[090420.EN.BIZ] Economic Pain, Supply Chain Chaos From Coronavirus To Get Worse In Coming Quarters

CHINA's ports and shipping firms are gearing up for a second round of supply chain disruptions as the spread of the coronavirus pandemic globally strangles off international demand.

With Beijing reporting only sporadic domestic transmission of the coronavirus since March, workers have been allowed to return to posts, factories are restarting and ports are rushing to clear a backlog of cargoes.

But with virus outbreaks now overwhelming healthcare systems and shutting logistics channels in other major economies, exporters and industry analysts warn that global demand for products made and shipped out of China is likely to dive, reported Reuters.

"We expect the near-term impact on trade growth in coming quarters likely to be the worst ever, as economies stall and external demand faces imminent collapse on large scale quarantine measures across major economies," said IHS Markit vice president Rahul Kapoor.

China's container processing volumes declined by 10.6 per cent in the first two months of 2020 compared to the year before, while exports were down 17.2 per cent.

And while volumes rebounded in March as manufacturing and logistics operations rebooted, exporters fear that outbound shipments may be in for an even steeper slump in the months ahead.

"There is widespread concern among ports and shipping companies that the coronavirus overseas will hamper demand and in return take a toll on production in China," said China Ports & Harbours Association secretary general Ding Li.

The export slump could drag on throughout 2020, said Capital Economics senior China economist Julian Evans-Pritchard, estimating China's second-quarter exports could contract as much as 30 per cent year on year.

Some closely tracked cargo metrics are already showing the impact of slowing demand in key centres.

Container vessel utilisation rates from Shanghai to north America and Europe were at 85 per cent last week, down by 10 percentage points from a week earlier, data tracked by Shanghai Shipping Exchange showed.

Freight rates also dipped, with European routes down 3.1 per cent weekly as of March 27 to US$764 per TEU, and routes to the US west coast are down 2.2 per cent at $1,515 per TEU.

Mr Ding added it may take time for cargo-handling data to show the full extent of the global demand contraction as many ports are still clearing backlogs.

Daily container handling volumes at China's biggest port in Shanghai last week hit 110,000 TEU, equivalent to 90 per cent of pre-virus levels, and other ports are also trying to rush through shipments to overseas clients before more stringent movement restrictions take effect.

That demand outlook uncertainty is also weighing on material markets, with the price of manufacturing-grade hot-rolled coil steel SHHCcv1 - used in automobiles and appliances - falling to four-month lows this week.

Textile and clothing manufacturers are also feeling the effects of a drop in international demand.

"Many exporters were notified by clients of order cancellations for the next two months... leading to increasing pressure on upstream firms' supply chain," said a statement from the China National Textile and Apparel Council (CNTAC).

A CNTAC survey showed that 37 per cent of 242 companies reported export order cancellations last week, while the number of firms reporting export orders at less than 50 per cent of pre-virus levels rose by 11.4 percentage points to 26.4 per cent.

China's port association expects container handling volumes in China to fall five to ten per cent in the second quarter from a year ago, while imports of industrial materials such as coal and ores are also expected to slow alongside falling domestic production.

Source : HKSG / Photo : Port Technology International.