The supply chain is disrupted but will rebound even stronger
- March 31, 2020
The average person rarely thinks about the supply chain. We take for granted that when we want something, we order it and it magically arrives or we go to a store and the item is waiting on the shelf. In a blink of an eye our entire way of like has been adjusted and we now understand that an interruption in the supply chain has a dramatic impact to our everyday lives. Paper manufacturers are working overtime to produce toilet paper to meet the demands of a panicked public and segments of the trucking industry are flourishing keeping up with the hoarders and delivering medical supplies, however the rest of the supply chain has significant issues they are contending with.
The shipping industry has already taken a hit due the trade war, and now is suffering even greater losses. China is home to 10 of the world’s busiest seaports. The coronavirus lockdown means sea vessels are not allowed to port. This means delays to loading of goods and to reduce the spread of the virus most shipping companies have reduced the number of ships coming out of China. This reduction is reporting to cost more than $350 million in loses each week. According to reports out of China they have contained the virus and are returning to normal production. “Chinese manufacturing and transportation will need time to ramp up” said Carl Larry, performance director at Refinitiv, “but once it does, consumer spending may remain below healthy levels.”
Forbes has reported that the airlines have seen a $1.5 billion dollar loss in the first half of March as compared to last year. The International Air Transport Association originally estimated that the airlines losses would be in the $29 billion dollar range, that estimate has risen to $113 billion in a matter of weeks. In the meantime, some carriers including American Airlines and Delta are putting their commercial travel planes to work as freight carriers. There is not a way to determine when Americans will be willing to fly again when the fear of airborne contaminates run rampant. The airlines will receive financial assistance as part of the Coronavirus Aid, Relief and Economic Security Act (CARES), but the $60 billion is 10% of what the airlines were requesting. There is an additional $25 billion in loans for employee retention and 4 billion for cargo carriers.
Projections for the 2020 trucking industry were already concerning and now the issues from the virus have lowered volumes even further. There is a temporary spike in demand due to consumers stockpiling and the need for medical supplies. People are in a frenzy now to buy supplies, but when all the cupboards are stocked, we will likely see a significant decline in spending. The hours of service regulation was lifted which allows some truckers to work longer hours but prevents companies from having to hire more drivers, leaving some drivers with loads. The concern is what will happen on the other side of spike. Experts say that fear is the main cause of economic disruption and consumers may continue to tighten their spending. The CARES act will give any one who makes less then $75,000 a check for $1,200 in about 3 weeks. Many people will have over due bills to pay, some will save the money but the hope is that majority will spend the money on goods and services.
The Good news
When we look at the numbers, it’s certainly scary, but economists offer some comfort. The first good news is that we started off strong. The unemployment rate was at a 50-year low. The government is doing all it can to make sure the financial and credit markets stay afloat. The stimulus package will put spendable cash in the pockets of the consumers. The first and second quarters are going to be down but Federal Reserve Chairman Jerome Powell told NBC he sees a good rebound in subsequent quarters and pledged the central bank will do whatever it can to ensure that the recovery is “as vigorous” as possible. The stock market is already in rebound as it does not directly coincide with the economy. The stock market is based on what will be happening six months for now so its rise is a much-needed sign we will recover.
When we contain the virus hopefully, we can contain the fear and begin to recover. The American people may be divided on a great many issues but if we unite, and in trying times we do, together we can rebound even stronger than before.