The coronavirus crisis is a global pandemic that is causing supply chain issues and putting global trade at risk. The pandemic has severely impacted air, ocean, and road freight.
In the midst of this crisis, global logistics providers are struggling to respond—but they are responding. Their task is a formidable one because supply and demand are currently wildly out of balance. Companies are having to rethink how they manage their supply chains and how they prepare for crisis. Their actions are key to managing the coronavirus crisis in a globalized world.
How coronavirus has impacted global logistics so far
The impact of the coronavirus on global logistics has been severe. Many countries have imposed substantial restrictions on border traffic. In line with this, many governments have imposed lockdowns of citizens and of many businesses.
These measures, along with the outbreak itself, began in China. As the virus has spread, more and more governments have reacted by imposing restrictions on economic activity. These restrictions have had a major impact on trade throughout the global economy. As a result, businesses have confronted the effects of strained and broken supply chains across the world.
How has the coronavirus impacted global trade?
The coronavirus has hit global trade hard. Because of the outbreak, many governments have imposed travel restrictions along with lockdowns with varying degrees of severity.
In country after country, businesses have faced shutdowns and citizens have faced restrictions on their movement. These measures, coupled with other restrictions on the cross-border movement of people and goods, have caused sharp contractions in global trade.
Agility has been monitoring the impact of the coronavirus crisis on trade and providing updates to its customers. As of mid-April, the company’s air freight updates tell much the same story: global trade by air is overwhelmingly down.
Air freight capacity has declined globally by 35 percent. The world’s trade lanes have all experienced double-digit declines. Most of them have experienced declines of over 30 percent.
Passenger traffic is also down. Many governments around the world are halting international flights entirely or at least to a substantial degree. Over twenty carriers have announced cargo-only flights with passenger aircraft. However, because the flight numbers are so limited, the current aircraft belly capacity for cargo is still 75 percent lower than it was in January.
With the global supply chain contracting, freighters have become more important. They now account for 77 percent of Europe-North America capacity, compared with 35 percent for the same period in 2019.
Ocean freight has suffered a considerable decline in volume as well. Carriers have reduced up to 50 percent of their capacity in some large volume trades. As a result of these reductions, carriers are facing a number of shortages of equipment and space as they work to accommodate the trade that remains robust, notably trade from Europe to the Far East.
Agility Global Shipping Updates: COVID-19
The latest global shipping and operational outlook as the world copes with Novel Coronavirus (COVID-19).
How has the coronavirus changed how global logistics must be handled?
Because of the coronavirus, businesses must increasingly handle global logistics at the national or local level.
The coronavirus outbreak is disrupting supply chains across the world. But one country stands out in terms of disrupted supply chains: China. The pandemic started in China, in the city of Wuhan in Hubei Province. The official start date of the pandemic was December 31, 2019. By the end of January 2020, China was imposing a lockdown on Wuhan.
The Chinese lockdown measures have had supply chain implications for many Western countries. This is because of the importance of China in so many of the world’s supply chains. About 20 percent of US retailers’ supply chains are exposed to China, or they were before the pandemic.
As more and more governments have adopted travel restrictions and various lockdown policies in response to the coronavirus, businesses have faced growing challenges. They have been trying to repurpose supply chains to deal with severe disruptions in the flow of goods and people.
Consider a business that ordinarily relies on raw materials from multiple locations. Due to COVID-19, one or more of those locations could easily be on lockdown. If the raw material in question is produced by people who are not considered essential workers, they may well have to stay at home.
As a result, even businesses encountering increased demand, such as those that manufacture medical equipment, are facing supply chain issues that endanger their production.
How is the coronavirus impacting supply chains?
The global impact of the coronavirus on the economy and supply chains is still difficult to assess in its entirety. However, what is already clear is that the impacts of the virus are severe and are likely to extend over the next few months at least.
Before the outbreak, many of the world’s supply chains were anchored in Wuhan, the very city where the novel coronavirus broke out. Much of the global economy depended on factories located in that city. As a result, the supply chain disruptions caused by COVID-19 have largely followed the same path as the outbreak.
The quarantine the Chinese government imposed first on Wuhan and then on surrounding areas impacted numerous industries in the global economy.
For example, the American beverage corporation PepsiCo, German conglomerate Siemens, French automaker Peugeot Citroen, Chinese smartphone maker Xiaomi, and many other major companies all have bases in Wuhan and elsewhere in Hubei Province. There are nine different car factories based in Wuhan alone.
In addition to automobile manufacturing, electronics manufacturing is being hit particularly hard. Wuhan has many component suppliers and is a key transportation hub. BOE Technology, a company that accounts for 17 percent of the world’s liquid crystal display (LCD) panels, was planning to start mass production in Wuhan in January. These plans have been curtailed by the coronavirus and the disruption of supply chains.
Overall, the coronavirus is impacting supply chains and production by disrupting the ability of suppliers and logistics companies to get raw materials to factories and to transport components and finished products. As a result, the industries that are expected to have the highest risk of disruption include tools and hardware, electronics and appliances, automobile parts, building products, diversified chemical products, and industrial specialties.
Within a particular industry, the companies that will be at the greatest risk of disruption will be those that are susceptible to a single point of failure. Most obviously, a company could be at risk of a single point of failure if it depends on a single supplier, for example, to provide a specific type of raw material.
On the other hand, companies that have diversified their supply chains and have more than one tier of suppliers to support operations will be less susceptible to a single point of failure.
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Necessary steps to mitigate the impact of coronavirus on global logistics
Mitigating the impact of coronavirus on global logistics and operations is a complex and difficult task. Many businesses will struggle in this endeavor and fall short of their prepandemic performance. But those that understand and embrace the necessary steps will come out ahead of their peers.
What are the hurdles in mitigating the impact of coronavirus on global logistics?
Many of the hurdles that freight forwarders and other logistics companies face in trying to mitigate the impact of the coronavirus are tied to disruptions caused by the virus and the lockdown policies. These lockdown policies are a necessary part of the response to the outbreak. However, they are also unavoidably disrupting the movement of goods and people.
With travel restrictions throttling much international movement, maintaining business continuity is harder than usual. However, recognizing barriers and hurdles affecting business is paramount. Companies must recognize these barriers and hurdles in order to overcome them.
Work practices are one hurdle. With social distancing requirements in place in many parts of the United States and many European countries, companies will need to examine work practices. Specifically, they will need to modify some aspects of work practices to comply with lockdown requirements.
Another related obstacle pertains to the movement of people. In some areas, all “nonessential” businesses have been shut down. Because of this, people are only allowed to travel for essential business in these areas.
Supply considerations are another hurdle. This is because governments have responded to the coronavirus outbreak by restricting trade and the shipment of goods.
As a result, relying on a single supplier, or a few suppliers in one geographical area, may expose a business to enhanced risk.
What are the most effective ways to mitigate the impact of coronavirus on global logistics?
The hurdles that businesses face in trying to mitigate the impact of this crisis on the global supply chain are formidable. However, many businesses are rising to the challenge and carrying on as best as they can.
Mitigating the impact of the coronavirus on the supply chain starts with understanding and complying with social distancing and other containment efforts that are in place in a given city, state, or other area of operation.
This may be difficult. But implementing the best practices for personal, workplace, and community health is essential. Businesses must work with local authorities and health experts in implementing hygienic measures and taking other actions to curtail the spread of the disease.
Proper hygiene is important for protecting employees, customers, and delivery personnel. By establishing and maintaining the appropriate hygienic measures recommended by authorities and health experts, companies can help to protect the health of the communities that are essential to their business.
Curbing nonessential travel by imposing voluntary travel restrictions is another measure that businesses can take to mitigate the impact of the coronavirus. In some cases, telecommuting may be an option for at least a part of a business’s workforce.
Keeping customers informed is another necessary part of responding to the coronavirus. Agility has taken the step of providing operational updates to customers in order to ensure that they stay informed. The coronavirus has disrupted a great deal of the supply of many commodities, but demand for some commodities remains strong. Customers deserve to be kept informed of expected delays in service and the fulfillment of orders.
Additionally, businesses should ensure supply chain resiliency and business continuity by attempting to diversify their supply chains wherever possible. This is admittedly harder to do in the midst of a crisis of this kind. But it is important to diversify wherever possible in order to minimize the risk of a single point of failure.
Who is responsible for mitigating the impact of coronavirus on global logistics?
Supply chain disruption poses serious risks to businesses. In particular, it creates the risk of contractual breaches and financial loss. This means that the responsibility for mitigating the business impact of the coronavirus rests in no small part with the businesses involved in global logistics.
A business that takes the necessary steps to inform and protect itself will be more likely to weather this crisis and emerge in good order on the other side. One of the more significant things a business can do to address its vulnerability to contractual breaches and financial loss is familiarize itself with the force majeure clause in contracts. A force majeure clause protects a business to a certain degree from events outside of its control.
However, the exact wording of the force majeure clause matters a great deal. The exact wording is what determines the scope of the contract. Businesses should take it upon themselves to review their contracts and proactively engage with suppliers and with customers to try to mitigate the damages and the financial and legal risks that they may incur.
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The future of global logistics during the coronavirus recovery period
There are still many uncertainties surrounding the coronavirus recovery period. However, certain impacts to global logistics seem highly likely.
What will the lasting impact of coronavirus for global logistics be?
Companies will almost certainly scramble to reshape their supply chains in the wake of the crisis. Some will relocate from countries like China that are now associated with mismanagement of the crisis. Some will diversify suppliers.
Growth in e-commerce will probably be one of the lasting impacts of the coronavirus crisis. The e-commerce ecosystem provides low-cost tools that empower small businesses, even single-person businesses. Given the economic impact of the coronavirus crisis, low-cost and lower-risk solutions with fewer barriers to entry will probably greatly favor e-commerce.
Concern over hygiene and lingering fears of the pandemic may also play some role in favoring e-commerce businesses. Even those e-commerce businesses that sell physical goods instead of digital goods reduce consumers’ needs to go out into public locations.
How is the coronavirus affecting commodities markets?
The coronavirus has for the most part caused reduced demand for commodities. As a result, the prices of many commodities are down. For example, oils and metals prices have tumbled. Agricultural products are also down. US wheat and corn have been hit hard.
However, at the same time, demand for gold is soaring. This is because gold is a “haven asset,” which is expected to retain or even gain in value in the midst of the economic downturn.
What is the estimated recovery period for the global logistics industry after the coronavirus pandemic?
There is still plenty of room for uncertainty about how long the recovery period for the global logistics industry will be. As the coronavirus pandemic recedes, how quickly will businesses reopen and people get back to work?
One source of optimism is the passage of the coronavirus stimulus bill. The US Congress passed the $2 trillion CARES Act in March. Backed by the Trump administration as a path to stimulate economic recovery, the CARES Act includes direct payments to families as well as a major loan and grant program for small businesses.
The scope and scale of the CARES Act is remarkable. The direct payments to families provide $1,200 per adult and $500 per child for households making up to $75,000. On top of this, the act also provides unemployment benefits, sick leave, and paid family leave. Additionally, it includes a $367 billion loan and grant program for small businesses and $500 billion in loans to corporate America.
Businesses are likely to face difficulties in surmounting the continued impact of the coronavirus crisis. However, it also seems likely that the reopening of businesses and stimulus-funded consumer spending will contribute to a modest recovery period.
Continue checking Agility’s updates for the latest information on global shipping as businesses react to the coronavirus crisis.
