The Coronavirus has disrupted “business as usual” in China and, consequently, in the rest of the world. The three biggest Chinese ports are backed up with containers, disrupting both the national and global supply chain for several industries, including meat and livestock, and slowing down export to China. Aside from these short-term effects, the virus will mostly likely also have some long-term effects on the Chinese and global economy.
Immediate effects on China
Covid-19 originated in China, which has been severely affected by the disease on several levels. The virus has had and will continue to have a noticeable effect on the Chinese economy in 2020. The three biggest ports in the country are backed up with containers, causing distribution and supply issues for both import and export products.
In addition, there is a weaker demand from the Chinese who at this point in time rarely – if at all – leave their houses, not only in fear of contracting the disease but also due to the government’s travel restrictions. As a result, there’s an increase in e-commerce but this increased demand cannot be met due to the previously mentioned distribution and supply issues.
Backed up harbours and ports
All available reefer plug-ins in Shanghai, Ningbo and Tianjin are occupied. Due to the scarcity of plug-ins, some reefers have been corrupted. Others have been shipped to Hong Kong, Japan, Singapore or South Korea where the containers will temporarily be stocked.
Exports have to face the consequences. CMA CGM, MAERSK, ONE, APL, and ZIM have all announced a 1,000 USD/container surcharge of freight rates. The surcharges are used for transferring cargo to the other harbours mentioned above.
The root causes of the backlog in Chinese ports
A port labour shortage and the nationwide travel restrictions, which are strongly correlated, are considered to be the root causes of the backlog in China. Most workers went back to their hometown to celebrate Chinese New Year. During this time, the outbreak of the Coronavirus struck China, which prompted the government to prolong the holiday period and to impose nationwide travel restrictions. These restrictions were much more severe than those during the SARS period. Consequently, workers found it hard – or impossible – to travel back to their workplace. The ports were therefore short-staffed. It’s also important to note that the Lunar New Year holiday is the peak of consumption for China. Freezers full of product for Chinese New Year were simply not consumed, which also added to the backlog.
However, the Chinese are gradually returning to work as the transportations limits are being lifted. When the virus in under control, the situation will surely improve. But the supply chain will take time to fully recover.
Slowing of exports to China
It has taken a while to measure the impact of the backed up ports on the meat trade but it is now safe to say export volumes are lower than expected. This is mostly due to the added risk of shipping to China and the extra freight rates, as mentioned above. As a result, exporters are putting products in storage but this comes with extra costs and a shelf life challenge, not to mention dealing with the backlog issue in the Chinese ports.
Other factors to consider
There is a strong possibility that several food service chains, as well as multiple independents, will go bust. In addition, workers throughout China have not been getting paid and will have to adjust their lifestyles accordingly.
There are also multiple farm problems. Farmers can’t bring in feed, with animals short rationed, starving and many dying. The farmers can’t move livestock out to slaughter as there’s a lack of trucks and slaughterhouses are not operating.
Global economic downturn
The global effects of the Coronavirus – and China’s issues in dealing with it – go beyond the meat trade. The most notable ones are the following: a disruption in the supply chain, lost tourism revenue, and a downturn in Chinese demand for imported products.
Supply chain disruption impacts several industries
The livestock industry is becoming aware of a gap in China’s supply chain. Furthermore, the impact is most notable on low-cost, generic versions of medicines and low-tech additives. It is also very likely that productivity in some Asian markets will be impacted. In addition, new supplies and / or equipment will accumulate due to factories shutting down and the backlog in the Chinese harbours.
Lost tourist income
Chinese tourists are major contributors to a number of economies. This is starting to become a problem as few Chinese are currently traveling. Most Chinese are worried about traveling in their country, let alone internationally, so they stay home. There are those who are willing to travel but they can’t because they’re not allowed to enter some destination countries without a quarantine period.
The impact on popular destination countries is clear: less Chinese tourists means less income for hotels, restaurants, shops, etc. And the loss of Chinese tourists is not a small one. To give an example: 25% of Thailand’s tourists are Chinese, with the Chinese spending USD 2,000 on average.