The coronavirus outbreak is having a serious ripple effect throughout global supply chains. Factories have shut down, product flow in many cases has come to a halt, and consumer purchases of all but the most essential items are plummeting. At the same time, importers and exporters are coping with the everyday problems of international trade. In this conversation with SupplyChainBrain Editor-in-Chief Bob Bowman, Richard Bolte, chairman and chief executive officer of global logistics provider BDP International, offers his views on the present and future state of trade.
SCB: What’s the impact right now of the coronavirus outbreak on international trade, and how is industry responding?
Bolte: On the transportation side, you can imagine the impact of no passenger aircraft flying from key geographies in the world today, with over 200,000 flights between Europe and United States canceled. For those products that have to move, rates are dramatically higher from impacted geographies. Since passenger aircraft is no longer a possibility, things are moving to freighter-only services, but there's only so many of those.
Before this latest crisis, we were just beginning to see a rebound in Asia. And if we look at our Asia activity now, it’s actually coming back — I wouldn't say it’s completely returned to normal, but it’s certainly strengthening. But there are two sides to this story. Right now we’re experiencing a supply-side interruption, whereas somewhere down the road we’re going to be faced with one on the demand side. Just think about the amount of goods not being consumed at NBA or NHL games, or SXSW. That will eventually play into demand.
SCB: One issue that has abated somewhat, but could very well come back in a big way, is the trade war between the U.S. and China. What should we know about their current relationship, and how it might affect commerce in the months ahead?
Bolte: I think the coronavirus crisis will actually strengthen ties. President Trump and President Xi, who supposedly have a good personal relationship outside of the trade war, have cooperated during this crisis. Our own view was that we were really excited to get the Phase One trade deal, and as we were coming into mid- to late January, everyone was saying, "Well, maybe this deal could really spur some nice growth in the third and fourth quarters." Unfortunately we didn't get much time to enjoy it, because within a matter of weeks the coronavirus crisis was upon us.
Whatever impact there is from the Phase One deal is now obviously going to be pushed back. Of course, that depends on what type of recovery we get. Coming out of the coronavirus outbreak, a lot of us are hoping for a V-shaped recovery. But the question is, when would that begin? There wasn’t too much optimism over additional agreements between the U.S. and China before the election. The Phase One deal was a known entity, and we expect it will improve our businesses. But all that is on hold now, as we deal with the crisis in front of us.
SCB: Were the tariffs that were imposed prior to the signing of the agreement having a big impact on import flows?
Bolte: Oh, no question. Depending on industry, of course, but just through our portfolio of companies, there was a big impact of the trade war, both on exports and imports. But there was a lot of optimism that that would fix itself with the Phase One trade deal.
SCB: There’s also talk that the coronavirus crisis might lead to a reduction or elimination, whether temporary or permanent, of tariffs. Might we anticipate that as a possibility?
Bolte: It's hard to say. I wouldn't expect it. Right now I think our focus is on the health and safety of American citizens, and the Administration along with Congress will most likely concentrate all their efforts on that. Personally, I don't think the current crisis will allow politicians to revisit Phase Two, Three or Four-type discussions with the Chinese. So we have what we have. Phase One is here, and whenever the crisis is over, I think we'll begin seeing the benefits from that.
SCB: What are the big issues out there right now in compliance, that importers and exporters need to be thinking about?
Bolte: There's a general sense that the regulations are changing so quickly. We’ve seen a high demand by customers for help in dealing with the speed with which the regulations are changing globally. I don't think that's going to change anytime soon. The nature of global trade is going to increase in complexity as we go forward, will continually raise demand for compliance services.
SCB: On the issue of general economic uncertainty, which has been exacerbated by the current situation, what are your concerns going forward in areas such as carrier capacity, freight rates, and service quality?
Bolte: Once this crisis is over, I think there will be a relatively long period as we try to catch up and get back to normal. During the coronavirus outbreak, you saw many ocean carriers cancelling sailings from China. When that happens, containers don’t get positioned where they need to be, so that when demand eventually returns to normal levels, there's going to be a long period of adjustment. The ships and equipment that support a normal end-to-end supply chain need to slowly work their way back into place. On the airfreight side of our business, the cancellation of passenger flights will definitely cause goods to pile up. Once things begin getting back to normal, there will be a fairly significant backlog that needs to be worked through.
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