The COVID-19 virus outbreak has affected every industry in the United States to some degree. At some point, hopefully, in the not-too-distant future, the freight industry will return to a variation of normalcy. However, the industry after COVID-19 might look quite different than before. Here are the ways the major shipping modes could be affected once the stay-at-home regulations are lifted.
The Air Freight Industry
With every airline carrier experiencing a sharp decline in demand, the industry might take a while to rebound with the uncertainly of when the virus will be under control, however, this does not extend to commercial air cargo transport. The reason is simple: passenger planes used to carry quite a bit of cargo in the hold (around 50% of global cargo in total) on any given flight, and now that capacity is mostly gone. Due to this increase, air freight capacity keeps increasing and is now 24% higher than last year; passenger belly shows a slight uptick (~9% vs early April) due to “passenger freighter” flights. China and Hong Kong were the first origins to decline and are now almost back to 2019 levels; strong recovery in the last weeks is partially due to urgent exports of Personal Protective Equipment (PPE). Along with PPE, here are a few examples of the goods that are still traveling via air freight:
- Medical supplies and equipment
- Industrial equipment
- Consumer items
- Products that companies and industries in the region produce – essential businesses are still manufacturing materials that need to get to market
- Goods that were produced before the restrictions were put in place are shipping their products to market to sustain their businesses
The IMO 2020 regulation that went into effect on January 1, 2020 has had little impact on the industry thus far with ocean liner shipping demand being so low. Ships that use fuels that have high sulphur content which is detrimental to the environment must ensure that the sulphur content of their fuel does not exceed 0.5%. The expectation is that the limit will reduce emissions by 75% worldwide. Those that do not comply with IMO 2020 could lose their international certification.
The demand for ocean shipping has fallen drastically. Total container volumes at Chinese ports fell by 10.1% in the first two months of 2020, as compared to the prior year. With more of the world now affected by the virus, the reduced number of main line sailings has further decreased the demand for feeder volumes in other places in the world. Because of this, the impact of the new IMO regulation has yet to been seen, or even discussed that much, as the reduced volume caused by the pandemic has taken precedence.
Once ocean shipping does start to increase again, shipowners will need to think about the additional surcharges that are needed to cover the cost of cleaner fuel. These surcharges will become part of price negotiations in sales contracts.
Peak Season Concerns
The COVID-19 pandemic could create even more issues in an already struggling industry. Many ports and shipping companies have already implemented policies that have caused disruptions in the supply chain. Domestic port and rail volumes dropped because of the decreased supply and demand. While the demand for essential goods soared as Americans were staying home and stockpiling, it is expected that this spike will be short-lived.
As peak season approaches, preventative measures to contain the virus will impact the demand for freight. If restrictions in certain areas continue for a few more months or are re-instated come the fall season, manufacturing and demand for goods will remain virtually non-existent. However, if the economy is able to open with the virus being under control, there may be a higher demand for shipping as consumers start to work again.
Once economies start to rebound, the freight market might look different. Stephen Smith, from Bidvest International Logistics (BIL) states: “Diversification of supply chains is probably going to be the new normal going forward…we expect that products will be sourced from numerous suppliers as opposed to one or two, which is currently the norm.” This could be good news for the freight industry as this strategy would translate to more transportation needs down the road.
No matter the mode of transportation, the COVID-19 outbreak will certainly lead to changes in processes within the freight industry. A complete move away from paper will be necessary, assuming that a health crisis like this could occur again. The change to digitization will allow the supply chain to be more flexible in their response to a virus outbreak. Greater transparency along the supply chain will allow for the optimization of goods during a volatile market like during an outbreak.
What Will the Rest of 2020 Bring?
The uncertainty surrounding when the virus will die out is affecting the ability to make sound predictions in the freight industry. Once the virus gets under control, there will be a more normalized demand for essential goods. Those items that were stockpiled earlier in the year by American consumers might see a softer volume now that stay-at-home restrictions are being lifted. A survey by the Institute for Supply Management showed that almost 75% of the respondents had already seen transportation disruptions due to the coronavirus.
The economic position that the United States and global markets are in post-COVID will impact the freight market. As the U.S. now moves into a recession, there will be less consumer spending and lower levels of manufacturing. The freight market might see a very soft second half of 2020, even if the virus is controlled at that time.
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