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April 7, 2020

THE COVID-19 SUPPLY CHAIN: THE GLOBAL DISRUPTION WILL HAVE LASTING EFFECTS

The ongoing constraints on the global supply chain, as a result of the COVID-19 pandemic, will have a short-term effect on consumers, shippers, and carriers. But how will the supply chain appear following the containment? How will capacity be affected? And how will the world adjust?

The freight industry plays an enormous role in the shipping of products, and following an unprecedented spike in demand, volumes are predicted to fall below both 2018 and 2019 numbers, according to FreightWaves. Mass purchasing spiked trucking volumes in the United States as the national Outbound Tender Volume Index (OTVI) increased 9.3% during the last week in February. However, the supply chain interruptions, that began with the slowdown of manufacturing in China, will result in a trickle-down effect in the global network. These interruptions have given foresight into the post COVID-19 supply chain while the capacity crunch as a result of this outbreak will continue, and a bottleneck at U.S. ports is expected.

As the short-term effects of the pandemic have become well-documented, the long-term impact remains in question. A global recession could diminish demand, driver shortages and an influx of volume to U.S. ports could maintain the capacity crunch, and countries might shift their reliability on essential goods to localized supply chains. This outlook is shifting from a possibility to a certainty.

Effects on the Supply Chain

The short-term effects on the supply chain have been well-documented: capacity remains at a premium, essential goods continue to be scarce, non-essential business remain closed, and manufacturers have repurposed their production lines. However, the COVID-19 pandemic may result in a long-term shift in the global supply chain as countries, such as the United States, are realizing the implications of being heavily dependent on foreign goods that are essential to their economy.

In 2003, during the SARS outbreak, China contributed just 4% to the global GDP compared to 20% in 2019, according to CNBC. This has been a result of major economies, including the United States, investing heavily in Chinese manufacturing, but the result is over-dependence. Masks, ventilators, and PPE were all imports from China prior to the pandemic, and the result is a major shortage of vital goods needed to fight this outbreak.

This exposure has experts predicting a sharp reversal in the global supply structure following the pandemic, and according to Supply Chain Digital, companies will look to mitigate their risks and localize their supply chains, particularly those in pharmaceuticals and technology. The United States has already seen major corporations shift from their niche manufacturing to begin creating essential products.

Bauer is halting their hockey equipment operations to make face shields for front line workers while Delta Flight Products has shifted gears to manufacture personal protective equipment for health care workers. Although these stated shifts are temporary as the United States fights COVID-19, the long-term effects will be a shift to a localized supply chain to mitigate future risk.

Effects on Carriers

Capacity remains at a premium as the United States fights this pandemic, but the effects on transportation companies, as well as the drivers themselves, is hard felt. According to trucknews.com, more than 60% of today’s drivers are over 45 years of age, and 30% are older than 55. Why is this significant? This age demographic is at a high risk to fall victim to COVID-19, and an even higher risk as they travel long distances to deliver essential goods.

Many drivers continue to display unbelievable courage, regardless of the risk, to haul essential goods to restock our grocery stores and deliver personal protective equipment to our health care workers. Americans have rallied for these unsung heroes by offering free meals, hand sanitizer, and simply offering up a “thank you” just to show their gratitude.

However, older drivers are exiting the industry to ensure their safety. This will further strain capacity as large volumes are predicted to hit U.S. ports in the coming months, resulting in a bottleneck.

While a global recession as a result of the pandemic could ease demand of drivers following the containment of COVID-19, long-haul drivers are still predicted to be in a shortage. This capacity crunch, as the United States looks to rebound, will put further strains on the carriers who remain in business, and the drivers who remain in the line of duty.

3-Month Outlook

As the global economy looks ahead, the coming months are crucial. Industry experts are predicting that April will see supply chain interruptions, that begin with China, trickle-down throughout the world. As these interruptions take effect, warehouses will begin to see inventory drop, and as a result, new port volumes will increase.

When April turns into May, the industry is predicting to see a flatbed resurgence due to seasonal freight volumes increasing. The increase in the port volumes will continue to rise, and this will result in a bottleneck at the United States’ ports. Capacity will remain at a premium, and an optimistic outlook shows the rebound beginning in June.

Overview

COVID-19 has greatly affected consumers, businesses, and specifically the transportation industry on a global scale. As outbound tender volumes begin to decrease from their historic spike, products such as hand sanitizer, cleaning products, and face masks will remain in high demand. With this increase in demand, American manufacturers are shifting their focus towards personal protective equipment to ease the reliance on foreign goods and mitigate national shortages.

In an article written by Business Insider, a truck driver states “Not only are we worried about possible virus transmission from going into different facilities, but we’re also always in and out of truck stops across the nation for fuel, food, showers, and more.” This concern for personal safety has seen drivers that are at high risk leave the industry while other carriers have gone out of business as a result of the major shift in transportation demand.

The post COVID-19 supply chain will change as an economic downturn ensues, port volumes and capacity shortages result in a bottleneck, and a global shift towards localized supply chains occurs. As the world combats this outbreak, the future of the transportation industry will come further into focus, and a change in normalcy will be the end result.