports.
Potential future impacts beyond China:
Limited production outside of China due to a lack of raw material
China, nicknamed the factory of the world, produces large volumes of raw material and semi-finished products that ship to various factories all over the world where it is value added, or manufactured into finished products for the end consumers. Due to the factories being shut down and limited human resource capacity, the raw material production volume will be decreased, causing a negative impact in terms of production lines of their buyers in other parts of the world.
Other countries not having Chinese employees
Chinese migrant workers, who had traveled to China in the last 14 days, when reporting back to their workplace in other countries around the world, are put on quarantine in those respective countries, and will be only allowed to report back to work if clear of any illness. This has caused commercial losses due to disrupted productivity for the companies who had those Chinese workers under their employment.
IMO 2020 scrubbers not being installed on vessels (production plant is in China) and therefore prevent them from operating
Vessels that still uses high sulfur fuel oil may comply to this regulation by installing scrubbers, which are used to remove particulate matter and harmful components, such as sulphur oxides (SOx) and nitrogen oxides (NOx) from the exhaust gasses generated as a result of combustion processes in marine engines, to implement pollution control.
The major challenge is that most of the manufacturers of these scrubbers are in China, and with all these factories being closed and with limited human resources, the production may be delayed. The vessels would not be able to operate until those scrubbers are manufactured and installed, causing service disruptions.
Spooky enough? Now what, what can you do?
- Be open with your clients/customers about the situation and challenges faced due to this virus. They are well aware of the context and will understand your challenges of how the supply chain management of your cargoes had been disrupted.
- You can also refer your customers to other companies, who have stock in hand, to procure the goods/raw materials required.
- Source the goods locally, if available for the time being, as the current cost of goods sold could be pretty substantial if sourcing from China due to the factors stated above.
- Consider air freight even though it may be expensive, in order to keep your inventory in stock, and to successfully fulfill your customers’ orders.
- Consider trucking your goods in China inland to mother ports to avoid the backlog currently at the feeder ports.
- Expect major delays by air and by sea and to keep your team and customers informed, in a timely manner.
- Expect freight rates to be as high as in the peak season, or even higher, and ship only the minimum inventory that is needed. Ship the rest of the cargoes once the rates decrease and everything goes back to normal.
- Always add a few days production/lead time to what your supplier had informed you and a few days to the transit time the shipping lines had provided.
- Now is the time to look into sourcing from other countries, other than China, as those countries may have the capacity to produce or offer the goods you require considering the trade war that has already impacted so much US businesses on top of all this.