5 Ways COVID-19 is Impacting the Shipping Industry

Posted by Benjamin Meskin on May 26, 2020 9:00:00 AM
Benjamin Meskin

Shipping accounts for over 90% of global trade. However, the outbreak of the COVID-19 virus has resulted in unexpected negative impacts on the shipping industry. Many commercial vessels have stopped arriving at ports, causing total revenues to fall drastically. Other ships are idled or delayed by disease containment measures.

Currently, there's no way of knowing how long the pandemic will continue, but it's not too early for exporters to take action. International shipping insurance companies are helping exporters minimize damage caused by the epidemic. Below, you'll find five ways COVID-19 is impacting the shipping industry and what this means for exporters in 2020.

 

1. Delays and Canceled Shipments

After the coronavirus outbreak in China, two key events took place that created a domino effect of negative consequences on the shipping industry. First, manufacturing facilities closed. Next, import containers began to accumulate, resulting in congestion in Chinese harbors. Some shipments were diverted to other ports, while others are still waiting to be returned.

Second, the demand for Chinese products dropped. Shipping lines lost revenue and cargo, and blank sailings began to affect North American and European trade. Now, we're starting to see rises in Asian trade costs due to capacity shortfalls and increases in idled vessels. An estimated 75% of American companies will experience supply line disruptions as a result.

With returns still in limbo, the industry is facing a shortage of equipment in Europe and North America. These challenges are resulting in accumulating surcharges in Asia. Currently, trade capacity in the transpacific region is down 45%, and continued decline is expected until essential markets can reopen.

 

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2. Significant Revenue Losses

Carriers are facing nearly $2 billion in revenue losses globally due to blank sailings. Precautions have resulted in substantial volume decreases, and we're just beginning to experience the ripple effects. Fortunately, mitigation actions can help minimize future losses.

Carriers typically change shipping schedules two to three times during transit. Usually, these changes don't present any problems. However, during the Coronavirus outbreak, it's become more challenging and time-consuming for exporters to keep track of their containers. Many freight forwarders are leveraging technology to reduce lost revenues by 3-5%.

Shipping insurance technology can provide an overview of the most dependable carriers in specific regions. Also, you'll receive instant alerts about elevated risk areas. Port performance data helps forwarders prepare ahead of time through dynamic shipping. Technology can automatically compare carrier schedules and vessel positions to avoid these risks proactively. 

 

3. Changing Consumer Purchasing Behavior

Consumer buying habits have shifted significantly in the past months. Citizens of developed countries are spending more money stocking up on essential household items, and less on novelty products, such as clothing and automotive supplies.

At the same time, car manufacturers are reducing their production volumes. Facilities are being forced to close as a result of disease containment measures. Additionally, manufacturers are having difficulty obtaining specific components, causing supply chain disruptions. Some cargo shipments are even being blocked from entering their destination ports for fear that they could be contaminated.

If your shipment was lost or damaged due to COVID-19, Freight insurance could help you overcome carrier liability issues. Your goods will be trackable, and you file claims online through a user-friendly platform. Integrating your cargo shipping and transportation management software is an optimal way to reduce your risk profile substantially.

 

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4. New Protective Measures and Restrictions

Ports are currently enforcing protective measures to limit the spread of disease. The International Chamber of Shipping has prescribed the following temporary guidelines and regulations.

  • Port entry delays – Some countries are issuing restrictions on port entries. For example, all vessels entering and exiting China are subject to a14-day quarantine period.
  • Medical supply requirements – All vessels must carry on board sufficient medical supplies as mandated by the World Health Organization (WHO).
  • Preventative hygiene measures – Strict hand and respiratory hygiene measures, as well as disinfection protocols, have been established.

These restrictions are causing delays in some cases as ship operators and crew prepare for compliance with the new guidelines. For example, many vessels are awaiting the arrival of essential medical supplies that were not previously required.

 

5. Cargo Congestion at Ports

All of the implications above are contributing to increased congestion at cargo ports. However, labor shortages caused by city lockdowns are the leading cause of backlogs. Although Chinese workers are starting to return to work at cargo ports, it will take time to get logistics operations back up to speed.

Longer waiting times mean cargo needs to be packed accordingly. Follow a shipping and packaging checklist to ensure your shipment arrives undamaged at its destination. 

 

Final Thoughts

There's still tremendous uncertainty about how the pandemic will continue to unfold. One possibility is that the outbreak is brought under control, and the cargo flow situation begins to normalize over the next two months. In a less favorable reality, the problem gets worse before it gets better. Exporters, shippers, and carriers need to be prepared for the worst-case scenario.

Technology is a critical component for minimizing supply chain disruptions. For example, predictive estimated arrival times can help shippers determine the best shipping strategies. Meanwhile, live shipment tracking ensures consumers, retailers, and manufacturers can accurately communicate shipping updates.

Over the coming weeks, carriers are likely to push for increased rates, even if their vessels are still not in transit. To reduce disruptions across your supply chain, take proactive measures with intelligent shipping insurance technology.

Learn more about how the shipping industry is impacted by COVID-19 from the experts at Cabrella by calling us at 844-422-2735. Our licensed experts will be happy to answer your questions.

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