By Dr. William Oliver Hedgepeth
Faculty Member, Transportation and Logistics Management, American Public University
Supply chains that bring goods to us are hidden and complex. A warehouse worker or manager is not really concerned with delays of an expected shipment of Christmas toys or summer outdoor equipment except for where that delivery truck is on the road.
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If a truck is delayed for even a few minutes, that trucking company gets a phone call from someone in that warehouse demanding to know when it will arrive and why it is late. The warehouse is the last link in a complex web of transportation by air, land, rail, and sea before their cargo reaches retail stores and is on shelves for purchase.
Within the United States, cargo transportation by truck, rail or sea is not normally at high risk of delay. But cargo into the U.S. from Asia — and now from parts of Europe — is being delayed by the spread of the coronavirus epidemic. “The coronavirus, now present on every continent except Antarctica, has infected nearly 90,000 people, killing more than 3,000,” The New York Times reported on Monday.
Some companies are expecting to lose about 10% of 2020 revenue due to the spread of this virus.
The Coronavirus Attack on Supply Chains
The coronavirus disease-2019 (COVID-19) is affecting all cargo supply chains that feed U.S. warehouse operations.
Logistics and supply chains are subject to a push-pull effect. The “push” comes when retailers and manufacturers plan for the next season’s customer demands. The winter is nearing an end, so summer clothes and outdoor items are being shipped to retail stores now.
But COVID-19 is affecting the summer supply chain system. The spread of the deadly virus is shutting down manufacturing plants and the need for their workers, especially in China.
The “pull” occurs when customers demand some product, a particular make and model of a new auto, for example. That causes the vehicle to be manufactured and transported into their hands.
But if too many customers demand the same vehicle, that can cause a slowdown in the supply chain. Slowdowns are what we are facing now due to the COVID-19 virus.
Corporations such as Amazon and Dell and automotive manufacturers will be affected by the disruption of their products into U.S. markets. The epicenter of the coronavirus outbreak is Wuhan, one of China’s largest manufacturing centers. Foxconn and Pegatron have operations there, as do memory manufacturers such as XMC and Yangtze Memory Technologies Co., according to EETimes.
Labor is also affected by the disruption. Logistics warehouses need humans as well as robots to move cargo to storage areas and from those storage areas to trucks headed for retail stores or for home delivery. Delivery companies such as UPS, FedEx, and even our U.S. Postal Service will see decreases in package pickups and delivery services as long as the virus continues to spread.
Technology Companies Acting against the Coronavirus
Apple, Avnet, Google, Facebook, Peugeot and Citroen are restricting employee travel and some retail outlets are closed temporarily.
Delta, American Airlines, KLM, British Airways have temporarily cancelled flights between Beijing and Shanghai, Chengdu, Hangzhou and Xiamen. So have Air Canada, Iberia, Air France, United Airlines and Lufthansa.
Eighty to 90 percent of medical supplies entering the U.S. come from China. So, any slowdown of shipments affects many people. UPS pilots currently can take a leave of absence or sick leave if they do not want to fly to and from China. FedEx is posting alerts about delayed package shipments with constant updates on delays for customers.
Spread of Coronavirus Is Delaying Ocean Freight Shipments
Oceangoing cargo from China has been canceled at least until March or April. First quarter 2020 shipping volume is expected to drop by six million TEUs (20-foot equivalent units). A TEU is a 20-foot shipping container that can hold about 10 cargo pallets. That means six million shipping containers will not be coming from China to U.S. ports.
This dearth of shipping is called blank sailing, which means the ship does not leave port, in this case from China. That translates into six million tractor trailer loads not on U.S. highways heading toward logistics warehouses and retail stores.
According to Bill McLean, president of semiconductor research firm IC Insights, “Brexit, trade issues and now the coronavirus are causing global uncertainty…Uncertainty causes [businesses and consumers] to freeze.” Worldwide, semiconductor capital spending is forecast to decrease by roughly six percent this year, from $103.5 billion in 2019 to roughly $97.6 billion.
Coronavirus Impact on US Seaports
U.S. port authorities have implemented quarantine policies for ships coming from known or suspected infected areas. Each ship held up for offloading means crews are being subjected to a quarantine of 60 to 90 days. When a cargo ship from China reached the U.S. seaport of Unalaska, its 23 crew members were not allowed to leave the vessel due to a federal 14-day quarantine order for crews and vessels coming from China.
Rail Transport Is Also Feeling the Effects of COVID-19
The COVID-19 virus in Canada has led to rail blockades as a result of Canada reacting to shipping across the border with the U.S. The cost of lost rail transportation and logistics is currently uncertain. Small business concerns are worried about the cost of imported goods that may be affected by the virus. With cargo slowdowns, many products may not be available for some time.
The Need for All Businesses to Have a Backup Plan for the Coronavirus Epidemic
Any little wrinkle in the global supply chain can have significant impacts in the local transportation systems using air, water, rail or trucking transportation. What is happening now just reinforces the need for all businesses to have a backup plan, a Plan B, for the coronavirus and those human and natural interruptions to the global supply chain.
Consumers may not notice any delays in shipments of next season’s retail products. By summer or late spring, this wrinkle in our lives will be just another supply chain case study for college courses.
To track how COVID-19 is directly affecting global shipping and logistic movements, go to Tracking Coronavirus Shipping and Logistical Updates.
About the Author
Dr. Oliver Hedgepeth is a full-time professor at American Public University (APU). He was program director of three academic programs: Reverse Logistics Management, Transportation and Logistics Management and Government Contracting. He was Chair of the Logistics Department at the University of Alaska Anchorage. Dr. Hedgepeth was the founding Director of the Army’s Artificial Intelligence Center for Logistics from 1985 to 1990, Fort Lee, Virginia.