Coronavirus and consequences of the chaos

Coronavirus has taken China and many parts of Asia by storm. Whole cities have been isolated and quarantined to contain the spread of virus. South-Korea and Japan are looking for ways to contain the spread without destroying their economies and relationship with China. High price has to be paid shipping industry and ports as well.

On the coast of Japan a cruise ferry has been isolated and passengers and crew are forced to stay onboard ship. Globally many ports have limited port calls for ships that have visited China 14 days prior to arrival. Changing of crews gets even harder if crew member(s) are expected to have been infected by the virus.

Lot will depend on how deadly the new coronavirus ultimately is. In China there have been hundreds of reported deaths due to a virus but on the other hand only two people have been reported dead outside China. In Finland Chinese tourist was confirmed carrying the virus but she was released from hospital some time later after doctors confirmed she had been cured. It appears to be possible for healthy person to defeat the virus without vaccination. For now we do not know how serious damage the virus infection will do to lungs even after person walk out from the hospital.

Maybe economically more harmful than the virus itself will be the continuing shutdowns of manufacturing plants. When plants in the Far East are shut down it reduces the need for ocean transportation. Supply chain disruptions can be seen already and more disruptions are on the way. In South Korea department stores and offices have been closed when coronavirus infected people have reportedly visited them or when workers were confirmed being infected. In Europe many do not understand how big the panic in Asia is. It is not just cities in China but also Seoul and Tokyo that are like ghost cities. In these Asian mega cities daily life is all about going out and spending money. Now the consumption has come to near standstill.

In China many plants have been shut down to contain the spread of the virus and due supply chain disruptions. As modern manufacturing relies on JIT philosophy Hyundai closed the world’s biggest car manufacturing plant in Ulsan, South Korea due to lack of raw materials. Toyota has closed all its plants in China for same reasons. Starbuck, McDonald’s and Apple have closed their retail outlets in China. When Asian mega cities stop consuming and factories shut down this will very quickly be seen on freight rates and throughput on Asian ports will decrease dramatically.

It seems inevitable that shutdown of the plants will continue at least until mid-February and possibly even further. Next step is when ocean carriers will start to push down freight rates as supply far exceeds the demand for transport. This will be yet another dent on profitability of carriers who are already struggling with increased fuel cost from IMO2020. Reduction in demand for shipping in Asia-Europe trade will inevitably make port calls less frequent. Global supply chains face new kind of challenge as consumption in massive Asian markets freeze.

For carriers it is possible to move capacity from Asia-Europe and Transpacific trades to transatlantic trade and reduce the speeds. In theory this could reduce supply and help carriers to avoid the worst hits. It remains to be seen if this will be a way to go for shipowners if factories remain shut down and consumption remains frozen.

Carriers are however only the first link in the global supply chains. Next come the ports which will also suffer due to less frequent calls and utilization rate will remain low. Port authorities need to find ways to cope and survive the temporary decline on port calls.

About Author

Tuomo Keltto

Tuomo Keltto is a logistics engineer who continued his studies in Seoul, South Korea. He studied at the Korean Government scholarship for a Master's degree in international trade and logistics. Now he is back in Finland and he works at Neste in Porvoo. - He has previously been in Steveco Hietanen for three summers as a temporary stevedore and as a foreman for one summer.