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COVID-19 Impacts on the International Supply Chain

Supply Chains and COVID-19

June 2, 2020

The COVID-19 pandemic has had a major impact on businesses around the world. The global supply chain has been one of the key areas most impacted by COVID-19. The disease originated in Wuhan, China with cases first being reported in December 2019. Wuhan is an important international and domestic hub in China due to its connectivity to other major cities in the country via the high-speed train network. The city has one of China’s top economies and is a gateway to other major provinces. As the disease quickly spread, Chinese cities were placed under quarantine causing factories to be shut down. The closures led to the suspension of land, air and ocean cargo transportation. This had a global ripple effect as imports of Chinese goods in Europe and North America sharply declined forcing manufacturers and other businesses to scramble to source goods and materials from new suppliers.

Changes Within the Manufacturing Sector

By the time the disease reached U.S. soil in March 2020, many manufacturers had already been dealing with disruptions to their supply chains for months. During this same time, factories in China (with the exception of Wuhan) began gradually operating at 60–70% capacity due to a lack of available parts, materials and components. These shortages were a direct result of the Chinese economy being shut down to stop the spread of the virus. The lack of available products combined with fewer shipments out of China for several weeks led to sharp air cargo rate increases for importers. As U.S. shelter-in-place restrictions began to loosen in May, factories in China were slowly ramping back up to 80–90% capacity. Even though the economy in China was recovering, U.S. companies were still facing significant challenges sourcing products due to cargo capacity and rate increases.

Ocean freight imports continue to face changes in capacity and rates. China and European Union carrier space is very limited due to blank sailings being issued which is expected to become the new normal. Rate increases are expected to continue; however, the shortage in equipment is starting to be resolved. Air freight continues to see changes in capacity and rates. The cancellation of many passenger flights is having a serious impact on air cargo as a significant amount of freight is normally moved on commercial flights. Capacity has decreased 25–75% depending on the market, and rates are nearly double the normal price. Rates are expected to slowly decline as capacity increases later this year with a projected increase in commercial air travel. Domestic trucking has also seen some pricing pressure, but truck capacity remains strong in most markets with the exception of refrigerated shipments. Regulations on imports and exports are also continuously changing due to the global demand for personal protective equipment.

The recent turmoil due to product and material shortages, lack of capacity and rate increases will cause businesses to reevaluate their supply chains and look for new potential solutions. It is likely that U.S. manufacturers will consider reshoring or nearshoring their supply chains to better position themselves against potential future global disruptions. It is also likely companies will be looking for new sourcing origins and new markets to better diversify their supply chains and customer bases. Some of this will be accomplished through more distribution, online ordering and warehousing as companies reimagine the most effective and efficient ways to source products and materials.

Find up-to-date information on Greater Des Moines (DSM) manufacturing here. A regional industry brief can be downloaded here, while other industry guidance to consider during COVID-19 can be found in the DSM Forward manufacturing playbook.

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You can count on The Partnership to continue to share accurate and fact-based updates as well. See more on COVID-19 here.