US Transport Sidesteps China’s COVID Spike Impacts for Now
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China’s experience with another outbreak of the coronavirus and related protests could have a downstream impact on domestic transportation.
“Every business should be closely watching what is happening in China,” said Simon Geale, executive vice president of procurement at Proxima. “Almost whatever the outcome, the ripple effects will be felt through the global economy. The area where we have the clearest picture at the moment is COVID-19 infections.”
Geale is concerned that low vaccination rates and growing frustration with restrictions could lead to an even bigger outbreak in China. He pointed to protests that have emerged across the country in response to the lockdown policies. He warned that companies need to stress test a range of scenarios including an easing of lockdown measures.
Geale (LinkedIn)
“The disruption that extremely high levels of sickness will have globally on supply chains has the potential to be significant,” Geale said. “There is, of course, the possibility that China responds to this growing wave by introducing even harsher lockdown restrictions — which would also have a major impact on Western businesses.”
The World Health Organization reported that the latest outbreak peaked around 333,830 confirmed infections Oct. 3. That was the second-highest outbreak, with the most confirmed cases occurring May 23. Guangdong, Beijing, Sichuan, Chongqing and Shanxi have been some of the hardest-hit cities. The number of new cases has been declining since as the country ramped up restrictions.
Santoro
“There have been few actual impacts on U.S. logistics so far, so much of it remains speculative based on previous months of similar issues,” said Jena Santoro, intelligence solutions manager at Everstream Analytics. “With China placing several cities back into lockdown because of rising COVID cases, shipments headed for the U.S. could be disrupted. New lockdowns run the risk of once again slowing Chinese exports to the U.S., creating downstream effects on U.S. ports and the trucking industry.”
Santoro added carriers could be forced to reduce operations in response to lower import volumes. She noted imports from Asia already had plunged to their lowest level in 20 months in October. She warned that reduced carrier capacity could delay the clearing of empty containers at storage facilities, in turn preventing trucks from returning empties on time.
Closser
“While lockdowns ended fairly soon after protests erupted, Chinese authorities have shown no sign of completely backing off their zero-COVID policy,” said Ryan Closser, director of customer success at FourKites. “The impacts have been dependent on the location and duration of the lockdowns, with lockdowns of manufacturing hubs or ports having greater ripple effects on supply chains. The disruption to manufacturing directly affects transportation volume, as orders and production of durable goods are highly correlated with capacity.”
FourKites data showed that with the most recent wave of lockdowns, over-the-road deliveries made within China dropped 36% week-over-week Nov. 23-29. They were down 37% compared with the first week of November.
“While we’ve yet to see a direct impact on exports, our data shows that shipment volumes from China to the U.S. have already been declining since September, after the summer rush for peak season,” Closser said. “Without knowing how widespread infections will get and how severe future lockdowns will be, it’s difficult to predict any ripple effects from China. Given the relative softness of consumer demand, and the continued high inventory levels of goods in the U.S., unless there is a severe and prolonged shutdown the U.S. will likely be insulated.”
Closser noted certain sectors such as consumer electronics might see temporary slowdowns. But broadly speaking, he doesn’t foresee a meaningful impact on U.S. transportation. He noted any slowdown caused by COVID in China will be incremental since the industry already anticipated that capacity will become more broadly available as consumer spending continues to rebalance across goods and services, and inflation persists.
Baltazar
“A lot of retailers, because of past shutdowns and because of past supply chain disruptions, they find themselves over inventory levels that they’re used to,” said Sean Baltazar, vice president of finished vehicle logistics sales at RPM Freight Systems. “Some of the seasonality around demand is really kind of off-schedule. And anytime you have volatility or fragmentation within what is already a highly volatile and a highly fragmented trucking industry, you’re going to see ripple effects from something like another China shutdown.”
Baltazar noted the fourth quarter has been fairly soft for the trucking transportation market. But much of that has to do with retailers getting shipments in early to avoid supply chain disruptions. Because of that, the ports aren’t getting slammed with containers. The Chinese shutdowns, as a result, are not causing problems domestically for now.
“But will we potentially see it in Q1 or potentially Q2 as they catch up on orders,” Baltazar said. “I think ultimately you’ll see some off normal-cycle demands in certain pockets of the country, especially port locations, where all of a sudden now they’re flooded with goods again.”
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