By Sharina Ahmad
THE disruption in production of goods as China’s economy and the global economy reel from the Covid-19 outbreak has affected shipping schedules, sending them into disarray.
“China’s production, export and import and overall economy have taken a massive hit as Beijing undertakes unprecedented measures to curb the spread of Covid-19.
“This has sent shockwaves to supply chains across the world which has grown dependent on China for supplies of products, components and raw materials,” maritime analyst Nazery Khalid told FocusM.
At this point of time, he said it is difficult to assess the impact of the virus on Malaysia’s maritime industry as it is still at a very early stage of the implementation of a virtual lockdown in the country.
Consultant and trainer Jeroen Hendriks of Artof Supply Chain Sdn Bhd, a consultancy company focusing on supply chain operations, said exports from China nearly came to a halt, resulting in ports not working, workers without jobs and containers piling up around the world.
“Importing ports saw the impact with a delay. Container handling and in-land transport dropped dramatically. Shipping lines and other logistical players are revising their forecasts for 2020 downward, and are taking action to reduce costs to the point of letting people go.
“Companies which are non-cash strong will be heavily hit. In the shipping industry, I expect mainly smaller companies in niche markets like local coaster companies and specialised chemical shippers will face stormy waters around the world,” Hendriks told FocusM.
Hendriks noted that it is a very difficult and uncertain time, not only with the Covid-19 impact but also with the still ongoing trade war and now the oil price war.
Quoting from official Chinese figures, Nazery said the production in February has hit an all-time low in the country with the second-largest economy in the world and described as the world’s factory floor.
This is attributed to the production of goods and raw materials being disrupted, manufacturing activities dramatically scaled-down and even factories shutting down as Chinese authorities impose lockdown to prevent the spread of the virus.
It has also triggered multiplier effects that reverberate along supply chains across the span of the globe.
“Many producers reliant on supplies of raw materials and components from China have felt the brunt of the lockdown and disruptions of business and industrial activities in that country.
“The effects include delays in delivery of components/parts and raw materials, customers’ demand not met, delays in moving goods within, into and from China, delays in loading goods at Chinese ports and force majeure triggered,” Nazery pointed out.
Owing to these, Nazery said, lead times for businesses to produce goods and meet orders have increased. This is further compounded by the shortage of air and ocean freight transportation services as carriers and shipping lines scale back flights and sailings.
“In shipping, while liners have shown remarkable discipline to maintain rates and not take advantage of the situation, freight rates are expected to spike once Covid-19 recedes and a semblance of order returns to the global economy and shipping markets.
“Inevitably, freight rates are bound to spike as liners clear backlogs that have been building since the outbreak began in January,” said Nazery.
Artof Supply Chain’s Hendriks shared that, at this current situation, companies need to make some hard decisions, but they should remember that there are always opportunities.
“Use this time to evaluate your costs, your efficiencies. Use this time to train your staff. Come out stronger, leaner and more flexible at the end. Companies should not think that cutting costs or waiting for this crisis (or these crises depending on your view) out are the only two options.
“Use the extra resources you have now. Set up new procedures. Implement new ways of working. Use the time to reorganise your company. Explore new technologies,” he opined.
He mentioned that this is not the first time a crisis has hit and it’s not going to be the last. “Deal with this crisis and prepare yourself for the next one.”
The underlying fundamentals of this crisis are human and legal, said Hendriks.
“People are now legally limited to produce, provide services and, on the other end of the spectrum, act as customers. And these limitations are flowing across the world.
“Not spreading, because China, for example, is now getting back onto its feet. It’s flowing from one part to another. This causes flowing problems: for China, there was a production problem, which will now turn into a selling problem due to the lower demand across the globe.
“China is recovering now, and so will other countries, but this does not mean that it might not return; that it might not flow back,” he said. – March 19, 2020
