Why COVID-19 has caused global supply chain disruption and widespread delays?

Why COVID-19 has caused global supply chain disruption and widespread delays?

The COVID-19 pandemic erupted in China, crippling Chinese manufacturing plants. According to a Johns Hopkins University study, Chinese manufacturing volume dropped nearly 40% in February 2020 from 2019 totals. The drastic slowdown continued through the spring as cities in China imposed stringent lockdowns. Wuhan, the pandemic epicenter and a global manufacturing hub, completely shut down for 76 days.

According to data published by the Harvard Business Review, the world's 1,000 largest companies or their suppliers own 12,000 facilities in quarantined areas. The ripple effect of manufacturing shutdowns meant parts and material shortages across the globe. Bicycles, textile goods, electronics, ceramic tile, and appliances became scarce or nonexistent on retailer shelves.

China's extreme COVID-19 measures proved to be effective, and manufacturing is rapidly returning to normal levels. China's overall economy has continued its recovery from the corona virus's impact, with growth in the third quarter accelerating to 4.9 percent from 3.2 percent in the second.

The demand for back-ordered products has caused global shipping and logistics shortage as consumers begin to emerge in quarantined areas. For shipping containers, the spot sea freight rate from Shanghai to the west coast of the United States rose more than 80 percent since June to the US $3,848 per 40-foot container in the first week of October, while the rate to the east coast surged nearly 70 percent to US $4,622, according to Shanghai Shipping Exchange. "The ships are 100% full. The containers are 100% full. You can't get a container built. You can't pick up a ship from the spot market. The whole container-shipping cycle is at absolutely full pulse," said Jeremy Nixon, CEO of Ocean Network Express, the world's fifth-largest container line, during an International Chamber of Shipping virtual event in October. The ocean container market is "unbelievable," he said. "We are sold out." Further, due to the volume of goods entering the US, importers expect congestion and delays at the port and additional price increases for rail and trucking services.

Sonny Trawick, at Interlog USA explained that ports are clogged due to high ship volume and lack of staff. "There have been many reports of vessels that are unable to berth upon arrival to its final port, due to the manpower shortage to meet the increased volume. Some vessels are worked within three days of arrival, and some are worked within two weeks of arrival."

Domestic carriers like FedEx and UPS are already running at full capacity. With the holidays looming, carrier shortages could mean “up to 7 million packages a day could face delays.” Satish Jindel, president of ShipMatrix software, said in an interview with NBC News. The only option for US importers, retailers, and customers is patience. As back-ordered goods reach awaiting customers, the demand for inventoried items will return to normal. But, "normal" might have to wait until spring 2021.

Back to blog