Supply chain impact of coronavirus increases further

The devastating impact of coronavirus on global trade and supply chains continues to escalate as non-China Covid-19 infections surpass those recorded in China itself.

One upshot is that even as cargo availability in China increases, the implementation of social distancing and isolation policies in a bid to contain the spread of the virus threaten economic growth and demand in Europe and North America.

Sea-Intelligence’s latest Sunday Spotlight newsletter warned that as events in Europe and North America deteriorate, container shipping could soon be facing a demand scenario similar to the financial crisis of 2009. 

This could see a potential volume loss of 10%, equal to 17 million TEU globally. 

“The real underlying problem is the impact this will have in the longer term in 2020 and possibly beyond, on not only consumer spending but also on the willingness of companies to order goods in the first place – as well as their ability to do so, as we are also seeing a possible financial liquidity problem begin to appear,” said the analyst. 

“This is also where there is a realistic risk of bankruptcies.”

Supply chain problems

Companies in Europe and the US are also still grappling with the supply chain problems created by the shutdown of factors in China for an extended period from late January onwards.

Mark Lewis, CEO of Netalico Commerce and e-commerce expert, told Lloyd’s Loading List there was now “a ripple effect” in the e-commerce and retail sectors whereby even though factories in Asia were mostly back online, there were significant delays in goods being received.

“And at this point, retailers are running low on stock of a number of items like clothing and electronics so they’re soon going to be out of stock, and that will affect their profitability for at least the next quarter,” he noted.

The US-based Institute for Supply Management found that 75% of companies surveyed were now suffering supply chain disruptions in some capacity due to coronavirus-related transport restrictions, and more than 80% believe their organisation will experience some impact because of Covid-19 disruptions.

ISM also reported that 61% of procurement and supply chain managers across a range of manufacturing and non-manufacturing industries were experiencing supplier delays due to novel coronavirus-related disruptions in China.

Some positives

For container lines at least, there are some positives. Bargain basement oil prices are acting as a cash infusion given that bunker surcharges are based on oil prices two months ago, according to Sea-Intelligence.

The analyst also notes that liner discipline which has seen so many services voided, has prevented freight rates collapsing. 

“This means that until now rates have been relatively stable despite the coronavirus impact from China and might well also be through the coming period if we see a new raft of blank sailings,” it noted.

Another upside is a potential rebound in demand once the worst effects of coronavirus have played out. This will result in temporary capacity shortages and “rocketing freight rates”, according to Sea-Intelligence.

Air freight challenges

As reported in Lloyd’s Loading List last week, while demand increases have bumped up air freight rates on bellyhold routes that remain open, and for freighter charter rates globally, further service cuts and travel bans threaten the future of many airlines.

“We might face an upstream problem of demand as quarantine measures in Europe and the USA start to bite,” Peter Stallion, aviation and freight derivatives specialist at Freight Investor Services (FIS), told Lloyd’s Loading List.

“Transhipment via Europe has started to bottleneck as transatlantic capacity has been heavily throttled by Trump’s travel ban.

“Freight rates will drastically increase as everything moves on freighter charter.”

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