Coronavirus disrupts the heart of global supply China now

Since the coronavirus outbreak during the beginning of January, all my newsfeed in WeChat and Chinese social media is full of coronavirus news updates. My family members and friends in China are ok. And I know many overseas Chinese try their best to donate medical supplies and money back to help out people in need including myself. This is going to be a big battle we human beings fighting with the virus, not just Chinese people. I indeed hope it will be over soon with all of the help from the world, especially scientists and medical professionals.

In the past, the market impact of most viruses tends to be intense, but it soon fades. However, this round is different. Shippers will begin to feel the disruption to their supply chains with delays and decreased capacity as carriers are reducing the number of vessels in an effort to stop the spread of the Coronavirus. Home to several of the busiest container ports and airports, a lockdown on China factories and workers is having a rippling effect in consumer supply chains.

I did some research and gathered some of facts and numbers to conclude the current situation

China

· Manufacturing – Delayed due to the Chinese New Year extension. Further delays may occur due to quarantine of labor if Coronavirus symptoms are present. Few Shanghai factories have resumed work today Feb 10th

· Ports –Wuhan/Wenzhou ports remain closed until further notice, although it is believed the ports might be operational again on February 17. All other ports are open and operational. Some carriers are also allowing online submission to avoid unnecessary traveling for shipping documents.

· Truck: Very limited trucking supplies but trucking price remains stable

· Sailings – Carriers continue to blank sailings to balance the lack of demand for cargo moving, currently at 50-70% for week 6. Once the cargo is moving again, we expect there will be limited space on vessels and cargo scheduled to move may be rolled in favor of cargo that is already ready to move. It is also worth noting that several carriers are mitigating detention and demurrage charges due to the holiday extension.

· Air freight – Over 90% of passenger airlines have canceled flights in/out of China for the immediate future. Airfreight is still moving on freighters but at a higher cost.

Hong Kong

· Ports – Operational as usual; however, Hong Kong did shut down two cruise terminals after passengers tested positive for the Coronavirus.

· Sailings – All vessels are currently full or close to full as the result of the carriers cargo rolled previously or pre-planned arrangements.

· Air freight – Several airlines including United, American, Cathay Pacific, etc., have suspended flights to/from Hong Kong until mid-February. Most carriers are citing a lack of demand as the reason for the cancellation.

USA Port Arrival Procedures Announced

As reported before, please remember that the U.S. Coast Guard announced U.S. port arrival procedures immediately for vessels that have called Chinese ports (excluding Hong Kong and Macau). The incoming vessel must report to the U.S. Coast Guard Captain of the Port on the crew’s health. As long as there are no sick crew members on board, vessels will be allowed to berth normally. Currently, no vessels calling the Port of Los Angeles or the Northwest Seaport Alliance of Seattle and Tacoma have not been delayed in arriving at berth.

My thoughts

In the short term, companies must be open-minded and creative to come up with different solutions to keep the supply chain moving rather than cost optimization. Companies can consider to source from US local distributor or trading companies who has enough inventories. Companies also need to make room for airfreight budget by cutting some profit margins whenever the air freight is available. In the midterm, companies need to consider locking some guaranteed capacity in advance. If too much capacity is removed, rates

might skyrocket. In the long term, companies need to develop diverse sourcing plans to reduce the risk. We all know you cannot put all the eggs in one basket. Starts looks for manufactures in Thailand, Vietnam, Indonesia, Indian, Malaysia would be ideal to reduce the risk.

Sources: Reuters, ABC News, USA Today, CNN Business, Channel News Asia.