Rick Brumett, Transportation
Insight vice president of
client solutions, said the 2003 global outbreak of severe acute respiratory
syndrome (SARS) caused a 2.3% reduction in global economic expansion. The
current coronavirus (COVID-19) pandemic could triple that, he said.
“When the coronavirus
started to hit epidemic proportions, the Chinese New Year was in full swing.
Logistics companies always factor in this anticipated shutdown, which lasts
until Feb. 14. Everything was close to normal,” Brumett said in a statement
issued by Transportation Insight. “Now, international supply and demand is at
work.”
Brumett noted that the
global economy is different today than it was in 2003, with just-in-time
inventory systems and e-commerce firmly rooted in manufacturers’ operations.
“Because there is less supply,
costs go up,” Brumett said. “Now, the just-in-time mindset of LEAN
manufacturers is seriously challenged by the fact that Asian factories are at
40% to 70% of capacity and oceangoing vessels and ports have been closed.
Prices could increase 15% or more.”
Vivek Vaid, chief
technology officer for FourKites, wrote that container traffic from China is even
steeper than anticipated.
“The impact of COVID-19
is hitting Shanghai particularly hard. Shanghai is one of the world’s busiest
ports,” he wrote. “It is also close to the Wuhan region, the epicenter of the
coronavirus outbreak. In February, load volume leaving Shanghai had plummeted
nearly 78% compared to previous months.”
The Port of Long Beach
reported a 17.9% year-over-year drop in
imports in February.
As imports drop and
experts begin to discuss the economic impact, a Morgan Stanley survey has found
that half of all respondents still believe the impact is “low.” The survey of
350 freight transportation participants found that 80% of stakeholders were
seeing an impact to their business from coronavirus, up from 60% just two weeks
ago. About half expect a medium to high impact in the next three months, but
respondents did not agree on what that impact will look like, and their
interpretation depended heavily on their operations.
“Very little coronavirus
issues in the flatbed world except in the areas of imported steel etc., but
even that hasn’t changed much,” one operator commented in the survey. “However,
slow import activity is freeing up vans which are butchering flatbed rates if
they can haul anything.”
Other carriers called
the current situation “fear mongering” or “overblown,” and said that “if the
media would quit over-hyping it there wouldn’t be a problem.”
Some, though, are seeing
real impact.
“The coronavirus impact
is high on lack of freight coming out of the ports. The impact we anticipate in
three months is also high when things start coming into the ports and there’s
an over-abundance in freight and not enough capacity. Carriers are avoiding the
West Coast now and may be changing their network to avoid it,” one said.
Another reported
consumer buying habits are causing a lift in the market.
“Stores [are] starting
to restock their shelves from consumers buying 2-4 weeks of supply is causing a
lift but not a peak,” they wrote.
Several shippers downplayed
the impact, suggesting that the news is fueling much of the impact.
“The primary impact on
our volume is related to sales spikes from consumers hoarding products from our
retail partners’ shelves,” one said, with another saying they “think hysterical
reports [are] fueling a lot of noise versus objective reporting. Serious,
absolutely. Impact found is minor.”
One shipper said they
anticipate rates dropping because of a drop in port volumes that will free up
capacity, and still another said there was no impact on their domestic
shipments at this time.
A broker suggested that,
at this point, the impact is due more to companies preparing for the virus than
the virus itself.
“Retailers and grocers
are struggling to keep product on the shelves due to surges in demand. This
will eventually flow through to supply chains and there will be large and
volatile surges to replenish depleted store shelves,” said another broker.
Brumett advised
companies to develop backup plans for source material, if they have not done
so.
“Buying American or
buying locally has a nice ring and offers short-term solutions,” he said.
“Consumers will be suspect of goods produced in Asia and Europe for now. We
cannot blame them.
“As we consider who wins
and who loses in a coronavirus world, it is easy to say the strategic advantage
goes to the competitor who has been planning, testing scenarios, establishing a
crisis team and implementing the plan. At any time, a country could close its
doors. Those companies without a backup plan will feel the effects of the
Coronavirus for the rest of the shipping season,” Brumett added.
