With the spread of COVID-19 rapidly changing lives and livelihoods, we all want to know: what’s next? When will factories start running again? And how can you ensure your cargo is moving when they do? Flexport’s leaders in ocean and air freight, trucking, and warehousing across the US, Europe and Asia recently held a webinar on how to deal with ongoing capacity constraints, increasing shipping costs, departure and arrival bottlenecks, and more.
Below are major takeaways from their conversation updated to reflect new information.
Typically, Chinese New Year (CNY) causes a temporary and manageable disruption to global trade. Peak season predictably precedes the 1-2 weeks before CNY when over 50% of the country travels home and factories are closed. Usually after around 3-4 weeks manufacturing levels return to normal again. It is a well known pattern that companies have adapted to.
However, this year has been out of the ordinary and COVID-19 has unleashed very different market dynamics.
TRUCKING In the first week of March 2020 the trucking market recovered to 80%, making it a relatively bright spot. If the trend continues, trucking will reach 90% market recovery starting the week of March 9 and see full recovery by the week of March 16.
AIR Most freight travels in the bellies of passenger planes, and those flights will resume, but not quickly.
In the week after February 24, the China-US air freight market jumped more than 50% — followed by a further 50% increase the week of March 2. The underlying cause is the cancellation of passenger flights, which carry 40-50% of air freight capacity from China to the US. The backlog of volume, reduction in supply from airlines, rates doubling in a short period of time, and space disappearing overnight all make for a difficult situation. Passenger flight capacity is determined by the demand of passengers, which hinges on how the virus spreads internationally, and is thus hard to predict.
OCEAN Asia to US (TPEB) trade lanes have been heavily impacted by a lack of demand. US ports are announcing early gate closures to balance out supply and demand. The close of the traditional TPEB contract season on May 1 may be an inflection point, but it’s too soon to tell.
Turning to Asia to Europe (FEWB) trade lanes, 75 blank sailings have been announced for the period of early February to early April 2020 with COVID-19 listed as the cause of 29 (or 38.6%) of those. This was placed on top of an already significant blank sailing program.
Even so, China has begun to recover. This positive trend has started in North China, followed by South China, and finally East/Central China, the region most affected by the Coronavirus. Large companies have mostly reopened, but SMEs are returning to work at a slower pace (approximately 80% for North China and 50-60% for South China and East/Central China).
Full recovery will of course depend on levels of global demand. Many had hoped that shipments would run at full capacity by the end of March to early April. But as the full effects of COVID-19 on the economies of North America, Europe, and other regions are still unknown, it’s unclear when this will happen.
During the webinar Flexport polled our audience on the following questions and learned that most were optimistic the supply side would recover early. The majority reported that factories were mostly operational and expected them to return to full capacity in 2-4 weeks. A large majority said their primary method of shipping would remain standard ocean freight.
Surveys of Shippers in the Webinar At what percentage of capacity are the factories you’re using operating today?
When do you expect your factory to be at full capacity?
What will be your primary method of moving cargo once it exits the factory?
China shut down much travel and many events and economic activities to slow the spread of COVID-19. Lowered demand also dampened economic activity. Now much of the rest of the world is going through a similar experience whose outcomes for societies, economies, and supply chains are not yet fully understood. But we are not completely in the dark. The more useful information we all share, the more light we can shed on the best courses of action for our businesses and our communities. That is the spirit in which these results are shared.
To learn more about how you can jump start your supply chain, listen to the full webinar here.
Subscribe for the latest news on trade lanes, customs and tariff changes, and expert economic insight.