Updates on the Coronavirus and Advice for Managing Uncertainty
Feb 19, 2020
BY MIKE REGAN, TRANZACT CO-FOUNDER
In prior week, the Two Minute Warning has covered some of what's been happening with the coronavirus. But since this crisis has only recently showed some signs of abating, I’m passing along three pieces of information that address this issue.
One of piece of information is anecdotal, the other two pieces are from Ken Braunbach, Vice President of Transportation at Walmart, and a friend, Don Pisano. Don and I serve on the National Industrial Transportation League's Board of Directors. He has served as the Chairman of the Ocean Committee and is extremely well versed on transportation and supply chain matters.
Anecdotally, two weeks ago I was at the National Prayer Breakfast, where I sat next to a professor from Tsinghua University in China (a top university that President Xi Jinping and top Chinese officials attended). In introducing him to me, my friend from Nepal (who has extensive ties in China) told me that he can give a picture of what is really happening in China. What he had to say about the coronavirus was very sobering. I asked him, “Are we getting the straight story here in the Western press?” His response, unfortunately, is that it’s actually much worse than is being reported.
Last week, I went to the Stifel conference and asked a friend of mine, Ken Braunbach, VP Transportation at Walmart, about how they’re handling the coronavirus. He responded that it’s tough right now since there’s so much uncertainty. Have we seen the worst or could it get ever more severe? While companies like Apple or Hyundai that have production facilities inside China are obviously impacted, other companies that may have components of made in America products sourced from China are also being affected.
One other perspective we gained on the coronavirus came from Donald Pisano, the President at American Coffee Corp. He shared the following:
"The Coronavirus crisis in China continuing beyond the Lunar New Year holiday period has compounded the usual impact on carriers and shippers alike. With the tremendous drop in output from Chinese factories, there is no need for carriers to put in all of the Ultra-Large Containerships in their previously planned rotations that would wind up coming out of China without much cargo. There is plenty of capacity to meet the eventual needs of exports but the carriers will be trying to manage capacity to meet the demand. It is possible that if carriers are slow in adding back capacity, we may have to struggle to get our bookings effected as planned without rollings at loadports or at the transshipment points.
Blank sailings may also impact transshipments since many carriers transship containers from Vietnam, Indonesia and elsewhere via Chinese ports. But there are other options such as Pusan, Korea, Singapore and Tanjung Pelepas, Malaysia, etc. which can be utilized if necessary.
The most affected trade lane at this point is the Transpacific – Asia to West Coast North America - which had already been down due to the tariff battles between USA and China.
And we thought the IMO mandate for low sulphur fuel was going to be the major challenge for shippers in 2020..."
Times like these underscore the importance of scenario planning exercises. Given this ongoing uncertainty in the supply chain, we plan to host a webinar about the coronavirus in coming weeks, so stay tuned.
When we interviewed economist Gary Shilling recently, he pointed out that this is the kind of event that could lead to a recession. From a scenario planning perspective, does you company know how they would manage if that becomes a reality?
We’ve also heard from companies that are at risk of having their manufacturing lines shut down since sub-components are made in China and can’t be imported right now. Other companies are paying a premium for air freight at 4-500% the usual rate for a shipment.
If your company doesn't have scenario planning in place, the best time to start is probably now. In a sea of uncertainty, it's good to have a few alternate plans in your back pocket.