How Is The Coronavirus Affecting Global Trade And Shipping?
In late 2019, the Coronavirus broke out in China. Since its announcement, the spread and impact in countries all over the world has been profound. Known as the ‘Wuhan’ Coronavirus because of the first identified case in Wuhan, China, several confirmed cases have been declared in Vietnam, the Philippines, South Korea and now even Australia, Canada and the United States. In January 2020, the World Health Organisation (WHO) declared the Wuhan Coronavirus outbreak a public health emergency.
The impact of the Coronavirus will no doubt have a significant effect on global trade and shipping, especially since many of China’s most important trading partners have already been affected by the virus outbreak. If you’re looking to understand how the Coronavirus will impact international trade and the broader freight industry, you’ve come to the right place. Below, we’ll explain the nature of the virus, how it is impacting Chinese industry, what the effects will be on Australian markets and how importers and exports can adapt.
What is the Coronavirus?
The Coronavirus is a family of viruses known to cause illnesses such as the common cold, but also more serious diseases like Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The Wuhan Coronavirus, now known as the Novel Coronavirus (nCoV), is a new strain of the family never encountered before in human history.
The Coronavirus is extremely contagious and can be transmitted between both humans and animals. It’s likely that the new Coronavirus originated in animals in China, with many animals (such as seafood) being sold at markets in the centre of Wuhan. Symptoms of the virus include fever, cough, shortness of breath, pneumonia, kidney failure and even death.
For further information on the Coronavirus and how to stay protected, readers should read the advice from WHO.
How is the Coronavirus affecting trade in China?
The Coronavirus is unsurprisingly having a major impact on the Chinese economy, with 16 cities containing over 50 million people now on lockdown. International airlines are cancelling flights into China, and now countries such as Australia have temporarily banned travellers entering into the country from China. The Lunar New Year Holiday has now been extended until later in February, with businesses across 14 Chinese provinces not re-opening until after this period due to the virus outbreak.
Tourism is one of the industries most affected by the virus, with airlines, hotels and major travel outlets forced to refund customers fearful of travelling to China. Large tourism hotspots have also been forced to close, and the Chinese film industry will likely take a hit given the virus has now decimated box-office anticipations. U.S.-based company Tesla has temporarily closed its factory in Shanghai, and Apple has now lost significant amounts of production from its suppliers in Wuhan. This has come at a particularly difficult time in China since it was reported that GDP growth in 2019 was the slowest for China since 1990.
In an analysis by TIME Magazine, the journal reported that “more than 700 miles from Wuhan in northwest Gansu province’s capital city Lanzhou, normally bustling restaurants and bars now sit vacant. Streets in megacities like Beijing and Shanghai are nearly empty. In South-Western Yunnan province, almost every shop in the tourist destination of Lijiang was closed”. They described the Chinese economy as “grinding to a halt”.
How will the Coronavirus impact global trade and shipping industries?
Whilst the World Health Organisation downplayed the impact of the Coronavirus on global trade, China’s trading partners will experience an effect to some degree. Given that China is the world’s leading exporter (and Australia’s most important trading partner), there will be significant impacts on global supply chains and international markets.
China plays an integral role in the shipping and freight industries. This is especially true for the city of Wuhan located on the Yangtze River, arguably the busiest waterway in the world. Over two billion tonnes of cargo are carried through ports on the Yangtze River every year (accounting for over 80 per cent of China’s waterborne traffic). Further, Wuhan is a supplier of coal, steel and crude oil with tonnage exceeding into the thousands. There is no doubt that the global shipping industry will suffer from this outbreak.
Delays in manufacturing
After Chinese New Year, it usually takes around three to four weeks for Chinese factories to re-open. It’s already been made clear that this period will be extended, with workers instructed to take an extra 7-10 days of leave. This will mean delays in production and, unfortunately, missed delivery dates for many international importers.
Increased ‘blank sailings’
‘Blank sailings’ in the shipping industry refer to a carrier’s cancellation of a voyage. This may mean that either one leg of a journey is cancelled, or the entire voyage is cancelled. It typically happens due to a decrease in demand for vessel services, which has no doubt been onset because of the Coronavirus. Several shipping companies (such as Maersk) have already announced blank sailings due to the extended holiday period in China. The result will mean less services to all Australian ports.
Disruptions in port operations
The ports in China have not completely closed but shipyards have been majorly affected with slowed vessel turnaround times, the number of deliveries significantly dropping and dozens of ships falling behind redelivery schedules. There is also a risk of delayed clearances as adequate biosecurity paperwork from Chinese shippers or agents may not be available. John Park of the Freight & Trade Alliance (FTA) suggested that importers may start to incur detention or demurrage costs because of the delays, or extra costs to move containers pending clearance.
Shipyards are also reportedly turning around ships due to shortages of labour. These port operations will likely delay importers’ deliveries. David Amezquita of Container Xchange commented that the outbreak will “lower utilisation rates for shipping lines and increase costs on routes” given that businesses are concerned that employees in China “will not work at mills, refineries, factories and terminals due to the quarantine situation.”
On 1 February 2020, Australia introduced isolation recommendations, health screening and additional border recommendations for people arriving in Australia who have left or transited through mainland China within 14 days (commencing on or after 1 February 2020).
For the marine industry, these new requirements only apply to vessels which meet the additional coronavirus requirements listed below.
- Vessels that have left, or transited through, mainland China on or after 1 February 2020 and less than 14 days ago.
- Vessels with crew or passengers who have left, or transited through, mainland China on or after 1 February 2020 and less than 14 days ago.
- Vessels that have had ill crew or passengers on board in the past 14 days.
- Vessels that have crew or passengers who have been in contact with a confirmed case of novel coronavirus in the past 14 days
Delays in air cargo
The airline industry seems to have been hit the hardest so far. British Airways announced it would completely suspend all direct flights to and from China. Other major carriers such as United Airlines and Air Canada also announced that they would reduce flight numbers. Qantas have also cancelled their direct flights (Sydney-Beijing and Sydney-Shanghai) from the 9 February until the 29 March 2020.
Staff such as cargo handlers, manufacturers and truck drivers are not able to return to work due to the extended holiday period, meaning supply chains will be severely affected.
Another unfortunate long-term effect of the Coronavirus may be a fall in profits, especially during the first two quarters of 2020. If the outbreak continues, container volumes across the Pacific Ocean may fall significantly. This may not only lead to lost profits for shippers, but also for importers whose stock may not arrive on time.
The impact on industries closely tied to shipping
Shipping is intertwined with dozens of other industries all around the world. Industries such as tourism, retail and transport will feel the short-term effect on the coronavirus whilst industries like consumer goods, raw materials and industrial goods will feel the impact in the long term. There are certain commodities supplied from Wuhan that simply must travel by the river (including coal, iron ore and steel products). The price of oil has also already reportedly fallen. All of these industries will no doubt soon feel the impact of the global epidemic.
How will Australian businesses be affected by the Coronavirus?
When China catches a virus, what does Australia catch?
Australia has put in place extra border measures, health screening and isolation recommendations for people and vessels travelling to Australia from mainland China. Information is being provided to travellers at international ports explaining the symptoms of coronavirus and encouraging them to report to biosecurity officers if they have symptoms while in
Despite all efforts being made, Treasurer Josh Frydenberg has already stated that the Coronavirus will make a “significant impact” on the Australian economy.
UBS Australia has predicted that the Coronavirus will cost Australia at least $1 billion in service exports. This may escalate if disruptions to travel are extended. Industries likely to be worst affected include retail and tourism.
Impact on exports to China
Australian businesses reliant on China for their exports will be and, in fact, have been, affected by the Coronavirus outbreak. Numerous fisheries along the Victorian coasts have completely suspended their exports due to China’s live animal trade ban.
Australia’s seafood trade is particularly suffering because of this, with tens of millions of dollars’ worth of lobsters literally sitting idly in storage tanks in limbo. The President of the Victorian Rock Lobster Association described the ban as “catastrophic” for the seafood industry. Victoria, South Australia, Tasmania and Western Australia all export around 90 to 95 per cent of local lobsters to China.
Impact on tourism sector
The Australian tourism industry is already taking a hit, as Chinese tourists are temporarily banned from entering Australia. This is concerning given that Chinese visitors contribute up to $20 billion to the Australian economy each year. Trips by Chinese tourists are usually the highest in January and February, so the timing of the Coronavirus could not be worse.
In Western Australia, businesses have been suddenly forced to cancel many bookings due to the outbreak. One restaurant reported hundreds of cancellations as soon as the epidemic hit (500 cancellations on one day, and 660 the next).
Impact on education sector
The Australian education industry, and particularly universities, are also concerned of a financial hit with the international education sector worth over $35 billion in 2018-2019.
About a quarter of students pay international fees to universities and around 40 per cent are Chinese. They bring around $15 billion into the Australian economy and, with the recent ban of flights from China, the education sector is likely to experience a downturn.
Impact worse due to bushfires
The Coronavirus epidemic comes as Australia is ravished by bushfires, with over 50 fires still decimating the Australian landscape. It is easy to imagine the disastrous impact of the bushfires on industries such as tourism and agriculture, which are in turn impacted by the Coronavirus epidemic.
The combined effect of the virus and the bushfires may lead the country into recession, some economists predict. The chief economist of NAB predicted that the fires alone would dampen growth by around 0.4 per cent in the March quarter, and around 0.8 per cent over the next sixth months – the cost escalating past $15 billion.
Importers and Exporters: Dealing with the Coronavirus Outbreak
Keep up to date
Importers and exporters should keep a close eye on developments in the Coronavirus outbreak so they know how to respond as the crisis unfolds. Please keep up to date with news published by the FTA, which provides advice to the shipping and logistics industries.
Some of the most recent developments include the holiday period extension to 15 February. Further, the Australian Minister for Trade Simon Birmingham advises that there are now heightened restrictions for entering Australia, with a “do not travel” advice warning for Australians not to travel to China.
Take care of your staff
Some importers and exporters have their own freight and logistics personnel working on the ground and dealing with products that have directly come out of China. In this instance, it is important to ensure staff are adequately protected from the Coronavirus.
The Department of Agriculture have published several ‘border worker fact sheets’ advising border staff and what they can do to protect themselves. In particular, they should use Personal Protective Equipment (PPE) and follow existing agency processes for screening sick travellers.
Obtaining Certificate of Origins from China
Due to the closing of offices across China, many importers are having difficulty obtaining their Certificates of Origin (COO) for goods being exported from several areas within China (prior to reading on, check out our Certificate of Origin blog). Ben Mihailovic, ICE’s National China Development Manager, comments that a prime concern for customers is the “lack of communication and full set of documentation” available due to Chinese offices closing down.
Importers can rely on the China-Australia Free Trade Agreement (ChAFTA) for assistance if they are struggling to receive their COOs. In particular:
- Article 3.14 – this allows for a COO to be issued by Chinese authorities after export and within 12 months of import. Importers can use this COO to attain a refund of duties paid to the Australian Border Force (ABF); and
- Article 3.15 – this allows an importer to use a Declaration of Origin (DOO) – instead of a COO – to show that their goods are originating. You can get an advance ruling from the ABF and, if you’re a Trusted Trader with the ABF, you can request a single advance ruling for several goods.
Importers should make use of the refund and DOO provisions in ChAFTA if they aren’t able to obtain COOs at this time.
Develop contingency plans
The National China Development Manager for International Cargo Express, Ben Mihailovic advises that “if your products are manufactured in China, you should be aware that your Chinese factory may be shut down for the next month. If the factory is in or close to Wuhan, it has probably already shut down. You should also expect some or many of its employees not to work due to the advice given to them to stay home”.
Also take note that if your factory continues to manufacture your products, you will likely not receive them seamlessly and slowdowns will occur. Please stay in close contact with your suppliers through direct communication, such as mobile phone, WeChat or WhatsApp as email access will be limited during this period.
It is imperative for everybody in the shipping and logistics industry to take care of themselves during the epidemic. Keep up to date with WHO notices and make sure precautions are in place so you and your staff remain safe.
Please also keep in touch with your freight forwarder to ensure you are well aware of how the coronavirus outbreak will impact the transportation of your cargo.
If you have any questions or concerns, please leave a comment below or give us a call to speak to one of our shipping and freight experts.