COVID-19 pandemic impact outlook puts global shipping in flux; U.S. trucking freight markets undergoing rapid shift

Compiled by Bruce Abbe, strategic adviser for trade and transportation

Tracking the outlook for shipping during the last few weeks of the global coronavirus pandemic has been like riding on a jolting roller coaster, challenging even the most experienced industry experts to try to keep up. For Specialty Soya and Grains Alliance (SSGA) container exporter members, the quest to keep shipping to overseas customers is a fundamental reality, as people need to eat and livestock needs to be fed.

On the domestic front, the trucking industry has been stressed to rapid changes in freight markets, with demand for critical consumer, food and medical goods hitting unprecedented levels, while other sectors shut down during the nation’s shelter-at-home public and work environment.

You’ve heard this before, but it bears repeating: We are in unchartered territory here.

On the international container shipping front, the experts are now tempering recent optimism that the container shortages experienced in parts of the inland U.S. would subside now that China has apparently weathered the worst of its virus and its manufacturers and workers are back at work.

The supply chain squeeze of late January and early February due to increased blank sailings of container ships from China looks to ease up in the near term due to restocking of goods at U.S. stores. However, that respite now appears to be short-lived.

Looming prospects of a global and U.S. recession are causing the ocean carriers to once again retreat back to continued, maybe even expanded, blank sailings to deal with the economic realities of projected shrinking of trade.

Journal of Commerce (JOC) editors wrote late last week that U.S. goods owners are now cutting back or delaying imports from China, which “suggests the anticipated surge of inbound cargoes will be short-lived,” a sharp reversal from a few weeks back.

JOC noted the cutbacks and delays are uneven across commodity sectors, with medical supplies and consumer goods maintaining strong demand, while other discretionary goods are falling off.

The U.K.-based transportation consultant firm Maritime Strategies International (MSI) reportedly said, “The near-term outlook for the container-ship industry has deteriorated rapidly” due to the rapid spread of the virus and efforts to control public interaction to slow the spread of COVID-19 cases. MSI forecast the global container trade to shrink in 2020, potentially to levels seen in the last financial crisis.

The firm sees disruptions among all trade sectors, reports Freightwaves, but one difference this time, “(I)s that the shock to demand will come from the importers’ side and not the exporters’ side, which will change the incentives facing carriers when negotiating rates.” MSI is not expecting a “price war” among carriers comparable to what happened in 2016, largely due to the consolidation among carriers and emergence of just three main carrier alliances.

It remains to be seen how the inland supply of containers and sailing capacity holds for exporters looking ahead.

One perplexing question for me: What would it take for the ocean carrier to defy their past practice and mindset to come to look at exports as the “head haul,” instead of the trivial “backhaul”? Would a shortage of container shipping capacity required to move food and feed products back to Asia – where they are absolutely needed in a crisis of this magnitude – change those minds?

Bit of a dream, I concede. And yes, container exports overall have been traditionally less than imports to the U.S., even if not at all ports. Roundtrip economics would need to come into play to be fair to the carriers. But maybe the national governments might need to give them a nudge, as they are other essential service providers.

Plateaued in Asia? On one positive note, the American Association of Railroads (AAR) released its weekly report on U.S. rail traffic last week with what could prove to be good news.

AAR Senior Vice President for Policy and Economics John T. Gray told Railway Age, “The good news is that the intermodal volumes of the railroads serving the West Coast ports that receive the bulk of imports form China appear to have plateaued over the past four weeks, indicating that we may have seen the worst of the COVID-19 impacts on the Asia trade.”

On a negative note, last Friday for the first time it was reported that the crew members of a container ship had to be evacuated and hospitalized due to suspected infection by the virus. A 9,000 twenty-foot equivalent unit (TEU) Maersk ship that traveled from Hong Kong to Ningbo, China had to be evacuated. Extra precautions are being taken with the replacement crew.

Public awareness – global food supply chain issues bear attention
You may have seen it this morning, but Bloomberg News and several of its affiliates carried a well-written opinion piece titled “Food supply is the next virus headache.” It’s worth a read.

The last paragraphs summed up the message well:

“In much of the world, preemptive policies can keep things moving. China’s Ministry of Agriculture and Rural Affairs, for example, brought in incentives for sowing and mechanization in early February, as well as support for livestock farming, and ‘green channels’ to help the movement of feed, breeding animals and produce. Governments can encourage trade, rather than nation-level hoarding. As the virus spreads, wealthier countries may also need to support developing ones, especially those hit by elevated import bills and weakened currencies. Disruptions will be inevitable. A global food crisis doesn’t have to be.”

Trucking firms scrambling to adjust to changing markets; waivers granted by states and federal governments for certain trucking regs

Domestic trucking companies are scrambling now to adjust to fast-developing changes in their markets. Demand for hauling medical supplies, household consumer goods, food and daily staples has skyrocketed as truckers are needed to restock major stores serving people who are now working and “sheltering at home” due to the pandemic.

Yet demand for hauling other non-essential goods has rapidly shrunk due to plant and store closings, with workers now being laid off. Auto industry supply chain and other like manufacturers are scaling back or temporarily shutting down.

Truckers, along with health care workers, are being seen as heroes and heroines these days by the public.

Essential Businesses
Trucking, railroads, the ports and other transportation sectors, along with food and agriculture production and processing have been declared as “essential businesses,” and are not subject to mandated closures that are affecting other businesses. You can go here to view recent listings of Essential Businesses posted online by the Pennsylvania state government, which is similar to what other states are doing.

Trucking Regulation Waivers for Essential Goods

In an effort to keep critical freight moving, federal and state governments taking efforts to control the spread of the coronavirus have recognized the need to relax certain regulations for moving vital goods including food, medical and household supplies through the supply chains. The temporary waivers vary by state.

One of the best resources for tracking the trucking regulation waivers is put out by LandLine Media and the Owner-Operator Independent Drivers Association (OOIDA). The listing and links are being kept up-to-date by LandLine. You can find it here.