The shipping supply chain is facing unmatched disruption as a result of the COVID-19 global pandemic. In over 60-years of global shipping history, the industry has never faced an interruption of this size. While China is finally showing progress in human and economic health, the damage on the supply chains is already done. There is no guarantee that factories will return to full capacity soon. China travel restrictions and quarantine efforts have prevented factories from receiving crucial components from their suppliers. The backlog of factory orders and limited travel options have stressed exporters, container lines and importers. What does this mean for the shipping industry, and how long is the road ahead to return to normal operations?
Cargo vs. Travel Restrictions for COVID-19
The Presidential coronavirus travel ban, proclaimed on March 11th and expanded on March 14th, bans travel to 26 European countries. This ban pertains specifically to travelers, not cargo. The CBP confirms cargo movement is not viewed as a viable form of transmission of the virus at this time. Crew members are also exempt from the travel ban. The Coast Guard issued a guidance in February stating that so long as a crew member does not display symptoms of COVID-19, they can assist in cargo shipment as usual. However, the crew may be subject to additional air screenings upon arrival. In the case of air freight, cargo flights may continue as usual with crew-only flights.
If CBP receives a different guidance from the medical community regarding cargo shipment and transmission of the virus, they will relay the information immediately and adjust practices accordingly.
A Shortage of Shipping Containers Leads to Jump in Spot Rates
Shippers are finding container equipment hard to come by in Europe due to an increase in blank sailings, leaving carriers unable to re position boxes. A blank or void sailing a sailing that has been canceled by the carrier. A blank sailing could mean a vessel is skipping one port, or that the entire string is canceled. While blank sailings can occur for multiple reasons, they commonly happen when demand for vessels is low.
Decreased Chinese manufacturing production due to COVID-19, paired with tariff pressures, decreased US imports from China in February to a near four-year low. This caused empty containers to stack up in Chinese yards while waiting for demand to return.
Now, after extensive preventative measures to slow the spread of the virus, Chinese factories are back up to 60% capacity. This increase in China imports, combined with capacity management by carriers and uneven equipment distribution, has led to an 18 percent increase in container spot rates this week from Asia to the US West Coast, and a 9 percent bump to the East Coast.
While US imports from China are increasing, short term demand from Europe is looking increasingly uncertain. Companies in Europe are experience a sharp drop in sales and will most likely refrain from ordering goods overseas to prioritize cash flow preservation. Uneven equipment distribution and uncertain demand could lead to delays re-positioning shipping containers once these special conditions pass.
Domestic Carriers Facing Interruptions
While Chinese imports are recovering, the shipping disruption is moving closer to home. The rapid spread of COVID-19 raises concerns regarding shipping and delivering goods domestically as businesses are urged to shut down.
On Monday, New Jersey became the first state to declare a curfew for non-emergency travel between 8:00pm and 5:00am. This curfew could raise issues for companies that receive trucks and shipments outside of normal working hours. In turn, this will raise demand for more precise delivery times during the day.
With the widespread closure of stores, warehouses, factories and distribution centers across the country and a surge of imports from China finally on its way, the process of shipping and receiving goods faces a problematic future.
Looking Ahead
The shipping industry faces an unbalanced and unpredictable near future due to COVID-19. However, analysts predict a strong rebound starting in fall 2020 or early 2021, driven by consumers beginning to spend money again and the resulting increased demand in goods and inventory.
The shipping industry can be unpredictable. Keep track of any delays or disruptions that might affect your business with SiShips.
