China is gradually recovering from the pandemic which is spreading to other parts of the globe bringing them under quarantine, once again highlighting the vulnerability of the global supply chain
The Corona virus outbreak has once again highlighted the vulnerability of global supply chain. China — still the source of 65 per cent of trans-Pacific containerized imports remains in the early stages of restarting production, following the pandemic outbreak. China’s exports contracted by 17 per cent in dollar terms in January and February, but port call data indicates activity at Chinese ports has begun to recover from early March. Economies dependent on China-based production are highly vulnerable to the adverse impacts on the modes of the supply chain, namely in commercial aviation, maritime shipping and overland.
As the pandemic spreads to Europe and the US, the shipping industry will now have to contend with falling demand there. Following the US-China trade war that had slowed down the pace of global trade growth to its slowest pace since 2009, the Corona virus outbreak has given the next shattering blow to the global trade. As per data published by Allianz Research, in the first quarter of 2020 the global trade has suffered damage equivalent to a full year trade war between US-China. The loss in trade of goods and services is estimated to be $320 billion per quarter of business disruption. Export losses are expected to peg at $161 billion as demand from China and Europe is expected to be subdued till the end of April. The return to normalcy of trade is expected to be very gradual and losses to the transport sector are forecast to be atleast $33 billion.
This trade shock is already visible in early trade indicators, which signal a trade recession in volume terms both in Q1 (-2.5% q/q annualized) and Q2 (-1%) 2020. After a slight rebound by 1.6 per cent in Q4 2019, global trade is expected to contract by -2.5 per cent in Q1 (q/q annualized), and certainly to stay in negative in Q2. Global trade in volume terms edged down in January 2020 and plummeted in February, following dire activity reports in China but also deteriorating new export orders elsewhere, notably in Europe and Asia.
The International Chamber of Shipping estimates that the Covid-19 outbreak has removed more than 350,000 containers from global trade. There have been 49 per cent fewer sailings by container ships from China in the last four weeks, according to the European Commission. The unprecedented scale of the disruption has forced carriers to blank 46 per cent of capacity in the Asia-Europe trade. The forecasted drop of 20-25 per cent in global shipping industry throughput will have a corresponding impact on the port terminal industry.
A strong dollar, lower commodity prices and depressed demand will keep nominal trade in recession for the full year 2020. A -10 per cent drop in the S&P GSCI commodity price index since the beginning of the Covid-19 outbreak signals a continuation of 2019 deflationary pressures. This coupled with the appreciation of the dollar in a context of high uncertainty would push prices down. In value terms, trade should also contract in the first half of the year, keeping the full-year figure in negative territory after -1.5 per cent in 2019.
Disruption to maritime trade
The coronavirus outbreak has led to a decline in the number of ships calling on Chinese ports including Shanghai and Yangshan in January, as factories across the country remain closed or operating at low capacity. The number of port calls at Shanghai and Yangshang declined by 17 per cent in January, compared to the same period in the previous year. Carriers have blanked 21 sailings on the US-Asia Pacific trade route with the primary reason being weak demand in China. The cancellations are in addition to 66 cancellations that took place during the Lunar New Year resulting in 199,000 teu units of reduced capacity. On the Asia-Europe trade route, a total of 61 cancelled sailings have been announced, representing a 151,000 teu capacity reduction.
The US and EU being the major export markets of China have seen major disruption in maritime trade. California’s Long Beach Port that handled $38 billion in Chinese goods last year has seen activity decline to more than half from normal levels. Los Angeles’ ports have seen 50 blank sailings since the outbreak began.
Even as Beijing relaxes its containment measures, demand is falling elsewhere as the virus spreads. From Singapore to Rotterdam, many ports are seeing sharp falls in activity. At China’s Shenzhen port, the fourth-largest in the world by container volume, dock workers have informed that business had fallen off by an estimated 50 to 75 per cent. Yangshan port in Shanghai has experienced similar declines. The number of trucks coming in and out has dropped off by between 40-50 per cent. Rotterdam, Europe’s largest port and one of the world’s busiest, saw traffic from China fall 20 per cent from a year earlier. In Singapore, a critical hub for crude oil shipments to China, figures for February show that throughput has taken a serious beating, said Peter Sand, chief shipping analyst at Bimco.
Measures taken by ports
All major ports across the world have adopted a 14-day quarantine period for vessels arriving from or transiting through China. Vessels arriving from China are required to report regarding the health of the crew members and passengers prior to berthing. Some of the restrictions placed by ports across the world are detailed below.
China
China is home to seven of the busiest ports in the world. Although loading and unloading operations are functioning normally, barge service is delayed at all ports. Few container depots in Shanghai, which is the busiest port in the world, were closed until February 10.
The government has implemented restrictions on some of these ports to contain the spread of the disease. Crew disembarking has been completely restricted at all ports. Any vessels berthing at Tianjin, Dalian and Xiamen ports are required to provide a health declaration before berthing. Vessels with crew from Wuhan or the Hubei province are restricted to berth at the Putian and Quanzhou ports. At the Ningbo Port, such vessels will be placed under isolation for 14 days before berthing.
Substitution of crew at the Shanghai, Xiamen, Ningbo, Tianjin, Dalian, Qingdao and Guangzhou ports has been prohibited. Wearing facial masks and temperature checks everyday has been initiated as a preventive action for coronavirus.
United States
The US Coast Guard issued a notice on 02 February 2020 stating that any passenger vessels or vessels carrying passengers, which have been to China or embarked passengers in China in the last 14 days, will be denied entry into the US. Any passengers who exceed the 14 day period and are symptom-free will be allowed entry into the US.
Non-passenger vessels are allowed to operate in the US with restrictions if they have been to China or embarked passengers in China within the last 14 days under the condition that there are no sick crewmembers. Any vessels with sick crew members are required to notify the nearest Coast Guard Captain of the Port.
Singapore
The Maritime and Port Authority of Singapore (MPA) has implemented temperature screening at all sea checkpoints, including ferry and cruise terminals. Visitors having a travel history in Hubei or possessing PRC passports issued in Hubei, will not be allowed to enter or transit through Singapore.
Australia
Australia initiated additional border screening and isolation measures on 01 February. Any vessels that have left China or transited through the country after 01 February and less than 14 days prior to the date will be required to meet coronavirus requirements set by the government.
The same applies to vessels with crew of passengers, vessels with ill passengers and vessels having crew of passengers who have come in contact with confirmed cases.
Passengers or crewmembers on all vessels departing or transiting through China will not be allowed to disembark from the vessel until a biosecurity officer screens them for coronavirus and other infectious diseases. Based on the advice of the biosecurity officer, the passengers will either be asked to self-isolate as a preventive measure or undergo further tests.
Turkey
Turkey has taken coronavirus safety measures to contain the spread of the infection by restricting cruise ships from Chinese ports from docking in the country. Cargo ships have been permitted to dock although they will undergo strict inspections. The country has placed 33 health inspection centers at various ports to carry out screening procedures.
Escaping the COVID-19
Part of the solution may be to flee from high-risk areas. The US appears to be shifting away 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. The compound growth rate of US imports from southeast Asia between 2011 and 2019 outpaced the rate of growth of US imports from China by a wide margin.
The CAGR of volumes from Southeast Asia to the United States rose 9.9 percent, compared with a 2.7 percent growth in China volume, according to IHS Markit. However, the volume from southeast Asia to the US is just one-third of the volume from China, and the production and freight infrastructure capacity of southeast Asia is already showing its limits.
However, industry experts believe the prolonged shutdown will be followed by an overwhelming surge in business resulting in likely capacity shortages that will materialize once factories are back to full production, fulfilling demand for a still very strong US economy. Such a scenario could result in a sharp rebound in trade.
