Coronavirus COVID-19 Supply Chain Update

Posted - March 10, 2020

With the global spread of the coronavirus (COVID-19), vulnerabilities in supply chains continue to be exposed. As the first tier in many company supply chains, the disruption in China has sent ripples through the worldwide economy. The situation is still fluid, as mentioned in our previous report, and Transplace will continue to release updates as we know them.

Imports from China to U.S. and Other Regions

Ocean Cargo Updates

Cargo flows and ship calls are rebounding in China as the situation normalizes. Chinese industrial activity is also increasing.

To date, there have been 111 total blank sailings involving China to US trade. Forty-eight blank sailings were due to the coronavirus and 63 were due to Chinese New Year. There have been 75 blank sailings on China to UE trade – 28 due to the coronavirus and 46 due to Chinese New Year.

There were seven blank sailings during the past week, but the pace of additional blank sailings is decreasing, and stabilization is appearing. The estimated volume loss due to blank sailings is approximately 1.9m TEU. With the estimated average ocean freight of $1000 per TEU, ocean carrier revenue loss adds up to $1.9b.

According to Alphaliner, 30 to 60 % of the weekly outbound capacity has been withdrawn from the Asia-Europe and Trans-Pacific trades over the past three weeks, as well as from the intra-Asia routes. The reopening of factories in China would see a gradual return of demand, but Alphaliner noted in a recent newsletter that cargo volume recovery was expected to take a few weeks. Until normal volume is reached, carriers will continue to selectively implement blank sailings, likely until the end of March.

Chinese Trucking Updates

Chinese driver and trucker shortages are still widespread. Trucking capacity in North China is showing 70 to 80% driver availability. In central and south China, recovery is lower at 20 to 40% capacity as many drivers are from Hubei and surrounding provinces where the epidemic is more widespread. There remains a critical trucking situation in Ningbo and Zhejiang Province with only 10 to 20% trucks available due to restrictions and lockdowns.

Chinese Port Updates

Port congestion continues in China with equipment shortages even as quarantines in Hubei Province, Wuhan city may soon be lifted.

Transpacific Eastbound (TPEB) spot rate remains unchanged. The demand is still not at a point where carriers are seeing capacity shortages. Transshipment ports such as Busan Korea (the 5th busiest box port) are struggling with congestion due to volumes of containers discharged at intermediary ports while carriers are diverting vessels and offloading refrigerated containers due to a lack of plugs available at Chinese ports.

Carmakers and electronic manufacturers in South Korea and Japan are reporting production line shutdowns.

Impacts to the United States

U.S. Port Updates

Los Angeles, Long Beach and Oakland have severe port congestion due to a lack of space for empty containers that are awaiting backhaul vessels to China and Asia. Terminal operations in LA/LGB are cancelling work shifts due to declines in through container volumes. These declines also impact container congestion and gate hours.

Dray providers are citing wait times of 3 to 6 hours in and out of terminals. Shippers are being penalized if drivers are unable to return empties within detention free time periods. Detention penalties range between $100 to $200 per container per day. One carrier is currently waiving detention fees on empty returns. Other carriers have not announced waivers yet.

The east coast ports are seeing dramatic volume declines. Port Baltimore is reducing its workday by 75 minutes. Savannah and Brunswick are predicting an import cargo decrease by 40% in March and April from 2019 levels. The Port of Virginia estimates cargo lost in February thru April at 44,000 containers or approximately 11% decline. South Carolina ports estimate 15% decline in port volumes thru April.

Equipment shortages at certain inland ramps are at a critical situation with Ohio container ramps as some of the worst impacted. The Port of Houston is experiencing equipment shortages. Carriers have announced equipment repositioning surcharges as well as additional charges for special equipment such as open tops and flat racks.

Export rates from the U.S. to Asia and export rates from the U.S. to Europe have received General Rate Increases (GRIs) due to the impact of the overall vessel capacity shortfall stemming from blanked sailings. There remains a long lead time for U.S. to Asia export bookings, especially in markets with low container inventory.

IATA estimates revenue losses for airlines at $113b and that airline forward bookings have been “severely impacted” on routes not traveling to or from China.

What Happens Next

The World Health Organization (WHO) has emphasized that the “threat of a pandemic is very real” but could still be controlled. Over 100 countries have now reported cases and as of Monday, March 9, Italy has locked down the entire country. In China, 70% of cases have recovered.

The situation is still changing, even hourly, as global markets react. Transplace has implemented a risk management plan which first and foremost addresses the safety of our employees and customers, but at this time are not anticipating disruption in day to day operational activities. We are continuing to actively monitor the situation and will send additional updates as they become available.