Monday Morning Wake Up Call – Feb. 24, 2020
Corona Virus Impact Still Being Strongly Felt
o Factories in China are still running at less than 30-40% of normal production capacity in many cases and the interconnectivity of the supply chain within China means that even as some factories get ramped up they may face an ongoing shortage of parts and components that could hamper their production capabilities.
o Many truckers in China are still struggling to move empty containers to factories and return them to the port terminals and this is causing further delays in making cargo available for shipping to the U.S.
o Many are predicting that the impact will not lessen greatly until after April 1st, just as the busier shipping season draws near.
Cargo Carriers Still Sailing “Blank” Sailings
o Many ocean freight carriers are still canceling sailings and rolling cargo from one week to the next as they struggle to deal with the decreased demand caused by the Corona Virus.
o Rates on the spot market have fallen however as factories come back on line expect rates to spike sharply as carriers try to recoup some of their recent losses.
o Carriers are expected to continue controlling the supply of container space in an effort to keep prices stable or even to justify increases.
The Backlog in Purchase Orders
o While the virus has had an immediate impact on production and shipping, demand remains high and many suppliers are reporting a large backlog of unfilled purchase orders. Once the virus’ impact lessens and factories are back up to near normal production levels expect the situation to remain quite unsettled throughout the first half of 2020.
Trade War and Corona Virus Push US Importers to Look at Sourcing Changes
o With the start of the trade war in 2018 a good percentage of U.S. importers began looking at sourcing options outside of China. The challenge has been to find other sources that aren’t themselves reliant on China-sourced materials and components and dealing with the inability for other nations’ factories to produce the quantity and quality of goods required.
o The shipping infrastructure in many nations is not up to the standard of China and the added costs and delays in sourcing outside of China have presented challenges of their own.
o As some sourcing has moved from China to other Asian nations the ever-present threat of increased tariffs on goods from those nations lingers. Comments made by members of the U.S. Administration have put a cloud of uncertainty over the global supply chain.
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