Supply Chain Trends in a Nutshell

By Patrick Burnson, Executive Editor ·

March 27, 2020

A roundup of isolated news stories show the tension marks in today’s global supply chains.

Blanked sailings. When Carl W. Bentzel was recently appointed a Commissioner with the U.S. Federal Maritime Commission, he knew that he’d face a few urgent concerns, but the Coronavirus quickly became the chief challenge FMC management. The maritime industry has been deeply affected as a result of the upheaval caused by the coronavirus and its impacts to Chinese manufacturing and logistics services. Ocean carriers have been forced to cancel services (“blanked sailings”) to and from China and the United States. The FMC has been monitoring levels of blanked sailings and conferring with ocean carrier representatives about levels of service and the potential resumption of normal trade. “I was heartened to hear that shipping lines have indicated that there is cargo for pickup and that trucking and port operations have substantially resumed in China,” says Bentzel. “I remain concerned that there will continue to be negative economic impacts as a result of delays, as shipments transit the Pacific from China.”

Urgent digitization. Given the urgency brought on by the current Coronaviris crisis, will supply chain managers finally be developing the “focus” needed for digitization of their networks and operations? Cyndi Lago, VP of Supply Chain at Capgemini Invent NA, says that while most large organizations grasp the importance of supply chain digitization though some companies have spread their investments too thinly and are struggling to scale pilot initiatives.  “Because of that lack of focus, only one in seven organizations successfully scale initiatives from a pilot stage,” she says. “Transformation efforts need to be driven by C-suite leadership and senior management, who advocate and provide strategic focus on objectives and what to prioritize.” Furthermore, the recent market disruptions could be motivation for better focus on such key initiatives to deploy them at scale and secure leadership buy-in for this transformation.

Ports stressed. The coronavirus pandemic is having sizable and wide-ranging effects on the port space, both through disruptions to supply chains emanating from the first rounds of infection in Asia and government-imposed restrictions on individuals, businesses, and corporations alike, according to Fitch Ratings. The former directly affects cargo port volumes, while the latter affects both cruise port passengers and the broader consumer demand that drives imports and exports. Economic effects of the coronavirus are expected to generate throughput and passenger declines along with financial stresses well in excess of what Fitch expects under typical recessionary conditions. In order to understand an issuer’s exposure to financial stress and determine if a rating change is necessary, Fitch has designed two scenarios, described below, to serve as a Rating Case and a more severe Sensitivity Case. In identifying the most exposed port credits, Fitch will consider available liquidity, business mix, and counterparty exposure, as well as the quarter-by-quarter implications for throughput, revenues and expenses as ports face severe near-term stresses.

Trouble in the Air. The air cargo industry can’t seem to buy a break these days. Data for global air freight markets showing that demand, measured in cargo tons decreased by 3.3% in January 2020, compared to the same period in 2019. According to The International Air Transport Association (IATA), January marked the tenth consecutive month of year-on-year declines in cargo volumes. Given the earlier U.S.-China trade friction this should hardly come as much of a surprise. Afterall, the air cargo industry started the year on a weak footing. However, with easing of those tariff tensions there was optimism that the sector would get a boost in 2020.  Then came the COVID-19 outbreak, which has severely disrupted global supply chains, although it did not have a major impact on January’s cargo performance.  “Tough times are ahead,” declares Alexandre de Juniac, IATA’s Director General and CEO. “The course of future events is unclear, but this is a sector that has proven its resilience time and again.”

March 27, 2020

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