The global supply chain is beginning to move

On April 16, news outlets like the New York Times reported that the Chinese economy shrunk by 6.8% for the first quarter, ending a nearly half century of continuous growth “that survived the Tiananmen Square crackdown, the SARS epidemic and even the global financial crisis.” Whatever you may think of China and it's role in the COVID-19 crisis, the health of the world's second largest economy will be critical to getting global supply chains rolling again.

But if you think about it, that report was a backwards-looking snapshot, and included the period when China was on lockdown. As we've all experienced here in the U.S., two weeks is a lifetime in the COVID-19 crisis. So, it was with some interest that I read a report also published on April 16 by Vivek Vaid, FourKite's chief technology officer, titled Hopeful trends from Chinese shores. “What a difference a month makes,” Vaid began before noting that based on tracked loads in Fourkites with regard to movements from China to the U.S., “FourKites data shows a 64% increase in ocean shipments in March compared to China's lockdown period in February.” The volume approached 94% of the volume recorded as recently as the third week of January, before the lockdown, and close to shipping volumes in late October 2019. “The shipments were predominantly in the CPG, electronics and pharmaceutical industries,” FourKites reported.

When I read the report, it seemed there are two ways to look at the result. One is that China was finally able to ship product that was already at the port, perhaps even on ships, that had been held up until the lockdown was removed. The other is that it is new production.

I ran this by Glenn Koepke, a vice president of network enablement at FourKites. Koepke's take is that when you figure a 25-day transit time from Shanghai to California that yes, some of the volume is the result of inventory on hand, but in those select industries, he also expects to see production slowly begin to ramp up and sales volume increases in 25 to 60 days. That's the difference of keeping two to three weeks inventory on hand plus transit time. He also noted that currently, air freight is five to ten times the normal rate from China to the U.S. To him, that implies that some customers can’t afford to wait 25 days to get product via the ocean. Another potentially good sign, again in select industries.

When it comes to industries such as automotive OEMs and suppliers to retail stores, Koepke says it's another tale entirely. Putting that to the test, I called a friend who is the CEO of a company that used to supply product to the children's clothing store my wife and I owned for 32 years, before her retirement in 2017. He confirmed that China is shipping again, whether he wants the inventory or not. However, it is product that was already manufactured, or to fill orders he had already placed before the shutdown. “Remember that in retail, we place orders four months in advance, and it's very hard to turn the spigot off,” he explained. Starting at some point in February, ocean shipping shut down completely. “We couldn't catch a spot on a boat coming to the U.S. from any of the Asian countries where we manufacture, and not just China,” he told me. “Now, the boats are moving again, and we're getting about three containers a week.”

In normal times, that would be good news, but then again, these are not normal times. “We're out of space to store the inventory because none of our retail customers are accepting deliveries,” he said. “And, of course, we have to pay our suppliers.”

So, we are seeing the gears of commerce begin to turn again. But it's a mixed blessing and will remain so until all industries are moving again.

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