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These Contingency Plans Could Ease Companies Out of Coronavirus Conundrum

There is no shortage of implications resulting from the coronavirus outbreak, and concerns over the epidemic continue to mount.

As such, brands and retailers should be putting contingency plans in place—as major players like Amazon have already begun to do—to ensure goods get where they need to on time.

While some factories have returned to work, pile-ups in cargo and partially operating ports mean operations are still obstructed, and potentially crippling bottlenecks lay ahead.

Already, according to estimates from freight forwarding company Flexport, more than 90 percent of passenger capacity between mainland China and the rest of the world has been cancelled. More than 25,000 flights operating in and out of the country have been cancelled, per OAG, the world’s largest network of air travel data.

Passenger aircraft, or belly freight, accounts for 45 percent of the total capacity in the Asia Pacific trade lanes, which, Flexport noted in a recent webinar focused on the impacts of the virus, “amounts to a significant loss of capacity in these critical trade lanes.”

“Passenger flying will not resume anytime soon,” Flexport executive vice president and global head of airfreight Neel Jones Shah said. “We don’t know from a production standpoint exactly how much product is going to be able to be produced in the coming weeks.”

Wuhan, where the coronavirus—now officially being called COVID-19—was initially uncovered, is an industrial city of roughly 11 million people, and a “significant corridor for freight,” thanks to its position on China’s Yangtze river, according to Flexport vice president and global head of ocean freight Nerijus Poskus.

For perspective, Wuhan alone handles 3 million twenty-foot equivalent units (TEUs), Poskas said, and that’s 1.5 percent of the 190 million TEUs handled globally. Last year, 17.5 million TEUs of freight passed through the city in China’s Hubei province. As such, any whole or partial closure at the port could contribute to critical logjam.

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And companies were already set to deal with the typical drag on operations that comes with the Lunar New Year holiday. Without an epidemic, shipping lines remove between 30 percent and 50 percent of capacity during Chinese New Year, which came right on the heels of the coronavirus discovery. Capacity then is reincorporated slowly, and it takes roughly one month before shipping lines are running at 100 percent capacity, according to Poskas.

Under non-virus circumstances, that would have meant mid-March, and now it could be weeks more before capacity picks up.

Workers opting not to return to work has also been a known surrounding the Lunar New Year celebrations, with as many as 15 percent deciding to forego returning to the factories they work for. Amid the virus, more workers may remain in their villages, either by factory order to quell the outbreak.

Though some factories have started reopening and bringing workers back in, many are (or will be when they reopen) suffering from a severe shortage of workers, as those who would be returning from exposed areas are being asked to stay home. What’s more, with manufacturing facilities requiring permits to reopen, the process has been slow going among all that’s happening in the country, and those that do reopen will have to keep some workers in quarantine, not to mention find face masks for them to wear amid a critical shortage in the country.

It could take at least another two weeks for reopened factories resume normal production. Even in another three months, some experts say factories may only be operating at 60 percent capacity. And that doesn’t factor in the truckers who aren’t operating at full capacity to move cargo that would be coming from the factories.

“Truckers may not come back to work and other workers in the supply chain may not come back to work,” Poskus said.

Beyond capacity and manpower, costs will feel a strain from the virus, too.

Already, shipping lines were reducing capacity to raise prices ahead of Chinese New Year, and blank sailings, or sailings that have been cancelled by the carrier, are between 50 percent and 70 percent—which is as much as 30 percent more than what’s typical for the lunar holiday—Flexport said earlier this month.

“We are seeing additional voyages being blanked every single day,” Poskus said.

As such, costs are going to climb.

“We are anticipating that costs are going to go up,” Shah said. “They could go up rather severely in the short term as demand far outstrips capacity.”

Shipping lines, Poskus added, may be losing “millions of dollars on every single shipping.”

So in the face of COVID-19, what should contingency plans look like? First, according to Poskus, companies should be open to unique routings and new gateways. They should also be building in a budget for air freight now.

Transloading, or transferring a shipment from one mode of transportation to another, could be key solution, and per Flexport, small vessels that transfer goods to and from smaller ports, or feeders, should be avoided where possible. Once factories have resumed work, feeders running between ports in China will only run if they are full.

“If you want your supply chains to run smoothly, consider trucking to the main port,” Poskus said. “Another advantage this gives you, if you are not using a feeder port, typically shipping lines would prioritize that freight over a feeder.”