COVID-19 And Global Supply Chains: Watch Out For Bullwhip Effects
In an earlier piece on the COVID-19 (Wuhan Coronavirus), I talked about how supply chain disruptions seemed to be occurring in slow-motion. A recent report from the Journal of Commerce warned of an imminent shortage of shipping containers in inland U.S. locations. How could these things be connected, and are we at risk of supply chain oscillations, often referred to as a bullwhip effect?
The virtual shutdown of commercial traffic in China has had a huge impact on global shipping. With the extended Lunar New Year shutdown, container shipping carriers have announced a large number of “blank sailings” – an industry euphemism for “we cancelled that voyage.” That’s completely rational, as nobody was sending trucks with outbound cargo to the big Asian container terminals. I had taken a class to visit the giant Yantian International Container Terminal in Shenzhen in January, and they told us they handled 20,000 trucks on a typical day. When I checked it last week, there was little visible traffic. With much of the country in lockdown and factories struggling to get production restarted, this was not a surprise.
For global supply chains that go by ocean, there is a built in time lag attributable to ship transit times. Container ships carrying exports that left China before the outbreak are only recently discharging cargo at destinations. We saw the Ebba Maersk loading at Yantian in Shenzhen on January 5. It didn’t make it to Rotterdam until February 2, and at last check it was at the Thames Port in the United Kingdom. That meant 27 days to reach the first port of call in Europe. Yantian (Shenzhen) to Long Beach, California might take 14 or 15 days, and a rail connection to the Midwest might take five more days.
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