Global transportation in 2020 has been defined by supply chain disruptions. The year started off under the impact of the China trade wars and quickly devolved into full-scale disruption with the onset and reaction to the COVID-19 global pandemic.
As an international freight forwarder serving over 150 countries, Suddath has been on the front lines helping customers navigate these challenges to keep their supply chains moving. Since July, we have continued to see a positive shift in the volume numbers, with port activity beginning to recover to pre-COVID-19 levels. That leaves many wondering if our industry is nearing a post-pandemic era, and what that world will look like.
Supply Chain Disruptors
To understand where we are going, we start by looking back at the beginning of the year. The industry was still feeling the full impact of the increased complexity and protection policies over global trade. Most notably, the trade war between China and the U.S.
When the COVID-19 pandemic spread through China, where the origins were traced to Wuhan, China’s economy and manufacturing plants went nearly silent for more than six weeks, with little goods produced or shipped to ports around the world.
According to a China Economic Update Report by the Asia Perspective management consulting firm, China’s Gross Domestic Product (GDP) fell 6.8 percent from January to March 2020, and its exports fell by 11.4 percent in the first quarter of 2020. According to the same report, during this time period, imports to China from around the world also fell by 0.7 percent. The country’s GDP had a slight recovery from April to June, with a 3.2 percent, however it was still well below pre-COVID-19 numbers.
These declines in volume forced ocean carriers to reduce their capacity, often through the use of blank sailings or scheduled sailing that were canceled by an ocean carrier, so a vessel bypasses certain ports or even cancels full vessel rotations. Seatrade Marine News reported a total of 435 blank sailings by container lines through April 2020, as carriers continued to match capacity with decreased demand. In the U.S., we have witnessed similar results, such as the ports in South Carolina reporting 72 blank sailings between January and July with a corresponding overall decline in port volume for the year.
Ocean carriers continue to utilize blank sailings as they try to match volume with capacity. Equipment shortages are plaguing the industry as empty containers dwell in places they are not needed and are in short supply where they are needed, such as China and the Far East. Container repositioning, or moving empty containers to new locations, is among the supply chain disruptions of blank sailings because the empties simply do not get repositioned as efficiently as they would during normal operating periods.
While it is clear these supply chain disruptors still have a far-reaching impact, there are indications from the global economy that we may be headed in a better direction. Most U.S. ports had seen double-digit reductions in overall port activity from the onset of COVID-19 through June. However, things took a turn for the better in July.
The Port of Los Angeles reported that September volumes were 13.3 percent up from the same month in 2019; in addition, the port reported the best quarter in its 114-year history.
This recent surge in port volumes is making it more difficult for truckers to get appointments to move containers into and out of the port in the allotted time frame. South Carolina ports experienced a similar trend, with September year-over-year activity the strongest since the pandemic onset, and vehicle movements through the port show continued recovery.
There are several factors that have contributed to this uptick in activity, including:
-Most of the world’s manufacturers are back to business, leading to an increase in production around the globe
-The U.S. government lifted some travel restrictions for military families, with conditions, which has spurred movement around the globe
-A global decrease in blank sailing, particularly to and from Far East ports, which were bypassed earlier this year, but have become active again
The recent spike in activity bodes well for the global economy as we continue to move through the COVID-19 era. Per McKinsey & Company and Deloitte Insights, U.S. consumer demand seems high with optimism and retail sales recovering, which appears to be driving the surge in recent activity.
The future is still very much in question as several ocean carriers are still forecasting some, albeit fewer, blank sailings in the coming months, but the seven-day Golden Week festival shut down factories across China in early October and caused blank sailings to surge temporarily.
With the recent changes toward the better, the question becomes: Will the global economy remain strong as we continue into the next stage of the COVID-19 era, or will there be new spikes that cause another global economic slowdown, potentially worse than the last?
It appears ocean carriers have adapted to the supply chain disruptions and are working to smooth the supply chain as numbers return to normal. While we have heard similar sentiments from other forwarding companies recently, this alone is not enough to declare us in the clear of challenges posed by COVID-19, but it is promising information.
The Future of Shipping
The future of the trade industry in the post-pandemic era is impossible to predict, however, we continue to see ports invest in development and technology to be poised to handle the growing demands of the future.
Sustainability through technology has been a driving factor for the industry for years, and it shows no signs of slowing down. Ports are incorporating alternative power as well as investing in practices that increase sustainability and decrease their footprint to be more attractive to partners. Organizations are looking for 3PLs, ports, and steamship lines that follow sustainability best practices, use clean energy such as solar and wind, and recycle ships properly.
With the future of COVID-19 impacts unclear, the shipping industry has more incentive than ever to focus on and invest in smart technologies that continually strengthen supply chains.
Bob Fruchterman is senior vice president, International Logistics, at Suddath, where he is responsible for all international transportation and logistics including import, export, ocean and air. He also specializes in managing commercial projects in the energy, mining and construction fields around the world.
Mr. Fruchterman has more than 35 years’ experience in the international transportation and logistics industry. He has managed everything from large U.S. government-financed projects in the former Soviet Union to shipping equipment and supplies to the Middle East in support of Operation Enduring Freedom and Operation Iraqi Freedom. He graduated from the University of Richmond with a degree in Economics.