Coronavirus Disrupts Supply Chain, Highlights Overdependence on China, Gets Used in Politics

 In China, Congress, Container Shipping & Transport, economics, economy, Global Economy, importers, importing, International Shipping

Peter Tirschwell, in a Journal of Commerce (JOC) article, says the coronavirus outbreak is causing disruption “on a scale that has yet to be seen in container shipping’s more than 60-year history.”

While many believe, as Tirschwell points out, China’s “prolonged [manufacturing] shutdown is just a prelude to an overwhelming surge, and likely capacity shortages, that will materialize once factories are back to full production, fulfilling demand for a still very strong US economy,” the immediate impact the virus has had on international trade is severe.

Tirschwell points out that 65 percent of trans-Pacific containerized imports still come from China, carriers blank sailed (cancelled) 46% of Asia-Europe trade capacity during this outbreak, and the annual Chinese New Year manufacturing shutdown was extended by several weeks to highlight just how disruptive the disease has been on shipping.

Risk of Supply Chain Reliance on China Highlighted

One of the things Tirschwell brings up in the article is risk in the supply chain. He alludes to the risk of heavy reliance on China for sourcing goods. Tirschwell is certainly not the only nor the first to see this heavy reliance on China risk. He writes:

Part of the solution [for de-risking the supply chain overall] may be to flee from high-risk areas. The Trump tariffs appear to be leading to a flight from China as a sourcing country, and the coronavirus will likely strengthen that trend, given the single-country risk that it has exposed. Container lines are expanding capacity on Asia to the North American East Coast services and limiting interim port calls in the Middle East and Europe to make the services faster; that is a direct reflection of the shift to southeast Asia sourcing.

At Universal Cargo, we’ve helped many importers shift sourcing to countries other than China since the start of the trade war (as well as help shippers navigate their shipments to and from China). But now, shipping to and from some of those other source countries is starting to be affected by COVID-19, the official name for this new type of coronavirus that quickly reached epidemic levels in China.

Supply Chain Disruption Spreads to Other Countries With or Without COVID-19

Sam Whelan reports in the Loadstar:

Coronavirus in South Korea has prompted flight cancellations and factory closures, with reports of capacity problems at ports and airports.

Reminiscent of China’s sudden isolation in late January, airlines around the world have cancelled or suspended Korea flights following a surge in virus cases in the city of Daegu, North Gyeongsang province.

As of today, there are 1,146 confirmed cases of virus and 12 deaths, according to local media.

South Korea is not the shipping hub that China is, but there has been a decent amount goods sourcing moved from China to South Korea as a result of U.S. tariffs on Chinese goods. Back in June, it was reported by Jung Suk-yee in a Business Korea article that U.S. imports from South Korea were up 20.5% happening at the same time U.S. imports from China were dropping. Factory closures and flight cancellations in South Korea will certainly curb that market growth the country has obtained.

South Korea is now the first country outside of China to which the Centers for Disease Control and Prevention (CDC) has advised against all non-essential travel. Additionally, the CDC advises older and at-risk travelers to avoid Iran, Italy, and Japan, where there’s a range of between 200 and 900 confirmed COVID-19 cases per country.

Still, countries that have not seen COVID-19 outbreaks such as India, which has only 3 confirmed cases despite being the second most populous country in the world, is feeling the virus’s effects when it comes to shipping.

Alex Lennane and Gavin van Marle report in a Loadstar article:

Coronavirus is beginning to impact shipping operations in the Indian subcontinent.

Blanked westbound Asia-North Europe sailings mean export containers out of India that tranship at Colombo are not being picked up.

In addition, the widespread closure of automotive component production facilities is having a severe impact on India’s burgeoning car manufacturing industry.

The situation is being compounded by an increasing scarcity of containers for exporters.

One forwarder that procures empty 20ft containers in the Indian gateway of Nhava Sheva for automotive exports told The Loadstar that, while there was normally three-weeks’ worth of available empty boxes, “there is now barely two days’ stock”.

This is just an example of one country’s supply chains being affected. India is certainly not alone in this. And with each country that has its supply chain disrupted, one more difficult link is added to the U.S. supply chain.

Fear Over COVID-19 in the U.S.

Of course, the average American isn’t thinking about the supply chain. They’re thinking about their health. Fears of an outbreak in the U.S. were raised when CDC official Dr. Nancy Messonnier said Tuesday (February 25th):

We expect we will see community spread in this country. It’s not so much a question of if this will happen anymore, but rather more a question of exactly when this will happen and how many people in this country will have severe illness.

Despite this warning, the U.S. still has not experienced any real outbreaks. Outside of the 45 Americans brought home under quarantine after contracting COVID-19 on a cruise ship, there have only been 15 confirmed cases at the time of this article’s writing. Those diagnosed are under quarantine.

According to a Politico article, some are accusing Messonnier of intentionally undercutting the Trump Administration’s more reassuring message concerning the virus spreading to America — that it is under control — in order to hurt the president during this election year. The ones making this claim point to the fact that Messonnier is the sister of Rod Rosenstein, who was the former deputy attorney general in charge of the Mueller probe with the goal of removing President Trump from office.

Politics Over Spread and Treatment of Covid-19

House Minority Leader Kevin McCarthy held a press conference today (Thursday, February 27th) and addressed the issue of COVID-19. He started by bringing up President Trump’s assignment of Vice President Pence as head of the government’s response to the virus as an indication of how seriously the president is taking this situation. The congressional appropriation leaders, he said, are working on a bipartisan basis to appropriate the adequate amount of money needed to fight COVID-19, including supporting our health experts in working with industry to develop a vaccine and treatment.

“What is certain here is this is no time for politics.” Responding to attacks on President Trump’s response to COVID-19 from Speaker of the House Nancy Pelosi, Senate Minority Leader Chuck Schumer, and the Democrat Party’s presidential candidate frontrunner Bernie Sanders, McCarthy called upon members of Congress to drop partisanship and work together in order to keep the public safe.

Of course, the presidential hopefuls took OVID-19 as an opportunity to attack president Trump during their South Carolina debates. “This great genius has told us that this coronavirus is going to end in two months,” Sanders said with thick sarcasm about Trump. “April is the magical day that this great scientist we have in the White House has determined. I wish I was kidding. That is what he said.”

transportation isolation system coronavirusIn actuality, April is not a magical date President Trump pulled out of his hat. April is when the weather gets warmer and the cold season ends. The common cold is a coronavirus, like COVID-19, and gets its name because it spreads quickly when the weather is cold but does not when warmth and humidity pick up after the winter months end in April. It is believed COVID-19 will follow a similar contagion pattern, which makes sense out of Trump’s repeated statements about the epidemic outbreak such as “a lot of people think that goes away in April, with the heat, as the heat comes in.”

Meanwhile, drug companies are racing to test vaccines against COVID-19, according to a CNN article. That’s the biggest focus when it comes to the new coronavirus, containing and fighting it. That’s the strongest message McCarthy had in his press conference, which he emphasized with:

I do not think coronavirus should be added to anything. It should be standing on its own and it should move just like that an it should move fast. I think a real sign of not playing politics with it, making sure both sides are working together on and making sure the American public has the resources they need to combat this just as the president has requested.

Could OVID-19 Open a National Conversation About International Trade?

Yes, international trade is already a big talking point for President Trump. High among his administration’s priorities has been getting out of bad trade deals with other countries, putting in place trade deals that are good for the U.S., and reducing trade deficits with other countries.

COVID-19 clearly highlights the problem of America’s over-reliance on other countries, especially China, for our goods (as pointed in the JOC article quoted at the beginning of this post). This issue is clear enough now that our politicians and policymakers likely can’t ignore America’s supply chain in an election year. McCarthy had this to say on the subject:

“When we get back and we solve this problem, I think as a country we should take a deep breath and have a real discussion about the supply chain in America. Have we allowed too much to move out of the country? Are we reliant upon other countries to make sure our economy continues to move? And I think especially from those essential requirements we need from medicines, from minerals, and others, we should look at that at a different basis and not have ourselves in this situation again.”

President Trump has been pushing policies to increase U.S. manufacturing in his crusade against trade deficits with some success in returning production to the U.S. and reducing some of those deficits. It will be interesting to see if his policies get more congressional support. Ultimately, that will likely depend on who controls Congress as the two dominating parties of our country can’t help but oppose each other.

It is unlikely the Democratic Party will ever admit Trump did anything good in his presidency, but they may agree the U.S. needs to continue growing its manufacturing, which creates jobs and avoids the problematic dependency exposed by COVID-19. Perhaps the fight between the parties will shift to what types of policies best promote U.S. manufacturing.

Keep in mind that as U.S. manufacturing has and continues to grow, Universal Cargo can help you with your domestic shipping as well as your international shipping.

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