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MODEX Day Two: Coronavirus Impacting More than Just Trade Operations

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MODEX Day Two: Coronavirus Impacting More than Just Trade Operations

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Day two for MODEX 2020 concluded with industry players addressing the now-notorious coronavirus and what this means for both domestic and international markets fortunate enough to continue operations without disruption. From what we learned during the session, “Coronavirus and Global Supply Chains” the wave currently felt in China, Italy, and beyond, will eventually make its way to the U.S. and companies have no reason not to be prepared.

Researcher Philip J. Palin, John Paxton with MHI, and David Shillingford with Resilience360 took the unsettling topic head-on and addressed concerns without hesitation. Traders be aware: for domestic and untouched international markets, the worst isn’t over. The coronavirus creates more than just health concerns. It impacts trade operations, legal concerns, and causes financial turmoil as we’ve already started to see.

“The virus is the primary cause of the supply chain impact but the secondary causes coming from the virus include financial, regulatory, compliance, and legal,” explained Shillingford. “Another risk to think about is workforce risk. How many of the workers that left for Chinese New Year have been able to come back, and for those that have returned, are they able to work with open factories or are they still under quarantine?”

“The good news is, the extraordinary supply and demand disruption we’re discussing in terms of China is being released. It’s slow but it’s happening and it’s giving us a benchmark of for how long domestic disruption will be,” Palin stated after announcing the first containership from China arrived at the Port of Los Angeles in almost 10 days on Monday.

Shillingford goes on to explain the shifting patterns in consumer behavior as well, noting that due to worldwide panic, demand is shifting and challenging the logistics sector. Buying habits have undoubtedly changed in recent weeks along with mindsets. Interactions are now limited to a fist-bump or elbow touch rather than a handshake and the numbers of public events cancelled are going up.

“Other things we are seeing involve personnel movement. It’s not just transportation impacted,” Shillingford added.

On the legal side of the crisis, Chinese suppliers are having an issue with certificates and contractual obligations. Shillingford urges industry players to understand the importance of knowing if suppliers have been issued force majeure slips.

“One thing supply chains hate is variance, and there’s going to be a lot of variance and volatility on the demand side,” he concluded.

What does all this mean for the U.S.? At the end of the day, it’s a matter of preparation and strategizing for the more fortunate markets without the disruption of a complete shut-down.

“There was a hidden, horrible problem in the Hubei province that required a draconian measure to prevent transmission of the virus. We should be ahead of that curve as well as the rest of the world, even with this very contagious virus,” explained Palin. “And even if we are behind that curve, we don’t have 300 million workers separated from their place of work.”

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How Can Businesses Prepare For A Worldwide Crisis? 4 Tips To Survive.

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The coronavirus that emerged in China is now shaking the world economy – including some major U.S. companies – and stoking fears of a global recession.

But, as companies go about mitigating damage, there are lessons they can learn to be better prepared for another rare worldwide crisis, says Hitendra Chaturvedi, a professor at the Supply Chain Department of W.P. Carey School of Business at Arizona State University and an expert on global supply chain sustainability and strategy.

“The coronavirus is an abnormal occurrence,” Chaturvedi says. “Businesses cannot completely insulate themselves from such events, but they can certainly reduce risk so it will hurt but not be life-threatening. The whole idea is, what is the strategic insurance policy against such unexpected events, and what is the cost businesses are willing to bear?

“We have had risk mitigation and disaster recovery plans for data centers for decades now. Why should we not have the same for our manufacturing operations?”

Chaturvedi offers these suggestions for companies to prepare for a worldwide crisis that could affect their business:

Localize more inventory. “Holding inventory in multiple locations closer to your customers makes sense in many cases, even if it may be costlier than in other countries,” Chaturvedi says. “I think companies in the U.S. will start to keep more inventories here as a reaction to the coronavirus.”

Localize core manufacturing. “If your current business relies heavily on products being made in China, you’re probably concerned right now,” Chaturvedi says. “Consider having a manufacturing operation in the U.S., or at least part of your operations here, so even though the cost may be high, business survival will not be severely impacted. It’s another way for companies to have more control when events happen out of their control.”

Separate R&D from manufacturing locations in other countries. “If it makes sense to maintain your core manufacturing outside the U.S., keeping research and development work closer to home ensures your future product development does not get impacted,” Chaturvedi says.

Invest in new technology for transparency in supply chain and disaster simulation. “Blockchain can easily provide transparency across the supply chain, Chaturvedi says. “Get visibility across at least tier 1 and tier 2 suppliers.

The more you know, the better you will be at spotting trouble spots and handling a crisis. Moreover, investing in Artificial Intelligence-driven risk simulation models based on numerous factors, including a global pandemic, nature events, or political instabilities may be a prudent choice. Just as schools conduct fire drills, companies should conduct pandemic drills as part of their risk mitigation and disaster recovery plan.”

“Events such as a worldwide health crisis are a standalone business risk and an amplifier of vulnerabilities,” Chaturvedi says. “The coronavirus may serve as another reason for companies to reassess their supply chain exposure. We often get complacent after a crisis settles down, but businesses who prepare for the next time will be in a stronger position to respond and recover.”

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Hitendra Chaturvedi (https://wpcarey.asu.edu/people/profile/3541031) spent over 30 years in progressive technology leadership positions with Microsoft, Newgistics, E&Y e-Business and A.T. Kearney. Chaturvedi also built a $100 million software company in India, GreenDust, where he implemented proprietary reverse logistics software at Amazon, Flipkart (Walmart), Samsung, Panasonic and Whirlpool. A computer engineer with a master’s degree from Louisiana State University and an MBA from Southern Methodist University, Chaturvedi has been widely covered in the media and is a subject matter expert on global supply chain strategy, sustainable supply chains, reverse logistics, ecommerce, artificial intelligence and machine learning. Chaturvedi is now a professor at the Supply Chain Department of W.P. Carey School of Business at Arizona State University.

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Coronavirus and Global Trade

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Global trade is affected by myriad factors. The latest event to affect the international supply chain is the recent coronavirus that causes COVID-19. This novel virus has infected more than 80,000 people and killed more than 2,700.1 More cases are expected as the virus moves beyond its point of origin in China’s Hubei province to the rest of the world.

Resulting labor deficits and quarantine procedures could have major effects on production and shipping worldwide. Events like this one reinforce the need for companies to have detailed logistical plans in place to compensate for the shortages and delays that are likely to result.

Serious impacts expected

Worldwide health crises and other disasters have had significant effects on the global supply chain in the past. The comparatively minor outbreak of sudden acute respiratory syndrome (SARS) identified in 2003, also originating in China, cost the global economy about $40 billion dollars.2

In the wake of such catastrophes as SARS; the attacks of Sept. 11, 2001; Hurricane Katrina in 2005; and the meltdown at the Fukushima Dai-ichi nuclear power plant in 2011, it is reasonable to expect that the coronavirus could have similarly long-reaching effects. Several factors are likely to exacerbate its impacts on global supply chain economics.

First, the outbreak occurred during the Chinese Lunar New Year holiday, which took place between Jan. 25 and Feb. 4. Annually, this holiday precipitates what is considered the largest human migration on Earth over a period of about 40 days.3 Between early January and mid-February each year, hundreds of millions of Chinese people travel to visit relatives, much as Americans do during the Christmas holiday.

In an effort to slow the spread of the virus, many Lunar New Year celebrations were canceled, and the government issued travel bans4 and instituted a quarantine of millions of people, which prevents laborers from returning to work.5 The quarantine has had major effects on the labor force responsible for producing goods as well as loading and piloting the ships and planes used to transport goods all over the world.

The effects of the coronavirus outbreak might also affect the detente in the trade war between the United States and China signified by the signing of the “phase one” trade deal on Jan. 15. The new deal orchestrated by the administration of President Donald Trump promises $200 billion in sales to China.6 The coronavirus outbreak has the potential to impede these sales by creating a drag on the supply chain.

Identifying alternatives

Companies increasingly have attempted to anticipate the consequences of unexpected events on their suppliers and shippers. Disaster recovery plans have become an essential defense against the ramifications of these events.

While the production of these plans has become an industry in and of itself, all plans are not created equal. Some do not factor in delays in production and transport. A comprehensive disaster recovery plan needs to account for both. Merely hoping that problems will not rear their heads is no longer an adequate strategy.

In the case of the coronavirus outbreak, if a vendor relies on goods produced in China, it needs to have an alternative source of production. With a labor supply held up by quarantine procedures, it might be a while before production capabilities reach normal levels. The trade war has opened competitive production markets in Mexico, India, Malaysia, and Indonesia, among other places. Thus, there is little if any excuse not to have identified other production centers that can make up the shortfall in the event of a disaster.

Furthermore, it is imperative to assess whether transport services will have the capacity to ship existing inventory in the case of a crisis. If there is a backlog and a resulting lack of transport space, shipping costs might increase substantially. Delays in the wake of the Chinese Lunar New Year take place every year regardless, and in a time of crisis, delays will be even more marked. Establishing a plan with shipping partners for such events might not totally offset the cost increase. However, it can create space in the budget for it. Additionally, locating alternative routes and carriers ahead of time can allow companies to circumvent delays entirely.

While certainly expensive and complicated at the outset, disaster planning can pay dividends in the inevitable case of a major global crisis. Even if anticipated delays never manifest, planning for them might open new routes of production and shipping that ultimately can be used to increase efficiency during times of normal business operation.

Thinking ahead

Ample precedent exists for the alternative of no plan, which leads to an inability to meet demand and the financial consequences that result. Investors take note of such deficiencies and allocate funds accordingly. Developing an agile approach to anticipated problems will increase in importance as the global economy becomes more complex.

While the coronavirus outbreak continues, another disaster is already looming. The implementation of Brexit over the next year will have massive consequences in terms of customs and duty, taxation, and supply chain strategy. Getting ahead of this incipient crisis by anticipating its effects on the production and movement of goods can increase your company’s resilience.

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 Learn more

Pete Mento, Managing Director at Crowe LLP

+1 202 779 9907 or pete.mento@crowe.com

Endnotes

1. Helen Regan, Adam Renton, Meg Wagner, Mike Hayes, and Veronica Rocha, “February 25 Coronavirus News,” CNN, Feb. 25, 2020, https://www.cnn.com/asia/live-news/coronavirus-outbreak-02-25-20-hnk-intl/index.html

2. World Health Organization, “SARS (Severe Acute Respiratory Syndrome),” https://www.who.int/ith/diseases/sars/en/; William Feuer, “Coronavirus: The Hit to the Global Economy Will Be Worse Than SARS,” cnbc.com, Feb. 6, 2020, https://www.cnbc.com/2020/02/06/coronavirus-the-hit-to-the-global-economy-will-be-worse-than-sars.html

3. Karla Cripps and Serenitie Wang, “World’s Largest Annual Human Migration Now Underway in China,” CNN, Jan. 23, 2019 https://www.cnn.com/travel/article/lunar-new-year-travel-rush-2019/index.html

4. “China Coronavirus Spread Is Accelerating, Xi Jinping Warns,” Jan. 26, 2020, BBC https://www.bbc.com/news/world-asia-china-51249208

5. Emily Feng, “45 Million Chinese Now Under Quarantine as Officials Try to Halt Coronavirus Spread,” NPR, Jan. 27, 2020, https://www.npr.org/2020/01/27/800158025/45-million-chinese-now-under-quarantine-as-officials-try-to-halt-coronavirus-spr

6. James Palmer, “The ‘Phase One’ Trade Deal Is Still Hypothetical,” Foreign Policy, Jan. 15, 2020, https://foreignpolicy.com/2020/01/15/phase-one-us-china-trade-deal-hypothetical-trump-liu-he/

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Coronavirus Disrupts Maritime Industry, Supply Chains

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With reports that the U.S. military is preparing for a global coronavirus pandemic, companies dependent on China-based production are highly vulnerable to the adverse impacts on the modes of the supply chain, namely in commercial aviation, maritime shipping and overland transport, according to an industry analysis.

“The outbreak has already disrupted some commercial maritime operations and is set to have a much greater impact as international concerns over the virus intensifies,” states Hong Kong-based A2 Global Risk, which supplies its client businesses with a complete picture of global politics, security and trade.

“As large sections of China’s economy grinds to a halt and regional supply-chain mobility becomes tightly restricted, the macro-economic outlook becomes increasingly dire,” A2 Global Risk adds. “More factory closures are a near certainty as the Chinese government tries to control the spread of the disease. Foreign companies heavily reliant on China’s manufacturing sector will be forced to either weather the storm or shift their supply chains to less risky markets.”

TT Club, a UK-based insurance provider, is warning freight forwarders, logistics service providers and other intermediaries of potential unforeseen exposures that may also accrue. “Restrictions due to labor shortages at ports and cancellations of inland transport links within China, constraints in the supply of goods due to factory closures and reduced schedules of air, ocean and rail carriers may expose forwarders to claims arising from delivery delays and cargo deterioration,” states a TT Club briefing that was compiled with the assistance of specialist international lawyers.

“Up-to-date status reports on their cargo’s progress, or lack of it, are vital to shippers,” emphasizes TT Club’s Risk Management Director Peregrine Storrs-Fox. “Forwarders and logistics operators will certainly prove their mettle if they can consistently make customers aware of the ongoing attempts to problem-solve. Careful recording of communication trails detailing such actions will also help in any disputes in the future.”

Global e-retailer Alibaba Group has responded to the coronavirus threat by continuously sending medical supplies, including masks and protective suits, to medical personnel in Wuhan, Wenzhou and Hangzhou, which are at the center of the outbreak and in the most need.

“We are grateful. And we need more help,” states Alibaba, which launched a global sourcing platform for suppliers and distributors of medical goods across the world to join in the campaign.

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How the Coronavirus Outbreak in China May Affect the U.S. Garlic Market

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The ongoing outbreak of coronavirus in China may affect garlic shipments into the U.S. and result in a shortage of garlic supplies, which firstly is to push the prices up. But then the question will arise: who will be able to compensate for this shortage and who will benefit from price increases?

Currently, near 30% of the U.S. garlic market is supplied by imports, which amounted to approx. 90K tonnes. From this amount, China constituted the largest supplier, accounting for 63% of total imports. In terms of domestic consumption, Chinese garlic holds a tangible share of 28% in the U.S market.

According to the report  ‘U.S. – Garlic – Market Analysis, Forecast, Size, Trends and Insights’ by IndexBox, the revenue of the U.S. garlic market rose 6% in 2018 to $1.1B. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which are to be included in the final consumer price). Driven by increasing demand for garlic in the U.S., the market is expected to continue an upward consumption trend over the next decade. Market performance is forecast to expand with an anticipated CAGR of +0.6% for the period from 2018 to 2030 (IndexBox estimates), which is projected to bring the market volume to 348K tonnes by the end of 2030.

Production in the U.S.

Garlic production in the U.S. stood at 237K tonnes in 2018, surging by 2.2% against the previous year. The total output volume increased at an average annual rate of +2.2% over the period from 2007 to 2018; however, the trend pattern indicated some noticeable fluctuations being recorded in certain years. Garlic production peaked in 2018 and is likely to continue its growth in the near future. Garlic output in the U.S. indicated a measured increase, which was largely conditioned by measured growth of the harvested area and a relatively flat trend pattern in yield figures.

Local garlic producers constitute the first-tier challengers to buoy the supply if imports from China plummet. Domestic production currently supplies over 70% of the U.S. market, and the output is growing gradually. Moreover, U.S. manufacturers have already benefited from the rise of the import tariffs implemented by President Trump’s administration because this at some extent relaxed the price pressure on the market. This, however, was not enough to provide the industry with strong growth impetus because any rapid expansion of the output is still hampered by tight pressure from cheaper and available imports from China.

Harvested Area in the U.S.

Garlic harvested area in the U.S. totaled 14K ha in 2018, surging by 2.9% against the previous year. The harvested area increased at an average annual rate of +2.9% over the period from 2007 to 2018; however, the trend pattern indicated some noticeable fluctuations being recorded over the period under review. Over the period under review, the harvested area dedicated to garlic production attained its maximum in 2018 and is likely to see steady growth in the immediate term.

Yield in the U.S.

Average yield of garlic in the U.S. stood at 17 tonne per ha in 2018, standing approx. at the previous year. Over the period under review, the garlic yield continues to indicate a relatively flat trend pattern.

Imports into the U.S.

In 2018, approx. 90K tonnes of garlic were imported into the U.S.; jumping by 4.9% against the previous year. Overall, garlic imports continue to indicate remarkable growth.  Over the period under review, garlic imports attained their peak figure in 2018 and are expected to retain its growth in the near future. In value terms, garlic imports stood at $203M (IndexBox estimates) in 2018.

Imports by Country

In 2018, China (57K tonnes) constituted the largest supplier of garlic to the U.S., accounting for a 63% share of total imports. Moreover, garlic imports from China exceeded the figures recorded by the second-largest supplier, Spain (13K tonnes), fivefold. Mexico (12K tonnes) ranked third in terms of total imports with a 13% share.

From 2007 to 2018, the average annual rate of growth in terms of volume from China amounted to -1.9%.

By contrast, imports from Spain posted solid gains over the last decade, and this country may also challenge to supply the market gap if Chinese supplies will drop. Mexico (+3.6% per year) also experienced a tangible increase in terms of imports. Moreover, Peru, Egypt, and Uzbekistan emerge as the most promising supplying countries (IndexBox estimates), as they boast both strong growth in terms of exports and affordable prices.

In value terms, China ($118M) constituted the largest supplier of garlic to the U.S., comprising 58% of total garlic imports. The second position in the ranking was occupied by Spain ($41M), with a 20% share of total imports. It was followed by Mexico, with a 12% share.

Import Prices by Country

The average garlic import price stood at $2,253 per tonne in 2018, remaining relatively unchanged against the previous year. Over the period under review, the garlic import price, however, continues to indicate a strong increase. Over the period under review, the average import prices for garlic reached their maximum at $2,537 per tonne in 2016; however, from 2017 to 2018, import prices stood at a somewhat lower figure.

Prices varied noticeably by the country of origin; the country with the highest price was Spain ($3,238 per tonne), while the price for Mexico ($1,942 per tonne) was amongst the lowest.

From 2007 to 2018, the most notable rate of growth in terms of prices was attained by Spain, while the prices for the other major suppliers experienced more modest paces of growth.

Source: IndexBox AI Platform

Archives, Global Shippers 101, Global Trade Daily

Special Report: How to Keep Shipments Moving Forward During a Global Health Emergency

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Delayed start to the new year
The coronavirus outbreak has prompted an official global health emergency that is severely affecting business operations not only in China but also around the globe. With any kind of widespread health outbreak, global importers and exporters are dealing with unpredictable logistics concerns that require a proactive approach to keep business running as usual.

It’s important to note that any cargo from the Wuhan, Hubei Province (the origin of the outbreak), and other quarantine zones, are restricted from leaving the province, which includes full container loads (FCL), less than container loads (LCL), as well as air freight. There will also be delays in factories re-opening, and a reduction of exports from China due to Wuhan residents not returning to work until February 17th, 2020 and other municipalities extending Chinese New Year until February 9th, 2020, including:

-Shanghai Municipality

-Chongqing Municipality

-Jiangsu Province

-Zhejiang Province

-Guangdong Province

-Fujian Province

The latest in air and ocean travel

In general, there has been an increased reduction in travel in and out of China. In areas where travel is permitted, strict health checks are causing significant delays at main air and ocean terminals, to ensure the safety of all travelers and workers. While the Wuhan port is closed, the other ports continue to operate. We also continue to see several airlines canceling flights in and out of China which can have an impact on cargo capacity.

Below are important considerations that will help keep your supply chain moving and better navigate any shipping challenges associated with the latest travel restrictions and schedule shifts.

Assessment of inventory levels

Having an accurate assessment of your inventory is expected, but it’s important to understand how restrictions on imports from China will impact your current inventory and regular shipping cadence. Look ahead to determine if the demand for your product may change in the next few weeks and if you have a need for expedited shipping. Starting those conversations now and establishing a plan are important as air capacity falls due to canceled passenger flights and higher demand.

Planning ahead in production

There are numerous variables to consider when planning for production. Working through these with a supply chain expert will help you be prepared and proactive as the uncertainty around the virus continues.

-What will production look like and has there been any discussion with the vendors and factories?

-How are existing inventories compared to sales projections?

-What plans are in place in case there is a shortage of workers in China or the demands are not being met within a specific window of time?

-Has there been a discussion about how the backlog will be addressed?

Backup sourcing options

When there is any kind of delayed start to production, keeping up with the workload poses a challenge, and so you may need to consider backup sources. Backup sourcing options are not always easy to find and keeping up with the sheer demand and quality controls can be a challenge. Connecting with a global supply chain expert to vet reliable options is important to ensure success.

While we may not know how long this global health emergency will last, C.H. Robinson’s global network of experts are dedicated to helping you get your shipments where they need to be. We continue to closely monitor the situation and provide updates through our client advisories as needed.

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Report: Global Vaccines Market

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The U.S. vaccine market is anticipated to experience growth of 8.9% CAGR during the forecast timeframe. The high adoption rate of vaccines to reduce the incidence of infectious diseases along with several initiatives undertaken by government by increasing immunization rates and recommendations should stimulate business growth.

Japan’s vaccine market will grow significantly over the coming years to reach over USD 6.0 billion by 2025. Introduction of the routine vaccination program in October 2016 leading to the introduction of numerous important and routine vaccines having a higher rate of administration as compared to voluntary vaccines should drive the Japan vaccine market.

Increasing demand for preventive vaccines, the rising number of people suffering from infectious as well as non-infectious diseases globally will drive the vaccine market over the forecast timeframe. Increasing government funding for vaccine development will further boost industry growth.

Widespread routine vaccination programs and numerous initiatives undertaken by governments to encourage vaccine administration especially in developing and underdeveloped countries will positively impact industry growth. Growing awareness about reduced mortality due to immunization should propel vaccines industry growth over the forecast period.

High adoption of new vaccines coupled with technological advancements should stimulate business growth. Moreover, a strong product pipeline of leading companies such as Merck, Novavax, Emergent BioSolutions will lead to industry expansion over the coming years. However, high costs associated with transportation and storage of vaccines will limit the vaccines market growth to a certain extent over the foreseeable future.

Each time a nation is hit by an epidemic wave, children are one of the groups that take the deadliest hit. According to the Centers for Disease Control and Prevention, 1 or 2 of every 1,000 children who are diagnosed with measles die. During the nation’s recently witnessed measles outbreak, around 92 percent of children received a combination vaccine that prevents measles, rubella, and mumps. Immunization programs prevent and protect toddlers and infants from dangerous complications and failing to vaccinate may certainly put them at risk for fatal diseases. This has escalated the demand for vaccines for kids, which has subsequently influenced the growth curve of the vaccines market from the pediatric populace.

As per estimates, vaccines industry size from the pediatric age group is set to witness a CAGR of 9.1% over 2019-2025, given the high vulnerability of kids to infectious diseases along with the increasing implementation of pediatric immunization programs.

Driven by the ongoing pace of urbanization and the rising awareness regarding the potential dangers a pandemic can inculcate, the global vaccines industry is gaining increased attention. According to a new research report by Global Market Insights, Inc., the overall vaccines market size is anticipated to surpass $70 billion by 2025.

Some of the major market players involved in the global vaccines market are Merck, AstraZeneca, Johnson & Johnson, Novartis, Bristol-Myers Squibb, Abbott, Sanofi Pasteur, GlaxoSmithKline, Pfizer, Emergent BioSolutions, CSL, Astellas Pharma and Novavax. Firms are focusing on product launch to fortify their product base and market reach over the coming years.

Source: Global Market Insights, Inc.