China logistics set for ‘a slow return to normal’

2/24/2020

Projections from freight customers suggest a gradual ramping up of freight and logistics demand as domestic travel restrictions in China from the new coronavirus outbreak are eased, rather than a sudden return to manufacturing production that triggers a full-blown freight capacity crisis, according to Agility CEO Essa Al-Saleh.

Among the various effects of the China’s new coronavirus outbreak on the international freight and logistics market, one thing that has captured the headlines is reported increases in air freight prices of up to 300-400%, due to a sharp reduction in capacity; but Al-Saleh underlined that such inflated prices needed to be put into context.

“I think hikes of this magnitude have been proposed on a case-by-case basis and with particular circumstances attached,” he told Lloyd’s Loading List. “It would certainly be giving a false impression to suggest that this is a general trend and that there has been a widespread readiness on the part of shippers to pay such rates.”

He continued: “What the coronavirus has triggered is supply chain uncertainty for an indefinite period. At the moment, you can get cargo out of China. The real question is: are the factories producing enough volume, as there are ongoing issues in getting staff back to work?

“I don’t want to convey the message that it is business as usual after the Chinese New Year; far from it. There are restrictions on domestic travel and domestic moves between provinces and there are significant logistics challenges to overcome. For example, you may have to ship a component shipment in multiple trips when normally it would go as a consolidation.

“But it’s not a panic. What we can say is that we’re in a disrupted market and rates will be volatile in the short-term until the situation gets more stable.

“The belly capacity has gone from the market because there are no passengers going to China, and it won’t come back until the passengers return. But a recent development has been an uptick in maindeck capacity to China.

“So, no panic – more a matter of prudence and diligence and getting prepared for a return to business continuity. There’s a lot of activity going on behind the scenes, so to speak. We are talking to our customers about solutions should the situation continue. The projection is for a slow return to normal, as travel restrictions remain in place.”

Asked whether there was evidence of shortages of certain inbound goods because of the coronavirus, Al-Saleh replied: “Where there is some ‘tension’ is in making sure that there’s enough personal protective equipment (PPE) available in China to satisfy the strong demand.”

Echoing one of Agility’s most recent China COVID-19 operational updates, Al-Saleh said that today, both international air and ocean capacity are available, reflecting the slowdown in production over the last few weeks.

While stopping short of expecting a full-blown capacity crunch in March and April as some market observers are predicting, Al-Saleh underlined that going forward, pressure on outbound capacity (from China) will likely increase and drive market rates up.

“For this reason, we are urging customers to communicate demand forecasts so that we can better support them through this volatile period,” he noted.

But there would be an impact on economic growth rates this year, for China and potentially globally.

Al-Saleh concluded: “There is no doubt that the coronavirus will have an impact on GDP growth. That’s the million-dollar question right now for everybody; it all depends on how long the outbreak is going to last.”