Blanking figures show impact of coronavirus beginning to ease

Date: Wednesday, March 11, 2020
Source: Lloyd's List

As Chinese manufacturing shows signs of returning to normal, carriers are reducing the number of blanked sailings. But the focus now moves to the demand side, where there are fears that inventory management may hold back a recovery

Cancelled sailings are set to return to normal levels in the coming weeks as supply chain eases up

EARLY indications from China are that the impact of the coronavirus on the supply chain is beginning to reduce as factories return to work, but questions remain over whether the demand side will now have an even more important impact on carriers’ operations in the months ahead.

New analysis by SeaIntelligence supports comments made in an interview with Lloyd’s List by CMA CGM chief executive Rodolphe Saadé that volumes were returning to normal at China’s ports for the first time since the beginning of the outbreak.

By looking at the number of blanked sailings announced, SeaIntelligence found that while the number was up in week 10, the increase was small.

“We know that carriers in recent years have increasingly been using blank sailings to manage normal deviations of the demand developments, and hence we should expect a certain level of blank sailings, even in the absence of the virus impact,” SeaIntelligence said.

Comparing this year’s blankings with corresponding weeks in 2019, taking into account the different dates of Chinese New Year, SeaIntelligence said the numbers vary only slightly between 2019 and 2020.

“The overall conclusion from can only be that the amount of blank sailings now present in the two main trades to Europe and North America are back to the “normal” level of blank sailings for the coming weeks,” it said.

This did not in itself indicate that manufacturing is back to full speed yet in China, as part of the current demand would be caused by cargo which had been awaiting pick-up, but was caught by a lack of intra-China transportation in recent weeks.

But SeaIntelligence warned that while the supply side may be coming back to normal, the latest issue was the threat of reduced demand in importing economies.

“China gradually seems to get back to normal business,” it said. “However, the impact is now hitting the destination regions, and looking slightly further ahead, the potential troublesome aspect will be the impact of the spread of the virus elsewhere, with especially Europe rapidly implementing quarantine zones and shutting down parts of the economy.”

This could trigger a reduction in inventory levels, as either business lose confidence or consumers reduced spending, it warned.

“If businesses are worried about additional virus fall-out, we may see a negative spike in volumes as inventories are corrected sharply downwards.”

The level of the impact on demand would depend on whether lower inventories were driven by manufacturers or consumers, it added.

“This might technically happen as a result of the supply chain disruption we have already seen, but if this is the only effect, then we would shortly see a rebound, as businesses would endeavour to restock to the previous levels. In this case there will not be a material impact seen over full year 2020,” it said.

“The problem is if businesses lose confidence in the mid-term economic outlook and start preparing for this by reducing inventories. This would lead to a similar development as in 2001, where the recession was inventory driven.”

But a worse fallout would come if the impact of coronavirus led consumers to cut spending, reducing sales. In this scenario, a better comparison would be with the recession of 2008.

Container lines therefore needed to be in close communication with their customers to understand wo what degree inventory reductions were part of their strategy, as the impact on peak season volumes could be dramatic.

“If businesses are not worried, then we may see a positive volume spike as there is a catch-up from the lost production in February,” SeaIntelligence said.

“If the businesses are worried for additional virus fall-out, we might well see a negative spike as inventories are corrected sharply downwards.”


Read from the original source.