Coronavirus Impacts Supply Chain

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Coronavirus Impacts Supply Chain

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03-Feb-20

Coronavirus Impacts Supply Chain

The well publicized coronavirus is wreaking havoc with life in many parts of China but also beginning to disrupt the international supply chain in a variety of ways.

First, a number of Chinese cities have essentially been closed. In many cases, factories were already closing for the Lunar New Year celebration. Transport systems and roads have been shut or seriously curtailed preventing workers from getting to work. Authorities have officially extended the New Year holiday until February 9th. Factory production has been suspended in some key industrial areas. This all can have a rolling impact on carrier demand.

We are receiving notices from both ocean carriers and airlines about reducing services to certain Chinese points. Some examples follow:

  • Ocean Carriers are establishing contingency plans to reduce service/capacity based on anticipated demand reduction.

  • Lufthansa has announced it is canceling passenger flights to China after January 31st (except to Hong Kong). Freighter flights are not impacted but being reviewed.

  • American Airlines is suspending all flights from LAX to Shanghai and Beijing from February 9 to March 27th.

  • Maersk Line has put out an advisory about many areas extending the holiday to February 9th and monitoring the situation for possible service reductions. Maersk has also announced it will provide some relief for demurrage and detention in China until February 9th.

  • Many other international air carriers (United Airlines, Cathay Pacific, Air Canada, British Airways, Swiss Air, Austrian Air and others) have suspended some flights to China although Hong Kong is still an exception on many cases.

  • John S. Connor staff were due to travel to China in a couple months for an annual meeting with one of our agent networks. This meeting has now been cancelled and alternative sights are being considered.

Trucking capacity could also be limited. If service reductions are further extended Air & Ocean rates are expected to increase and shipping delays will occur until backlogs are cleared.

There is great concern being reported about whether the coronavirus outbreak will become a major epidemic. It has already spread beyond China with a few cases now being reported in the U.S. Of course the priority must be the health and safety of all people with possible exposure. Importers and exporters need to keep a keen eye on how this will impact production, logistics and supply sources in the short term and longer. It's not a time to panic but contingency plans are important to be considered.

We are in close contact with our Chinese agents and will continue to monitor this situation and keep you advised of updates from China.