How Coronavirus Affects the US Supply Chain

LDL Voice

Estimated reading time: 3 minutes

As the number of new coronavirus cases grows and factories in affected regions remain closed, coronavirus could have significant impact on global supply chains and the transportation industry. Drastically reduced freight volumes, a lack of critical components for US manufacturers, retail stock outages, and other issues are likely to cause ripple effects—and maybe for years to come. 

Novel Coronavirus Defined

Novel coronavirus, or COVID-19, is a highly contagious, flu-like virus that causes severe respiratory illness with a fever and cough. Originating in Wuhan, China last December, the virus has infected more than 75,000 people and killed at least 2,000 to date, primarily in China and particularly in and around Wuhan. Because the virus has spread so quickly, the World Health Organization (WHO) declared a global health emergency last month, putting Wuhan under quarantine and restricting travel in and out of the area (WHO).

Because Wuhan is a significant shipping hub for central China, the crisis has effectively shut down factories and supply chains there, disrupting inbound and outbound air cargo, trucking, rail, and port vessels along the Yangtze River. Wuhan is also a center for Chinese high-tech, automotive, and manufacturing industries (CCJ).

While the issue is far reaching and complex, the effects on US supply chains are likely to manifest in these key areas:

  1. Freight Volumes and Trucking

Chinese factories close for a week in late January for the Chinese New Year. This time of year is typically the slow season for freight and Chinese imports. But coronavirus has led much of China to extend the shutdown a week or more, and in some areas until March 1. Impacts to US supply chains have been minimal to date, but the transportation industry may not understand the full impact for up to three weeks (CCJ).

If factory closures continue into March, the US could see significant declines in domestic port activity. Major decreases in freight volumes could cause significant problems for trucking companies, particularly owner operators and carriers with heavy spot market activity. Last year, several trucking companies closed their doors, in large part due to unexpected overcapacity, which drove rates down. In addition to causing more closures, affected drivers could seek work in other industries, giving new life to the driver shortage.

  1. Dependent Industries

Early reports are showing a sharp decline in port traffic in Wuhan, which could have major implications for the more than 50,000 companies whose supply chains connect to the area. According to one source, the port had only five arrivals and seven departures during the final week of January—a considerable drop from 72 arrivals and 47 departures during the same period of 2019.  

Several industries that depend on Chinese imports risk disruption due to coronavirus:

  • Technology products 
  • Electronics 
  • Automobiles and auto parts 
  • Pharmaceuticals 
  • Apparel 

According to a Wells Fargo report, retailers in the US and around the world may experience out-of-stocks in 60 to 90 days if supply chain disruptions persist. Because global supply chains are complex, attempts to reconfigure them during this crisis is creating headaches for shippers.

The coronavirus threat and resulting port closures has also prompted importers to look for suitable alternatives. Freightos.com, an online marketplace for international freight, is seeing an uptick in searches for South East Asia suppliers other than China. Such searches have increased from 8 percent to 17 percent in less than a year, accelerating a trend that started with the trade war (FreightWaves).

  1. Oil and Gas Prices

Travel restrictions have reduced demand for petroleum, decreasing oil prices by $13 a barrel in January. When prices drop, oil and gas producers typically respond by slowing production, which negatively impacts US freight volumes and rates. After oil prices plummeted, the stock market and oil prices rebounded, leading some to believe the coronavirus may be slowing (DAT). Time will tell if the outbreak will lead to a more prolonged period of subdued oil demand.  

Uncertain Times for Supply Chains

Although the total impacts from the coronavirus outbreak remain to be seen, import delays are sure to compound the problems that began with the trade war with China. From rate fluctuations to trucking company closures, supply chains will continue to feel the ripple effects from decreasing Chinese exports, long after the coronavirus threat is gone.

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