The global shipping community is in the midst of an unprecedented state of flux. While new information on the Covid-19 pandemic emerges daily, the supply chain continues to experience uncertainty as it struggles to keep up with industry changes. Vessel and air cargo capacity continue to decrease at an alarming rate. All over the world, storage at terminals and warehouses are filling to capacity while cargo waits to be moved.
Experts are contemplating how the supply chain reached this point so quickly, and most importantly, how the current situation will be rectified. While the pandemic must be contained before accurate projections can be made, we can look at historical data and mitigating factors to provide a glimpse into what the future holds for the industry.
Here are some of the factors that you should take into consideration when assessing how the current situation will play out:
COVID-19 Containment. This is the most obvious and important factor to consider. The sooner the virus is curbed, the sooner people can get back to work. The bottom line is COVID-19 has to be contained on a global scale before projections about economic recovery can be made with any kind of certainty.
Consumer Spending. Over 6.6 million Americans applied for unemployment benefits last week. When people are uncertain about their jobs and financial well-being, they tend to spend less money on products. This slowdown in the economy leads to product instability as purchases are delayed, reduced or cancelled. In turn, factory workforces are reduced.
Blank Sailings. In the month of March, there were around 100 blank sailings. Experts are predicting this number will more than double in April. In the past, steamship lines have announced blank sailings 3-4 weeks in advance. In the current global shipping culture, the notice of lead time is shrinking to as little as 2-3 days. This puts enormous strain on worldwide cargo movement. When product and equipment movement is delayed, it adds to the already growing backlog at the ports and terminals.
Quarantines. There is a growing trend where vessels are quarantined at ports of call for up to two weeks if they come from an area heavily affected by COVID-19. Countries are enacting different types of national legislation regarding the criteria for quarantined vessels and cargo. Additionally, if personnel at a terminal contracts the virus, individual quarantines are issued. Terminals may shut down for a number of days for cleaning and disinfecting. If this were to happen to a crew member on a vessel, it would essentially stop the movement of that particular ship until the entire crew team is cleared by the proper authorities.
Force Majeure. Steamship lines, freight forwarders, and terminals are now declaring force majeure. Since there is not an accepted definition of force majeure under common law, its application varies on a case by case basis. Declarations of force majeure will become increasingly more common as the global supply chain slows down due to lack of space, equipment, and product availability.
Routing Changes. Now more than ever, steamship lines are contemplating creative ways to move cargo. Some lanes are being eliminated, while others are being shortened by deleting or altering ports of call. There are even routes being extended in duration in order to keep cargo moving. Will these changes be permanent or are they temporary? In due time, each steamship line will decide what the best course of action is for their respective company.
With all this uncertainty, there are some known factors that will no doubt shape what the post-Covid-19 shipping industry will look like. To begin with, the massive amounts of inventory sitting at terminals will cause a temporary rush of cargo movement and delivery. Many experts say this surge will last around a month. Manufacturers, factories, and industries as a whole will begin to return to work. However, it will take 2-3 months before companies will be able to produce their goods at their normal, pre-pandemic pace. Companies will have to wait on materials, product orders, and fix personnel issues (i.e. re-hiring, navigating “stay at home” restrictions) before becoming fully functional again.
The projected slowing will most likely put strain on the annual “back-to-school” season as retailers rush to backfill their inventory. Even with this mini-boost to the economy, it is very likely that the global supply chain will still have lingering effects from the lack of equipment and vessel space. In addition, not every country will recover at the same rate. Countries will experience different economic factors as they loosen Covid-19 restrictions at varying times. This type of procrastination could cause the Thanksgiving and Christmas retail seasons to experience capacity issues as well.
Each facet of the economy, from governments to individual companies, can have an effect on cargo movement. Experts currently project it could be from Q4 of 2020 up to Q2 of 2021 before the global supply chain returns to somewhat normal operations. It is prudent to plan at least 2-3 years into the future, while also taking into consideration the current state of the supply chain and professional forecasting guidance.
The experts at TLR are monitoring the global supply chain and cargo movement trends and activities on a daily basis. Please feel free to contact us with any questions at BD@shiptlr.com.