The European Shippers Council (ESC) is warning its members to be cautious of any sharp rate increases due to supply chain disruption caused by the new coronavirus in China, but acknowledged that the disruption could lead to capacity tightness and price pressures.

“We might see some adjustment in prices, but this situation should not lead to some sort of commercial ‘exploitation’ by certain parties,” Roger Spoel, the Brussels-based trade body’s policy manager for air freight, told Lloyd’s Loading List.  “On too many occasions have we seen the introduction of dubious surcharges and as a sector we should be able to prevent this from happening by spreading eventual additional costs evenly across all parties.

“If there is any doubt about possible misconduct in this regard, shippers should ask for a legal check of their contracts.”

However, he did not seek to play down the consequences of the viral outbreak on international trade flows and highlighted that the industrial verticals mostly likely to be affected are high tech, consumer goods and a wide variety of semi-finished products.

“The coronavirus has an impact at multiple levels. Factories are closed and workers are at home, the new year holiday is extended. The longer factories are closed the more serious disruptions can get, with stocks in European factories depleting.

“Furthermore, airports and seaports have scaled down productivity. More blank sailings are to be expected which could cause a capacity crunch in maritime shipping. With the cancellation of many passenger flights air cargo capacity to/from China is tightening as well, leaving only full freighter capacity available for urgent and time-sensitive goods.

“With the capacity ‘crunch’, transport prices are expected to hike. However, with the shutdown of factories, oil prices are declining. So, these two effects may well even out to a degree.”

Spoel underlined that the ESC was advising shippers to analyse their supply chains “and look at ways to divert major issues by sourcing other stock or by looking for alternatives. Perhaps the rail connection between China and EU can play a role in this if other modes are not available.”

Last week, DHL’s Resilience 360 Supply chain risk management platform published a report entitled: The Wuhan coronavirus: impact on supply chain operations amid the lunar new year.  It highlighted “the top two supply chain risks to watch out for in the coming weeks, namely the potential propagation of new or the extension of existing city lockdowns as well as the delayed restart of manufacturing activities in the affected areas and other key manufacturing and logistics regions.”

The report noted that recent years, Wuhan has developed into a hub for high-tech industries such as optoelectronics and semiconductors and home to one of China’s most advanced chip fabrication plants that makes 3D NAND flash memory used in smartphones and computers.

In addition, Wuhan is known as China’s ‘motor city’ due to a significant manufacturing presence of domestic and foreign car makers, including Dongfeng Motors, Honda, and PSA Group. The city also hosts hundreds of production facilities of global auto parts suppliers, including Bosch, Valeo, Lear Corp, and Schaeffler.

According to Resilience360’s data, almost 50% of manufacturing locations in Wuhan and its surrounding cities belong to the automotive sector, while technology and engineering suppliers make up for 25 and 8% respectively.

“Under normal circumstances, post-Lunar New Year manufacturing operations would mostly have returned to normal across China between 15 and 21 February. However, this year’s timeline is likely to be disrupted due to the extended holiday period as well as the decision by some other provincial governments to further delay the restart of manufacturing activities.

“Underlining the spillover effects from Hubei to other cities and provinces, authorities in Zhejiang, Jiangsu, Guangdong, Shanghai, and Beijing have ordered factories and businesses to continue to halt operations until at least 9 February, with the exception of medical equipment, pharmaceutical companies, supermarkets, utilities, and logistics companies.”

The DHL report also warned that other Chinese cities and provinces could implement measures, which could potentially delay production and limit supplies across several key industrial hubs for weeks after the Lunar New Year, “thereby leading to severe consequences for industries relying on just-in-time production in China and beyond. In addition, companies may opt to suspend operations in China on their own. Toyota on 29 January announced it would suspend its China operations in Tianjin and Guangdong Province until at least 9 February citing potential parts supply problems.”

Source：lloydslist

The opinions expressed herein are the author's and not necessarily those of The OLO News.