It seems the economic effect will be huge and I wouldn't even rule out a global recession. China was supposed to open for business on Feb 10th but now this is postponed until Feb 17th. Will be interesting to see what, if anything, happens next week.
Even if the factories (slowly) start to resume work domestic trucking will become a bottleneck because of traffic restrictions, occasional cargo quarantine and shortage of drivers. Right now it estimated export cargo from China will reach pre-holiday volumes in the latter half of March.
And when the cargo eventually starts to reach ports and airports surge in volume will overwhelm available air and ocean capacity. Every day factories remain closed the situation becomes more difficult. There may be indirect consequences as well. The word on the street is container carriers combined losses are currently 350M per week. They were not in a great financial shape to begin with.
This won't be over soon and it won't be nice.
Very long-term effect will probably be corporations hedging supply chain risks by moving their sourcing to more locations than China, which will be strain to Chinese economy.
And then there's the ever-looming risk of virus outbreak re-expansion.
https://www.lloydsloadinglist.com/freight-directory/news/Coronavirus-may-impact-global-supply-chains-until-year-end/75986.htmCoronavirus may impact global supply chains until year-end Stuart Todd and Will Waters
Effects likely to be felt throughout much of 2020, even if the worst effects of the outbreak are reached soon, according to one leading US-based freight forwarding and third-party logistics provider
The impact of the coronavirus on global supply chains risks being felt throughout this year even if the worst effects of the outbreak are reached soon, according to a leading US-based freight forwarding and third-party logistics provider.
“Even if a factory only misses one week’s output, given the way production cycles are set up today there will be ripple effects over a longer period,” Brian Bourke, chief growth officer at SEKO Logistics, told Lloyd’s Loading List in an interview this week.
“We want to remain positive and hope that a return to normal service in China, so to speak, is just around the corner; but uncertainty continues to prevail. I think a week from now we’re likely to have a much better picture of how the situation is going to play out.”
Reflecting the fast-changing landscape, in the last 24 hours alone, China has released further information that suggests the spread and impact of the Covid-19 virus are far more serious than had previously been announced, with the number of people infected globally estimated at more than 60,000, although still mostly in mainland China. The death toll has now exceeded 1,300, although only two deaths are known to have occurred outside of mainland China.
Other freight forwarding sources have talked in terms of months to clear backlogs and replenish supply chains – once factory production gets back up to speed. Jens Lund, chief financial officer for DSV Panalpina, told Lloyd’s Loading List last week that
once the impact of the deadly virus subsides and China reopens for business, the starvation of supply chains due to factory closures will be followed by a huge surge in freight demand, creating capacity shortages across all modes.“Production is significantly reduced or standing still in many places in China, so we are moving less cargo, which of course is creating a lot of bottlenecks in global supply chains,” said Lund. But once production across restarts, freight will need to be transported by whatever mode has capacity.
“This represents a lot of work that has to be carried out at that point in time,” added Lund. “We have to find ways to basically manage this, and if we do this well, of course it means that there is an opportunity for us to regain some of the money that we lose initially.
“It will take a couple of months to clear that backlog. But, of course, the more time lapses the longer it takes.”
As reported yesterday, new data indicates that the current production and supply chain problems in China that have been caused by the new Coronavirus have accelerated a trend that was started by the trade war, in which
importers are increasingly looking for alternative suppliers in the Asia Pacific regional, notably in southeast Asia.Marketplace data from Freightos suggest that “among US importers, coronavirus has intensified a trend that was started by the trade war: importers are increasingly looking for regional suppliers other than China”, the digital freight rates specialist said. It said the share of freight rate searches by customers for countries other than China “has climbed to more than 17% so far this month, up from less than 8% a year ago”. And it has risen dramatically in just the last month from around 10% at the end of 2019 to more than 17% in early February.
Commenting on SEKO’s own business unit in China, Bourke said: “We’re coming out of an extended Chinese New Year (CNY) holiday break imposed by the authorities in a bid to contain the virus. Like many other firms located in China, we are now at the critical stage of having to demonstrate our ability of getting our staff back on the job and ensuring their health and wellness in the workplace.”
However, the Chicago-headquartered firm has been anything but inactive during the enforced lay-offs in China, Bourke revealed.
“For the past few weeks, there has been immense demand for medical supplies into China – masks, sanitizers, gowns, thermometers – which has kept us incredibly busy,” he explained. “When you think of all the companies in China, ourselves included, who have an obligation to provide such equipment for staff in a country of 1.4 billion inhabitants, you can get an idea of how significant a flow of air freight this represents; and it could continue for some time yet.
“It’s certainly compensating to a degree for the delay in the upturn in regular air cargo trade in and out of China and the cross-border e-commerce trade.”
Peak demand for medical supplies has coincided with airlines pulling passenger and all-cargo services serving China, he noted.
“There is a huge capacity imbalance at the moment, driving rates much higher than you’d typically see. Demand into China has been consistently high across the board because anyone who’s trying to get product into the country is using air freight to do it, and space is at a premium.”
Reports of hikes in rates of 300-400% into China were “probably not far off the mark; but there is a good deal of fluctuation from day to day, and we don’t know where they’ll be tomorrow.”
When the situation does return to normal in China, a surge in demand for capacity – initially focused on air freight – is inevitable, Bourke added. “The fear is
this will be a disruptive period in the market with a scramble for space, prolonging the impact of the coronavirus on global supply chains until the end of the year.”Air freight pricing sources suggested that some of the anecdotal reports of threefold and fourfold price increases reflected prices for capacity on charter freighters services and urgent and unplanned loads needing to access specific, limited capacity. Indeed, there have been some reports of fifteen-fold price rises for capacity to China from Dubai.
Peter Stallion, from Freight Investor Services, said that there was currently a lot of price volatility in the market, exacerbated by the current low volume levels, making any clear pricing trends difficult to establish. But he said there was “only one way” that prices will go in when demand picks up in the coming weeks once Chinese factories resume production – upwards, or certainly for ex-China capacity.
“We are starting to see it already,” he said, adding that he expected that with some factories reopening next week, there would likely follow a period of a couple of weeks while product builds up, followed by significant rises in air freight prices once these goods are ready to be shipped.
The latest figures from Amsterdam-based Clive Data Services, which produces the new dynamic load factor data for the air cargo market each month and is monitoring the latest flows of air cargo to see the impact of the coronavirus, are “especially revealing”. Data for the five weeks to 9 February shows that the reduction of airline capacity, compounded with the further decrease of air freight volumes out of China, has resulted in the dynamic load factor from Europe and Middle East to China and Hong Kong being higher than the westbound load factor – reversing a trend that has existed for the last 15-20 years of market analysis.
But Stallion said this directional switch mostly reflected the fact that most of the air cargo being moved at the moment between Europe, China and Hong Kong was going on chartered freighters, where the emphasis was on the outbound leg rather than the return leg.
The latest update from Bolloré Logistics yesterday highlighted some of the challenges accessing air cargo capacity from Europe to China, noting: “Except for Chinese airlines, all airlines have suspended passenger flights to China until mid-March. AirBridgeCargo and Cargolux have also significantly reduced their regular schedule as well.
“Capacity is, therefore, under extreme tension and Europe-China freight rates are increasing sharply. The charter solutions offered by Bolloré Logistics successfully address this shortage.”
Bolloré said the “capacity tension” from Europe to China was now spread to Hong Kong and Taipei, where freight rates were also “rising strongly”.
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