Container lines and shippers commiserated over the coronavirus pandemic’s effect on their businesses during an Agriculture Transportation Coalition (AgTC) virtual conference Wednesday.
“COVID-19 obviously has had a significant effect on the global economy, on the U.S. operations and here in Asia. It’s like we’ve almost doubled down on the complexity of the U.S.-China trade dispute we all faced together in 2019,” said Ocean Network Express (ONE) CEO Jeremy Nixon.
“After Chinese New Year here we really started seeing a shortage in cargo demand, particularly out of China, and that has now spread further throughout Asia,” Nixon said. “So in terms of the actual April sailings coming out of Asia, as an industry we’re about 20% down in the frequency of sailings and in terms of those cargo volumes. May arrivals in the U.S. are about 20% down and we could probably see that continuing certainly into June. After July I think it’s a little bit more difficult to predict.”
He said the imbalance in trans-Pacific trade remains, with more containers moving into the United States than moving out.
“Effectively what’s happened now is instead of moving two in, we’re now moving 1.6 in but still looking to move one or even 1.1 back to Asia. That imbalance scenario is still not completely out of kilter, but it does mean as an industry we have slightly less flexibility in our ability to move products, equipment and allocation. But we’re working on it constantly. We’re trying to keep that supply chain going in terms of making sure we have the right equipment in the right places, that we still have the frequency of services and can still maintain that coverage,” Nixon said.
Canceled sailings also have continued into the second quarter of the year.
“We’re looking at how to keep the frequency up of our sailings. We still have six sailings a week coming out of Oakland back to north Asia. Some weeks that drops down to five and even four depending on what’s happening with the inbound sailings. We’re trying wherever possible to not have these ad hoc vessel withdrawals but try to go to more [structured planning] so that our customers can see six, eight, 10 weeks out which services are running 100% and which services are being temporarily curtailed so that we can book and move equipment efficiently,” he said.
Nixon said ONE also has taken steps to protect cargo in places where “ports are congested or we have some difficulty with some of the infrastructure.”
“For example, in China, where we had the earlier problem of reefer equipment, we were actually putting another vessel alongside to act as a floating reefer storage facility. We’ll continue to do more things like that as the challenges come along,” Nixon said.
He did say that “consumer demand is picking up all the time” and that demand for U.S. agricultural products around the world remains strong.
Demand for alcoholic beverages certainly has remained strong, according to Alison Leavitt, managing director of the Wine & Spirits Shippers Association.
“Tequila has been one of the big winners,” she said during the AgTC conference.
Leavitt explained that Wine & Spirits negotiated its contracts with the shipping lines before the coronavirus turned into a global lockdown.
“We sign over 20 contracts every year. We ship over 85,000 [twenty-foot equivalent units] of beverages between virtually all origins and destinations,” she said. “We negotiate the majority of our steamship line contracts in the first quarter of the year.”
When contracts were signed this year, “the shipping portion of our world was under control. In all areas of the world that we ship … the rates were relatively stable — trans-Atlantic, South America. The alliances and strings were not changing. Capacity was static. And the transition to IMO 2020 low-sulfur fuel did not result in the dramatic uptick [in cost] previously predicted. So we were feeling pretty good,” Leavitt said.
“We were adding volume, business was booming. A month later we’ve already signed our contracts and we are in the throes of the pandemic lockdown,” she continued. “Some countries banned the shipment of beverage alcohol, including South Africa and Panama. Mexico briefly banned shipments.”
Leavitt said she wants all ocean carriers to stay in business throughout the economic crisis.
“We know that you’re bleeding and we want you to survive this crisis. More carriers mean more competition, better rates, more innovation. We are not the enemy when we talk to you about our needs. This situation is dynamic and calls for creative and dynamic conversation. We ask that the ocean carriers acknowledge the market disruption and work with us to find solutions,” she said.
Leavitt said the contracts signed just a few months ago “cannot be static.”
“Everyone is suffering. We need to work together to find success in this pandemic,” she said. “Dynamic partnerships are what will work and what we want.”
Like Wine & Spirits, Johnsonville has had healthy sales through the pandemic but headaches with shipping its products.
“Our biggest international market is Canada, which goes via truckload. Our next biggest markets are Japan, Korea, Hong Kong and Singapore. We ship temperature-controlled 40-foot reefers in both frozen and chilled condition,” said Johnsonville global logistics specialist Rachal DeRosier. “We’ve seen high demand both internationally and domestically. In March our sales were 140% of our forecast.”
She said the biggest impact has come from blanked sailings and the fact that the Wisconsin-based company has had to come up with contingency plans to work around supply chain disruptions.
“We’ve had capacity issues in Chicago throughout the spring so we’ve been transloading a majority of our containers in Oakland or LA by trucking our product to California,” DeRosier said, adding Johnsonville even has shipped off the East Coast when customers could accommodate longer shipping times to Asia.
And if the sausages have to get to their destination right away, Johnsonville will send them by air.
“We rarely put all of our eggs in one basket and we do have the ability to change direction with most of our orders,” DeRosier said.