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Coronavirus continues to hit supply chain

Coronavirus continues to hit supply chain
Numerous container shipping services from the Far East have been blanked

Global supply chains are reeling from the spread of the coronavirus with numerous shipping lines announcing blanked sailings in response to a reduction in demand owing due to China’s extended holiday period following the outbreak.

Maersk has blanked seven services comprising three AC2 sailings between the Far East and the West Coast of South America, one AE10 sailing between the Far East and Europe, two FEW sailings between the Far East and West Africa and one AE11 sailing between the Far East and the Mediterranean.

MSC will also add a blank sailing during week seven to its JADE service from Asia to the Mediterranean to rationalise the capacity supply during the extended holiday period announced in China. The Geneva-based shipping line will additionally blank four services between Asia and the US and Canada.

Closures of Chinese factories are set to cause chaos around the world, with factories in numerous countries set to be forced to halt production due to the late arrival of imports from China.

Phil Reuben, executive director of SCALA Consulting, said: “Delays to just one specialist small component sourced from China could potentially delay production of goods by several months if the country remains unable to go back to work. The implications will stretch from potential price increases because of stock shortages, through to a complete lack of product availability.”

Professor Richard Wilding, professor of supply chain strategy at Cranfield School of Management, said: “This is a major disruptive event with global implications for supply chains. Air freight is already down 50% and we are seeing a backlog of shipping on the Yangtze River. The consequences are already taking effect, as we are hearing that a car plant factory in Germany has had to close because it does not have the raw materials. This is a trend that is likely to continue in the short-term.

“Many global companies rely on suppliers in the region. For example, Apple has 290 of its 800 suppliers based in China and the region is responsible for 9% of global TV production. According to DHL’s Resilience 360, 50% of all manufacturing in Wuhan is related to the automotive industry and 25% technology supplies from the region.”

Meanwhile, reefer congestion in Xingang and Shanghai terminals has caused yard density to reach critical levels, forcing Maersk to divert cargo as no reefer plugs are available.

The shipping line has begun applying a congestion surcharge of US$1,000 per container for all reefer cargo arriving into Shanghai and Xingang to cover the additional cost of re-routing.

Lines such as CMA CGM and COSCO Shipping are waiving detention and demurrage fees in certain circumstances.

Wilding added: “The one mitigating factor is that this has happened over Chinese New Year where production is typically down 20% anyway, so companies are already prepared for some fall in output.

“Companies need to urgently review their supply chain to find out how exposed they are. They need to ask the question as to where their suppliers and suppliers’ suppliers are located and review other sourcing locations, which although often more expensive can protect from disruptive events such as this. We may also see a greater drive towards automation, as clearly with less people working side-by-side in factories, the lower the risk of an occurrence such as this.”