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Shipping Market Takes the Hit from Coronavirus
The emergence of the coronavirus has shaken the supply chain industry, as retailers and shippers battle against a series of obstacles surrounding the outbreak. The coronavirus, causing pneumonia-like symptoms, is thought to have originated in the wild animal food markets of Wuhan city, one of China’s leading manufacturing centers. The Chinese government has taken efforts to minimize the spread of the deadly virus, which has already taken the lives of many and sickened thousands, by extending the Chinese New Year holiday until February 10th. This extension has already had a noticeable short-term impact on supply chains and will likely lead to more significant, longer-term effects.
With the Chinese Lunar New Year already being an ongoing period of slowdown for shipping, experiencing the coronavirus outbreak at this time of the year will cause prolonged delays in production and manufacturing. The holiday extension caused the closing of factories and warehouses, resulting in supply chain delays. Air cargo carriers have canceled a series of China flights, however, the impact to shippers will be limited due to seasonal low freight volumes already experienced by the market. Jet fuel demand has decreased as a result of flight cancellations. There has been a shift in container shipping, with an elevated number of blank sailings as a reaction to weakened demand. The holiday extension will lead to lower-than-anticipated import volumes at US ports throughout March and will likely cause additional blank sailings beyond the current mid-February to early March projections. Bunker fuel prices may begin to lower in the short-term, with oil prices and demand on the decline. Ports remain in operation but will be slowed with further disruptions anticipated if the outbreak worsens.
The coronavirus will have longer-lasting effects on global shipping. With the contract negotiation season approaching, if the industry pressures persist due to the coronavirus, a very weak rate market will result and lower contract rates will be seen. Carrier revenue and profits are predicted to be reduced due to their struggles with higher operating costs which cannot be passed onto shippers. Additionally, steamship lines are likely to see a drop in transpacific container volumes. Based on the effects realized from a similar, previous outbreak, known as the SARS outbreak, it is likely that China will experience an economic slowdown and the negative impact will depend on the severity of the coronavirus. Phase 1 of the US-China trade deal in which China agreed to purchase US agricultural products, is sure to be affected as a result of expected weakened domestic demand and will have US agricultural exporters feeling the impact. There is no doubt that the situation surrounding the coronavirus has led to rippling effects throughout the shipping industry. It will be important to monitor the situation and its impact over the next few months and if the situation doesn’t improve or worsens then longer-term effects will inevitably be felt in the market.
If you have any questions about the impact the coronavirus might have on your supply chain, or if you are looking for contingency plans, please contact Allyn at consulting@allynintl.com.
Contributor: April King
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