Global shipping has been hit by the coronavirus, Now goods are getting stranded

Thursday, 06 February 2020

The arteries of global trade are clogging up.

Shipping companies that carry goods from China to the rest of the world say they are reducing the number of seaborne vessels, as measures to stop the spread of the coronavirus crimp demand for their services and threaten to disrupt global supply chains.

About 80% of world goods trade by volume is carried by sea and China is home to seven of the world's 10 busiest container ports, according to the United Nations Conference on Trade and Development. Nearby Singapore and South Korea each have a mega port too.

"A closure of the world's manufacturing hub impacts container shipping at large, as it is a vital facilitator of the intra-Asian and global supply chains," said Peter Sand, chief shipping analyst at BIMCO, an international shipping association. "This will affect many industries and limit demand for containerized goods transport," Sand told CNN Business.

Everything from cars and machinery to apparel and other consumer staples are shipped in containers, and disruption to the industry could reverberate far beyond China as the country seeks to contain the coronavirus outbreak by keeping factories shut and workers at home.

The longer the health crisis lasts, the harder it will be to move goods around the world. The coronavirus outbreak has killed more than 560 people and infected at least 28,000 — mainly in China, where close to 60 million people are living in cities on lockdown.

Already, carmaker Hyundai (HYMTF) has suspended production at its plants in South Korea because of a disruption to the supply of parts caused by the coronavirus outbreak in China, the company said in a statement.

Floating quarantine

The shutdowns mean that some ships can't get into Chinese ports, as the loading and discharging of goods slows, said Guy Platten, secretary general of the International Chamber of Shipping, a trade body. Others are stuck in dock, waiting for workers to return to ports so that construction and repairs can be completed, Platten added.

Still more vessels are idling in "floating quarantined zones," as countries such as Australia and Singapore refuse to allow ships that have called at Chinese ports to enter their own until the crew has been declared virus-free, added Sand. Platten said he knew of at least one crew that is running low on food because their ship has been idled for so long.

Giant shipping companies such as Maersk, MSC Mediterranean Shipping, Hapag-Lloyd and CMA-CGM have said that they have reduced the number of vessels on routes connecting China and Hong Kong with India, Canada, the United States and West Africa.

The shipowners say that moves to idle Chinese factories beyond the end of the Lunar New Year has curtailed demand for vessels and forced them to adjust their capacity during what is already a low season for shipping because of the Chinese holiday.

BIMCO members, which include 1,900 shipowners, operators, managers, brokers and agents, report limited or no demand from Chinese buyers of seaborne commodities, such as coal, crude oil and iron ore, said Sand. The lack of activity is reflected in oil prices, which have crashed into a bear market.

Logistics company Freightos warned clients to expect delays in getting goods out of China, and consider shifting some shipments from sea to air or even sourcing goods from other countries where possible. The backlog of shipments that typically follows the Lunar New Year will be made worse by the current situation, pushing ocean freight rates up and exacerbating delays, Freightos said.

Air cargo disrupted

It's not just shipping that's been affected.

IAG Cargo, the air cargo arm of British Airways parent IAG (ICAGY), on Monday canceled all services to and from mainland China for at least the remainder of the month, citing a UK government travel advisory, according to a statement on its website.

German logistics group DHL has reported "severe disruptions to inbound and outbound air cargo shipments, trucking and rail cargo services."

The lockdowns could have a "major impact on supply chain operations and industrial production" in China across industries such as automotive, pharmaceutical and medical supplies, and high-tech manufacturing, it said in a report.

DHL has suspended deliveries in Hubei province, the epicenter of the virus, but said it doesn't foresee other changes to its operations.

UPS (UPS) and FedEx Express (FDX) said they continue to fly into and out of China. UPS said it has seen reduced demand for its services as a result of business closures.