By now, the world is well aware of the severity of the coronavirus outbreak. In addition to its human casualties, which alone are a catastrophe, the virus is also impacting supply chains on a global scale.
Moreover, it comes at a time when trade disputes are already causing plenty of disruption. The virus also emerged right before China’s busiest travel season, with over 600 million people traveling home to celebrate the Lunar New Year, one of the country’s biggest public holidays. According to Odyssey Logistics, industrial production in January and February drops by 20% in China on any given year due to workers taking time off for the holiday, which was extended after news of the virus.
Taking all of this into account, the coronavirus really has created a perfect storm as businesses from various industries try to mitigate the damage. In an attempt to contain the virus, China’s State Council has enacted transport restrictions and lockdowns, causing many businesses to temporarily or indefinitely shut down or run at limited capacity. Thus, if the health crisis persists, it will only get harder to transport goods around the world.
Blocks on the Road to Recovery
Road transport and the movement of people have been significantly obstructed by the coronavirus. Trucking is a main transportation method for all consumer goods, and because most consumer goods are sourced at some point from China or other affected countries, “the impact, while temporary, is potentially substantial,” according to Shannon Newton, president of the Arkansas Trucking Association. Due to highway and road closures, bottlenecks have occurred as businesses seek new routes for delivery. Likewise, due to the mandatory 14-day quarantine put in place for those returning home from strongly affected areas, there is a shortage of labor to make such deliveries.
Many industries have suffered as labor shortages and transport disruptions have occurred. Not being able to transport key raw materials is bound to compromise entire production processes in end-use sectors such as property, cars, goods, and consumables. Also, travel restrictions are expected to reduce global demand for petroleum, a scare that could potentially put a dent in the global economy, according to the US Energy Information Administration (EIA).
Stuck on the Ground
Other modes of transportation have been affected as well. Shipping companies that transport goods from China to all over the world are reducing the number of seaborne vessels they send out in order to prevent the virus from spreading and because demand for their services have declined. This decline is expected to create a domino effect across global supply chains as rail and truck volumes weaken due to the reduced flow of international goods. In other words, a setback in one mode of transportation has inherently affected others. Normally, alternative modes of transportation would come to the rescue, but due to concerns of spreading the virus, all routes are impeded, including airfreight.
While major international airports remain open, airlines have reduced flights to and from China significantly. German logistics group DHL reported that these lockdowns could have a major impact on supply operations and industrial production in China across industries such as automotive, pharmaceutical and medical supplies, and technology manufacturing.
But the disorientation doesn’t stop there. Though the whole world is hoping for some reprieve, even when concerns do ease up, there will be lots of clean-up. Due to the backlogs of deliveries now doubled or tripled since before the holiday, and as capacity remains tight, resuming production will be chaotic, to put it gently. Also, shipping rates will likely spike due to expected increases in demand.
- Dun and Bradstreet estimate that there are around 22 million businesses, or 90% of all active businesses in China, within the regions impacted by the coronavirus.
- An estimated 80% of world goods trade by volume is carried by sea, and China is home to seven of the world's 10 busiest container ports, according to the United Nations Conference on Trade and Development.
- Diminished trade as a result of the coronavirus outbreak is costing container shipping lines $350 million a week in lost volumes, says the Wall Street Journal.
- As of February 5, over 90% of passenger capacity via air travel between mainland China and the rest of the world has been cancelled until the end of March, at the earliest.
- About 70 airlines have canceled all international flights to mainland China, and an additional 50 have curtailed operations, resulting in an 80% reduction in foreign airline capacity and a 40% reduction by Chinese airlines.
By: Mara Michael
Read more about how the Coronavirus is affecting the global economy:
From ProcurementIQ - Coronavirus Spotlight: The Automotive Industry
From ProcurementIQ - Coronavirus Spotlight: The Technology Sector
From ProcurementIQ - Coronavirus Spotlight: Medical Supplies and Pharmaceutical Markets
From IBISWorld - Industry Impacts of the Coronavirus
From IBISWorld - Going Viral: Coronavirus Weighs on Australian Economy
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