In Ningbo, the port of Shanghai alone, the container inventory is currently 47 percent above the previous year’s value, the Hamburg data platform “Container xChange” determined. In contrast, the number of available containers in its own Hanseatic city had shrunk by 33 percent, and even more in US ports such as Los Angeles. There are currently even shifts due to the underemployment of dock workers.
“In the coming weeks, it could be about that,” advises the consulting firm Sea-Intelligence regarding the missing empty containers, “whether the shippers are still able to move their goods – regardless of the price.”
The supply chain between Asia and Europe threatens to break at several points. A bottleneck is waiting for fashion for the spring collection, urgently needed delivery parts for the automotive industry and mass consumer goods made in China, which Germany will soon also feel.
Even certain electronic products could soon be missing on the shelves. A not a small part of it reaches German territory via the railroad – better said: came. Because of the epidemic at the beginning of the year, those responsible cut off the main production site in Wuhan from the “Iron Silk Road”.
Duisport expects sales and profits to decline
“We cannot yet quantify how big the decline in containers in rail transport will be,” explains a spokeswoman for the Duisport final stop. “However, we expect sales and earnings to decline.” After all, all other train connections have so far been intact despite the Chinese virus infection.
In addition, the corona virus misses a confusing non-simultaneity of the international supply chain. While China is again strongly increasing production these days, Germany’s overseas ports are preparing for a slump in the coming weeks.
“So far, we have hardly noticed the effects of lung disease in day-to-day business,” says the port operator Eurogate, who handles ships in Hamburg, Bremerhaven and Wilhelmshaven. The situation is similar with the Hamburg competitor HHLA to be heard, who operates three of the four overseas terminals in the Hanseatic city. “The fact that in the past few days the full export containers were stacked at the edge of the harbor,” says a spokesman, “was not due to the corona virus, but rather to several storm lows above the North Sea.” As was often the case during the spring storms, many ships simply came to it late.
With business as usual, it could be over in a few days. So far, Northern Europe’s ports have benefited from container freighters from East Asia being at sea for four to six weeks before they reach their destination. What is currently being deleted in Hamburg, Bremerhaven or Wilhelmshaven mostly went on the trip during the two-week New Year celebrations in China. Since the Middle Kingdom usually hardly produced anything during this period, the port operators were prepared for the doldrums of the past few days – as every year.
“This year, however, China has actually extended the New Year celebrations by three weeks because of the corona virus,” warns Martin Holst-Mikkelsen, ocean freight manager at the digitally brokered US forwarding company Flexport. In addition, the production only started slowly afterwards.
The experts from Flexport therefore expect a significantly reduced availability of sea freight containers in Europe in March and April. “In all likelihood, the situation will only normalize again at the end of April,” believes Holst-Mikkelsen.
Hoping for a catch-up effect
The low tide could even be followed by a storm surge, as the Hamburg port operator HHLA thinks. “In the second quarter of 2020 there may be a significant catch-up effect,” said a spokesman there – with significantly more freight volume than in normal years.
The chances that this will happen are good at the moment. China’s statistics agency reports that 90.8 percent of the country’s medium-sized to large companies have resumed work – after the rate on February 25 was still 85.6 percent. Bloomberg Economics estimates that production utilization in China has returned to 60 to 70 percent since last week.
Domestic traffic is also picking up again after the drastic quarantine measures in China. Of the 21,000 truck drivers who supply the port of Shanghai, 10,000 are currently on duty. The week before, there were only 7,000. “We expect,” says the international online freight exchange Flexport, “that China will ramp up its truck capacity to 80 percent of the pre-crisis level in the next two weeks.”
And seafaring, which until recently saw every tenth overseas freighter unemployed, is awakened from its shock. If there were 20 east-west connections in the previous weeks, the number of so-called “blank sailings” shrank to seven in the past week.
But: The expected delivery bottlenecks in the coming weeks will hardly eliminate this. “Anyone expecting spare parts or urgently needed replenishments in a hurry will have to switch to air freight in the next few weeks,” predicts Flexport air freight expert David Wystrach. In particular, fashion goods for spring and supply parts for the automotive industry, if they were shipped by sea container, would only arrive in stores and production halls with a noticeable delay.
The suppliers face high additional costs. Air freight is not only considerably more expensive than transport by sea, but is currently also scarcer than usual. Around 40 percent of the passenger aircraft that usually carry part of the cargo in the fuselage have been canceled due to the corona crisis. The run on pure cargo planes should therefore intensify. “This means that air freight becomes a bottleneck in terms of supply,” says Flexport Germany boss Janis Bargsten.
Travel bans exacerbate the situation
At the same time, there are threats of further outages at sea that could cause additional damage to the supply chain. The reason: The debt situation of the 14 largest container shipping companies worldwide, warns the consulting firm Alix Partners, is as depressing as it has been in ten years. What the consultants determined according to a proven rating formula, the so-called “Altman’s Z Score”, they rate as alarming. In its “2020 Global Shipping Report”, the restructuring company Alix Partners no longer rules out even a mega bankruptcy, such as that which the South Korean shipping company Hanjin put down four years ago. At that time, 400,000 containers only reached their addressee with a delay of weeks.
A number of smaller shipping companies that operate in intra-Asian traffic are already offering a foretaste. Since many of them generate a large part of their business with China, their cash flow has dried up since the beginning of the year. Some have already been forced to sell their own ships – including the South Korean shipping company SM Line, which separated from three freighters for $ 60 million.
The situation is being tightened by travel bans that 85 percent of German companies have issued for the Asia region. “Individual companies said,” says the Federal Association of Materials Management, Purchasing and Logistics (BME), “they could not send personnel for release inspections.” Deliveries to Europe further delay this.
In view of the procurement problems, companies are therefore trying to develop alternative sources of supply in other parts of the world these days. The stocks have now reached a “critical point”, explains Riccardo Kurto, China representative at BME, A few companies now ordered missing production material from suppliers outside of China – some of them from Europe.
Individual cases will remain. “Many German manufacturers have invested time and money in Chinese suppliers in recent years to get the quality they want,” says the BME expert. “Most don’t want to jeopardize relationships that have grown up.”
The procurement association BME is certain that the corona virus will nevertheless change procurement thoroughly. “In any case, this situation will lead to it,” it says there, “that companies will subject both their supplier dependency and inventory management to a fundamental analysis for the future.
Larger camps to prepare for future crises will hardly ever exist. “Nobody is currently thinking about the end of just in time,” reports Kurto.
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