The coronavirus COVID-19 is affecting far more than human health. It’s proven capable of infecting global logistics and potentially bringing businesses to a standstill.
China is one of the largest exporters in the world. It was also the first country to be rocked by the outbreak of a new coronavirus. COVID-19 has since spread to over 100 countries, including the United States. Freight volume is plummeting as the virus takes a $350-million-per-week toll on international shipping. It’s a situation that may leave the logistics of many American businesses in a lurch.
For businesses everywhere, the virus could not have hit at a worse time. As we covered in our previous blog about the IMO 2020 regulations, international shipping is already facing a significant slowdown to fight pollution.
Vessels requiring new fuel types and expensive sulfur-based upgrades were already likely to cause delays to business as usual, but those are small inconveniences compared to the potential logistics nightmare of COVIC-19. Even the parts necessary to make the sulfur upgrades are in limbo as people and equipment, paralyzed by quarantines, struggle to make it to the shipping yards.
How this could impact global logistics
Delays in goods reaching America — or being sent by American businesses to overseas customers — are the most obvious impact. Global governments are setting quarantines of varying times and types, making it very difficult to predict when certain shipping lines will return to full strength or be put back in action.
Many goods are effectively stranded at sea with vessels unable to complete their role in the logistics chain. Destination ports are demanding that entire crews be screened and cleared of the coronavirus before being allowed to continue their route. Any American business reliant on Chinese electronics may be hardest hit due to the debilitating impact of coronavirus on the electronics manufacturing industry.
China has limited the number of vessels allowed to leave the country, while major shippers like Maersk and CMA-CGM have capped the number of vessels connecting China to the United States and recorded many instances of blank sailing.
These delays in ocean shipping will create a backlog of goods which is likely to result in increased freight prices, especially if American businesses, desperate to keep logistics on track, make the switch to more expensive air freight. However, the virus is causing problems there, too.
Shipping by air will also feel the impact
Some major air freight carriers, like IAG Cargo, have suspended all cargo flights to and from mainland China with no projected date for resuming. Cathay Pacific, which is a major cargo airline for the region, announced in January that it would be cutting its capacity by 50% or more until the end of March. CNN reports that DHL is also reporting supply chain disruptions to air cargo, but FedEx and UPS — America's two largest carriers — have said they will continue to fly to and from China.
This much, at least, could be a silver lining for U.S. businesses using the big two. However, FedEx has announced inevitable delays to its express international and international economy freight shipments to China.
An alert by the carrier from February 20 said there would be temporary service suspensions for certain China-to-Europe transit routes, a tangential risk for domestic businesses who see their goods pass through Europe before reaching America.
Can the big carriers stay healthy?
USA Today raised the valid point of what COVID-19 could mean for the financial health of the big carriers. It highlighted that FedEx stock values have fallen in the face of the outbreak and that the carrier was already struggling before current events. A significant loss of revenue for FedEx could mean that customers will be hit with higher rates, even temporarily, to make up for the shortfall. To the company’s credit, they’re deeply engaged with getting relief supplies to stricken areas.
UPS is perhaps most optimistic of all in the face of the coronavirus. Speaking at an investors conference, UPS Chief Financial Officer Brian Newman felt the company was poised to take positive advantage of the “pent-up demand” caused by supply chain backlogs. The carrier feels it’s too early to make any comments or predictions about just how much of an impact will be felt long-term.
Optimism is great, but American businesses must put realism first and prepare for the worst when it comes to their own logistics chains being disrupted. China is, after all, America’s third-largest trading partner after Mexico and Canada.
Stay tuned to the 71lbs blog for further updates on how global shipping will be impacted and contact our team at the link below to learn how we can keep your logistics expenses as low as possible.
At 71lbs, we focus on two things: a) helping customers save money on shipping, and b) helping customers understand their shipping costs. We provide refunds and savings on shipping insurance, freight and imports, among other benefits. Our automated dashboard displays easy-to-understand shipping costs and insights, so you can make better business decisions. Drop by the contact page to get in touch!