Supply chains feel shock waves from COVID-19 outbreak

China cargo volume craters in Vancouver in wake of Beijing’s closure of factories

International freight and logistics companies are reporting declines of as much as 85 per cent in the volume of Chinese-made goods arriving in the Port of Vancouver, as the impact of COVID -19 begins to shake supply chains.

Beijing ordered factories to shut down across most of its provinces in January as it struggled to control the coronavirus epidemic that has now spread to more than 80 countries. Though those plants were initially slated to reopen in early February, many only came back to life last week, while others remain shuttered.

That’s left orders unfilled and many steamship lines to “blank shipments,” or cancel voyages, said Brandon Toothill, vice-president of C&D Logistics, a mid-sized firm in Vancouver. Since the crisis began in January, C&D’S volume of Chinese container shipments into the port has fallen about 85 per cent, he said.

“It really was a complete shutdown in China,” Toothill said. “There were no containers being picked up and there was no production. Things have started to look a little better now, but it’ll still take a month to get back to normal and that’s if things improve on the coronavirus front. If things go the other way, that could be a different story.”

Universal Logistics, a mid-sized freight forwarding firm with offices in Toronto, saw the number of containers imported from China by its customers tumble about 60 per cent in February, compared to the same period last year, said Dave Lychek, manager of ocean and air shipping for the firm. While ships carried goods into Vancouver from China every week before the crisis, those sailings have been halved, he said. “We almost always have more coming in from China than going out but that’s just not happening now,” he said.

“We’ve dealt with strikes, things like that, but nothing that’s ever hit us like this. For companies still recovering from the rail blockades, it’s very challenging.”

The Port of Vancouver reported a 13-per-cent decline in the volume of incoming cargo in January — figures that exclude the impact of the coronavirus. Data for February has yet to be released. The Vancouver port has logged 30 blank sailings so far this year — up from 12 to 15 at the same point in 2019, though a port spokesperson cautioned that varying ship sizes make the volume metric a more reliable gauge of activity. “Anecdotally, we understand that many sailings have been blanked and that volumes are down significantly from China to North America,” said Julia Kuzeljevich, spokesperson for the Canadian International Freight Forwarders Association. “Volumes were already down prior to the virus.”

So far, the broad impact of COVID -19 on businesses has been difficult to assess. That’s largely due to the significant supply still sitting in inventories, said Chris Caplice, a senior research scientist at the Center for Transportation Logistics at Massachusetts Institute of Technology.

“People are working down their stock and there’s a time lag,” he said. “But the bullwhip is starting to hit now.”

About 10 per cent of intermediate goods used to make finished products in Canada are sourced from China, according to a recent report from the Royal Bank of Canada. Another four per cent are sourced from South Korea, Italy and Japan — countries also affected by the virus.

That dependency on affected areas for inputs, combined with the lingering impact of the recent rail blockades, suggest some shortages will be unavoidable, said Brian Kingston, vice-president of policy, international and fiscal issues at the Business Council of Canada.

“Most Chinese factories shut down at the end of January. It takes four to five weeks for a ship to reach Canada from China and most companies keep about 15 to 30 days of inventory on hand,” he said. “Once they work through that inventory I think it’s inevitable we’ll see shortages later this month.”

The severity of the impact will depend on how reliant firms are on Chinese suppliers as well as the type of goods they import. Among the more vulnerable items are electronics, Kingston noted. Apple Inc. recently lowered its forecast revenues and missed schedules for mass-producing a more affordable iphone after key suppliers in China were hit by the coronavirus.

Canadian monthly imports from China fell 12.1 per cent in January mainly on lower cellphone deliveries. Exports to China fell 7.8 per cent on lower shipments of gold, potash and wood pulp. That figure doesn’t include the impact of the coronavirus and come on top of 2019 declines in exports to the Asian superpower of 16 per cent — the largest drop in two decades, Kingston noted.

Given those new factors, “it’s hard to imagine a scenario where we see strong Canadian export numbers in the first quarter,” he said.