Official economic numbers out of China have always been met with skepticism, so it’s no surprise that government statistics on coronavirus infections and post-Chinese New Year factory restarts are viewed with suspicion.
The party line is that China is back to work. To obtain independent confirmation, FreightWaves interviewed Damien McClean, CEO of SIA Flexitanks.
The good news for shipping: His company’s experiences in one corner of the Chinese manufacturing sector confirm what the government is saying.
Factory restart timeline
A flexitank is a flexible bladder placed within a 20-foot container that is used to transport wine and oils. SIA is the world’s third-largest flexitank provider after Hillebrand and Braid. McClean is not only SIA’s CEO, he’s the inventor of the single-use polyethylene flexitank, now the industry standard.
Virtually all flexitanks in the world are manufactured in China. SIA operates a factory with just over 200 employees in Qingdao, in northern China. Hours prior to speaking with FreightWaves on Thursday, McClean, who is based in Ireland, spoke with his partners in China to get the very latest information.
“These are people I trust. If it was bad, they would be open and honest about it,” he asserted. “The words they used to me this morning were: People feel relieved because this is on the wane and at this moment, things are more or less returning to normality in Qingdao, which is a good bit away from the epicenter [in Wuhan]. I would take those words more [seriously] than the official line.”
In the beginning of the crisis period, McClean said, “Our factory staff were subject to the stay-in-place rule at the end of Chinese New Year, and when they did return to Qingdao, they self-isolated for 14 days. Luckily, most of our staff were spending Chinese New Year in northern China. We didn’t have anyone in Wuhan. Some were delayed getting back, but none of them were in the epicenter.
“The factory restarted on Feb. 11 and it was operating that week at about 35%. I would say we were back to full production again by Feb. 26,” he said.
“When we restarted, administration staff were working from home. For the staff coming back, there have been quite a lot of extra procedures: regular temperature checks, distribution of face masks and sanitizers, etc.”
Flexitank manufacturers have an advantage over producers of many other types of goods because a flexitank is a relatively basic product in terms of the number of components when compared to, for example, an automobile. The more components, the more likely supply-chain disruptions outside of the factory will reduce output.
Trucking and port progress
There have been barriers to land-based transport in China, particularly in the case of interprovince transport. SIA does not face these issues, as its factory is only about 45 minutes from the Port of Qingdao.
“I was told today by my partner that about 75-80% of the truck drivers are back to work. The road closures in northern China have largely been lifted, although there are still some restrictions going into Shanghai province from provinces with a high number of infections,” McClean said.
Most of the flexitank manufacturing plants are in Qingdao, although at least one factory of one of the largest flexitank companies is near Shanghai in an area that has been subject to more road closures and has experienced more complications.
Asked about the current situation with ports and ocean shipping out of China, McClean replied, “The ports are open, although some of them are a little bit slow in terms of throughput due to workforce limitations. As far as we can see, most of the [ocean] carriers are operating and there’s no shortage of space, even as the shipping lines have reduced capacity. Thankfully, we haven’t seen a huge spike in [outbound] freight rates. Ocean freight rates have actually been pretty stable because supply and demand are fairly balanced.”
The experience over the past month of flexitank manufacturers underscores a key point about China coronavirus fallout: There is manufacturing in Hubei province, where the outbreak was centered in the city of Wuhan, but China is a huge country and most of its manufacturing is not in Hubei, and in places like Qingdao, normalcy is returning.
This reality can be obscured when viewing the situation from the outside looking in, from places like the U.S., where TV coverage focuses on Wuhan.
The bigger issue: consumer demand
The most important takeaway from the SIA Flexitanks story is that the highest trade risk is no longer from a breakdown in production, transport and port systems in China. Rather, it’s from a loss in demand from consumers, both outside and inside of China.
There will be fallout due to the loss of production in China during the weeks after Chinese New Year, but it appears this will be temporary. “The knock-on effects of the virus will become apparent [in the flexitank industry] in late March and throughout April,” McClean said.
“Companies have containers arriving now that were scheduled before Chinese New Year, but most companies set up their supply chains to allow for a two-week break for Chinese New Year and some of them were actually out of action for an additional four weeks.
“We’re reasonably confident we can continue our supply uninterrupted, but I do expect there will be companies that run out of flexitanks in late March and April,” he said.
McClean’s much bigger concern — one that’s relevant to almost every other industry — is consumer demand after the initial Chinese supply hiccup. “This is an unprecedented situation for our industry,” he told FreightWaves. “The great unknown is how this will affect demand in general.”
Wine shipped via flexitank is more focused on the supermarket industry and home consumption and less on the tourism industry, which consumes wine produced domestically or shipped by bottle. Thus, the situation in the Italian tourism industry may be less concerning, but the threat of widespread outbreaks in places like India, Africa and Asia is extremely concerning.
“We don’t know how long this [situation] is going to run. What effect will it have on demand for bulk liquids to be shipped? We just don’t know. Until the situation reaches its zenith globally, this will be a period of great uncertainty.” More FreightWaves/American Shipper articles by Greg Miller