Posted on : Wednesday 1st April 2020 03:39 PM
What U.S. manufacturers can expect from suppliers and transportation providers—and what they can do about it.
Over 60 percent of North American manufacturers say they’ve felt the impact of coronavirus, according to a survey published by Thomas. Electronic manufacturers, the survey said, are anticipating a five-week shipping delay from suppliers.
One in five of manufacturing companies have production facilities in China, so it’s appropriate to start off with some good news on that front, such as it is.
Factories in China began to resume production on February 10, according to information supplied by the American Chamber of Commerce Shanghai, and are now estimated to be running at 60 percent to 80 percent of capacity. Quarantine periods are ending, enabling workers to return. Agility, a global logistics company headquartered in Kuwait, predicts production will close in on 100 percent by the end of this month.
There’s reason to take numbers coming out of China with a grain of salt. A report from March 16 indicated that urban traffic in China is at 70 percent of pre-virus levels, intercity-traffic is at 60 percent, as is coal consumption. Those numbers suggest economic activity is currently at the low end of the above estimates.
Cargo operations in China are running smoothly, with normal operations at ports, airports, trucking networks, and cargo terminals. The problem at this point is in the availability of transportation capacity to and from China.
The large number of passenger flight cancellations has meant the removal of over 6,200 tons of cargo capacity per day. Air cargo capacity from China is 50 percent lower than this time last year, according to Seabury, an aviation consultancy.
The same situation prevails in Europe, where travel restrictions announced by the United States will have a significant impact on air cargo capacity. Over 40 percent of air cargo capacity from the European mainland is found in the belly space of passenger aircraft, according to Seabury, and air freight represents over half the value of total transatlantic trade.
Not surprisingly, these developments have resulted in sharp increases in freight rates. Air charter rates from Hong Kong to the U.S. recently spiked by 50 percent. Similar developments are expected with spot air cargo rates in both directions of the Europe-to-U.S. trade lane. Space is available, but expect to pay more for less-certain service.
On the ocean freight front, sailings have been canceled and ports and terminals are experiencing imbalances in equipment. “Fewer vessels and cargo arriving in the U.S. from the Asia trades have resulted in a lack of equipment replenishment,” said Francesc Casamitjana, chief commercial officer at Agility. “It will take some time for that to sort itself out and reach equilibrium.” The ports of Oakland, Seattle/Tacoma, and Southeast Florida are the ones most likely to be experiencing equipment shortages right now, according to Casamitjana.
The American Chamber of Commerce Shanghai warns that ocean carriers out of Asia are expected to prioritize high-yield cargo in the coming weeks and may take the liberty of offloading non-premium shipments, raising the possibility of severe delays for some cargoes. U.S. exports to Asia will also experience vessel shortages.
As with air cargo, ocean carriers have announced rate increases across the board. While no shortage of space has been reported to this point, the canceled sailings suggest longer delivery times in both directions.
The situation for refrigerated and dangerous-goods cargoes is even more extreme, thanks to a shortage plugs and storage areas at ports and terminals. Ocean carriers are limiting acceptance of inbound refrigerated containers and are implementing congestion surcharges, according to Casamitjana. Dangerous-goods shipments require pre-approval from carriers before containers are being allowed into terminals.
How, then, do you to cope with this situation? There are many aspects to this complex problem. Here are a few suggestions relating to logistics from the American Chamber of Commerce Shanghai.
China continues to ramp up production, but transportation limitations will make supplies harder to come. Resilinc, a technology company that models supply chain performance, recently increased its estimate of disruption to six months from its earlier three-month advisory. Resilinc CEO Bindiya Vakil cited “inventory shortages, lead time delays, and logistics and transportation concerns” as reasons for the new estimate.
Thomas CEO Tony Uphoff believes that the U.S. automotive and tech sectors are most susceptible to the coronavirus slowdown. “The longer this drags on,” he said, “the more the North American manufacturing sector and economy will feel its effects.”
Thanks to governments around the world dragging their feet, measures to contain the virus are only now ramping up in the U.S. and elsewhere. That suggests that the crisis will drag on for some time.
Peter Buxbaum, a columnist for Industry Today, is an experienced author of articles on business, technology, international trade, transportation, security, and legal issues. His work has appeared in Fortune, Chief Executive, Jane’s Defence Weekly and Computerworld.