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Our Take


March 19, 2020

Supply Chain and Coronavirus (COVID-19): The Next 30 Days

By now, all businesses and individuals are keenly aware of the potential perils of coronavirus. A simple visit to the local grocery store is enough to help everyone understand the ramifications of the virus on our global sources of supply and the challenges therein. This article is intended to provide a bullet-point update on different aspects of the global supply chain to help both businesses and individuals understand the challenges as we see them over the next thirty days.

International Issues – Key Takeaways

In general, Nexterus sees capacity and price issues (see below) for both ocean and air carriage. Port congestion at foreign ports as well as US ports is likely to occur. Ocean containers and chassis for hauling containers are expected to be in short supply.

When the US imposes restrictions on flights from Europe and Asia to the US, the capacity to haul cargo is severely impacted. While cargo is not specifically halted by US decree, most import goods travel in the cargo hold of passenger aircraft. Temporarily eliminating this capacity means cargo must travel on airlines that move cargo and not people. Expect all-cargo airline rates to increase precipitously.

Asia

  • China
    • Most of mainland China is moving toward normalization.  All major ports are operational.  Steamship lines are struggling with capacity and will continue the practice of “rolling” containers or delaying sailing dates. There is also strong concern regarding the availability of empty sea containers for loading product.
    • Air freight is still a challenge.  Space is very tight out of China and most goods are shipping on chartered cargo flights at exorbitant prices. Reports of chartered aircraft prices from China to the US have been approaching $1 million, more than double the norm.
    • The prolonged delay in returning to full production may inhibit some small manufacturers from resuming business due to insolvency.
    • Factories may struggle in the face of workers’ illness or the illness of family members.
    • As production ramps up, capacity across air and ocean carriers will become more problematic. Escalating cargo prices will result. Expect significant delays.
  • Korea is now starting to feel the effects of the coronavirus.  We are not aware of any manufacturing/office shutdowns.   Vessel space is tight, and bookings are starting to experience delay.

Europe

  • Italy
    • Restrictions on the movement of people have been implemented in Italy.  This has caused staffing issues with international cargo agents & steamship lines.  There are no restrictions on ocean freight at the present time.
  • Flights out of Europe into the US have been suspended.   Freight that was in-route is being sent back to origin. All-cargo airlines will continue to be challenged to support growing demand.
  • Except for air freight, all other parts of Europe are operating normally. This will change over the next several weeks as schools close and people begin to work from home.

Nexterus, as a licensed ocean and air freight forwarder and US customs broker, is monitoring the situation throughout each day and can update you on country-specific concerns.  We are working with our agents overseas to secure space as early as possible to avoid delays.

Domestic Transportation

Many states have now enacted restrictions on public gatherings and mandatory closures of some retail businesses. We remain on high alert for even more severe restrictions that may be undertaken by certain states more prone to this type of action. It is also entirely possible that the federal government may impose a lockdown akin to what Italy has done in order to prevent further spread of the virus. As of this writing, the Department of Transportation has liberalized Hours of Service rules for truck drivers enabling these dedicated men and women to work longer hours to insure that essential goods get delivered where and when they are needed. Over the next thirty days, it is possible that the federal government could prioritize trucking activities to accentuate the delivery of essential goods to those who need them most. Essential goods would be categorized as food, water, medicines and medical supplies and equipment.

  • LTL
    • LTL carriers are monitoring the situation, and as of this writing have not entered into any restrictive practices affecting cost or service. Some carriers have begun discontinuing inside deliveries and have instructed their drivers to practice social distancing with perimeters of at least six feet. Some carriers have also temporarily discontinued the practice of procuring consignee signatures on delivery receipts to avoid contact. Nexterus does foresee geographic service interruptions arising in locations where hotspots develop with high concentrations of coronavirus patients.
  • Truckload
    • A limited number of long-haul truck drivers in some parts of the country are refusing loads to avoid public contact and time away from their families. To date, we have seen a small amount of price gouging. We do not believe this practice is widespread nor reflective of the dedicated service provided by most truck drivers.
    • Flatbed capacity is tightening in the Sunbelt markets and is driving spot pricing up slightly as reported by DAT.
    • TL rates overall will continue to rise as demand for goods increases in the face of dwindling supply.

Nexterus has been managing domestic transportation for small and medium sized businesses since 1946. Nexterus is the oldest, privately-held freight brokerage in America and has been architecting Transportation Management System (TMS) software since the late 1980’s. Nexterus clients use the web-based Fusion Center TMS to efficiently arrange and track all of their shipping needs.

This article was written by Peggy Stewart, International Operations Officer at Nexterus Inc., Lisa Flohr, Director, Domestic Operations at Nexterus Inc. and Sam Polakoff, President & CEO of Nexterus Inc. Nexterus has been helping small to mid-size companies with supply chain modeling, optimization and management since 1946. www.nexterus.com

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