The coronavirus effects are becoming ever more clear with container carriers reducing departures, capacity taken out of service and a decline in activity facing the European ports trading with China. Still, there is a catch-up effort coming, says Bart Kuipers, port economist at Erasmus University.
Nieuwsblad Transport hosted a webinar on the consequences of the coronavirus for the logistics sector. Speakers next to Kuipers were Bart Pals, Nieuwsblad Transport’s editor-in-chief, Jos Vroemen, doctor and medical consultant, Rogier Spoel, policy advisor sea and air freight at Evofenedex and Albert Jan Swart, logistics and industry economist at ABN Amro.
Facing the big dip
Some people expect the virus to die down once summer arrives in Europe, but Dr Vroemen warns that this is still unknown about the coronavirus. In China, temperatures are already higher and there the virus continued to spread. ‘In the Netherlands, it is likely we are only facing the beginning of a large breakout.’
Kuipers: ‘We are now facing the big dip. The fastest service from Shanghai to Rotterdam takes about 26 days. This means we will now start noticing the effects of cancelled sailings and partly empty ships.’
‘Production companies are also concerned,’ says Spoel. ‘They have created extra stocks to account for the Chinese New Year, but these are depleting. Mid-March to Mid-April will be crucial.
Swart points out Chinese industry was shut down for an extra ten days in February. ‘They are still running at just sixty to seventy per cent capacity. The situation is somewhat underestimated in the Netherlands, it seems. People don’t realise China is responsible for 28 per cent of global industrial production. The shock wave is only now reaching the ports, then shops and production companies as well as hinterland and short sea transport will feel the effects as well.’
Catch-up starts at end of March
Swart expects Chinese industry to be fully operational again at the end of March. ‘By working overtime, they will be able to catch-up some of the lost time. Still, adds Kuipers, ‘it will probably be about another two months before we notice this when taking transport into account (from factory to terminal to terminal to customer).
And for some products, this catch-up effort will be too late. Kuipers points to season articles such as fashion for example or events being cancelled. ‘Summer fashion may simply arrive too late now. In the business-to-business sector, such as spare parts, we will be able to catch-up. So, will we be able to catch up? Yes, but not for all products and sectors.’
Air and rail freight cannot pick up the slack
When asked if air freight could help out, Spoel says, it is possible, but ‘this comes at a price since freight rates have increased by 200 to 400 per cent. In addition, fifty per cent of air freight is carried on passenger flights and a lot of these have been cancelled. So getting a slot, may be a problem.’
The same is more or less true for rail freight. A lot of existing customers have been booking extra capacity after the coronavirus effects were beginning to show. ‘This means it is difficult for new customers to acquire a slot. In addition, the rail network has suffered from a shortage of staff due to quarantine measures as much as the ports have.’
Problems for container liners
Nieuwsblad Transport reported that even without the coronavirus, there was a big chance a shipping company would bite the dust. ‘It will be a disastrous year for them,’ admits Kuipers. ‘The last years have already been difficult and now ships are taken out of service while there are still many large ships under construction as well. It does not bode well for them.’ Spoel agrees: ‘Additionally, having to comply with IMO 2020 also had an impact followed by the storms.’
Bulk will feel effects too
Of course China’s industry slowing down will also impact the market for raw materials and their transport. Swart: ‘Raw materials prices and Chinese imports are dropping. A German industry association has said it expects the worst industrial crisis for German industry since 1990. This will also impact Rotterdam, for example, when there is less transshipment of coals and iron ore.’
Kuipers adds: ‘Along with industry, China’s enormous infrastructure initiative, the Belt Road Initiative, has also come to a standstill. This will impact transport of building materials, for example.’
Reconsider supply chains
So what can we learn from the corona crisis? Kuipers: ‘Producing so much in China and using just-in-time delivery is vulnerable. We may need to reconsider the supply chain. Could we use regional supply chains for example. Think about eastern Europe, production is not that expensive there either and new technology could result in further cost benefits. Where do we base our operations and place our distribution centres? Of course, this will come at a price. Furthermore, companies should have scenarios in place, have measures ready to execute once a crises comes along.’
‘We should communicate better, how can we help each other’s processes, collaborate more?’ adds Spoel. ‘This could help reduce the shock wave.’
The webinar (in Dutch) can be watched here. Nieuwsblad Transport is a sister publication of SWZ|Maritime.
Picture (from left to right): Bart Pals, Bart Kuipers, Rogier Spoel, and Albert Jan Swart.
