Global Trade Sputters, Leaving Too Much Here, Too Little There
Author: Ana Swanson

Source: The New York Times

Date: April 10, 2020


As the pandemic stretches on, consumers and businesses could run short of some products in months to come.
WASHINGTON — Factories are idled. Workers are in lockdown. Goods are piling up at some ports, while elsewhere container ships sail empty. Dairy farmers are dumping their milk, while toilet paper aisles at the grocery store have been picked bare.
The spread of the coronavirus has disrupted global supply chains, leading to shortages and price increases that are cascading from factories to ports to retail stores to consumers. While factories in China have been slowly restarting as the country’s epidemic fades, many manufacturers in India, the United States and Europe are powering down, or running at partial capacity.
These disruptions in global trade could grow more noticeable in the months to come, as consumers hoard products and countries clamp down on exports of medical supplies and even food. Shoppers may see more shortages of unexpected products, including laptops, toilet paper and medicines. Some companies could find themselves lacking raw materials and components, a recipe for further financial trouble.
At the White House on Friday, President Trump said he was allocating at least $16 billion to American farmers, ranchers and agricultural producers to keep the American food supply stable.
“In this time of crisis we must keep our supply chains moving from the beginning, right from beginning to end,” he said.
On Wednesday, the United States put its own export restrictions on medical supplies needed to fight the virus, echoing bans in Europe, India, Turkey and elsewhere that critics have said could leave some parts of the world short.
In live-streamed remarks that morning, Roberto Azevedo, the director general of the World Trade Organization, said the contraction in global trade this year would be “ugly,” representing the sharpest decline in international commerce in a generation. The World Trade Organization is forecasting that global trade volume could shrink between 13 percent and 32 percent, or even more, compared with the previous year.
“We project that trade in 2020 will fall steeply in every region of the world and basically across all sectors,” Mr. Azevedo said.
Global trade growth had already slowed last year to its lowest level since the financial crisis, bogged down by a trade war between the United States and China and slowing economies in Europe and Asia.
But the pandemic has slammed the brakes on various segments of global trade. Container volume in Shanghai, the world’s busiest port, fell 20 percent year-over-year in February, while cargo volume sank 23 percent at the port of Los Angeles in the same time period.
Earlier this year, much of that collapse stemmed from disruptions in goods coming from China, where many factories were locked down. That has particularly affected industries like electronics and industrial machinery, which rely heavily on factories in China to power global supply chains. Laptop exports from China to the United States have plummeted, for instance, just as demand is surging as companies switch to remote work and students are thrust into distance learning.
But like the virus, which spread from China to the rest of the world, so too will the economic disruptions, which are likely to intensify in months to come. For companies and consumers who have come to rely on being able to ship goods rapidly and seamlessly around the world, the disruptions could come as a shock.
“China has shown us how extreme the downturn in industrial activity can be,” said Chris Rogers, a global trade and logistics analyst at Panjiva. He said that seaborne shipments from China to the United States were down 45 percent in the first two weeks of March compared with the same period a year earlier.
For the last several months, factories in China have been slowly coming back to life, though many are still operating at partial capacity, and could be shut down if the virus resurfaces. But while Chinese factories recover, demand for many products is cratering elsewhere.
Those places include the United States and Europe, where demand for goods and services is falling as workers lose jobs and cut spending, leaving American businesses scrambling to cancel orders from China.
Around the world, factories are shuttering for a variety of reasons. Workers are quarantined or staying home to care for children who are out of school while some factories lack components and raw materials. Others simply have no need to manufacture products since no one is buying them.
Automakers and other major manufacturers, including Volkswagen, Peugeot, Ford and General Motors, idled factories in the United States and Europe in mid-March, in turn reducing demand for steel, electronics and other components.
Those trends have sown chaos and confusion in global shipping markets. Products have been piling up at container terminals in China, while some ships departing from the United States have been sailing empty, planning to pick up goods at another port.
As plane traffic plummets, airfreight — often used for more lightweight and expensive items like iPhones and lobster — has become prohibitively expensive. UPS, DHL Global and FedEx have suspended service guarantees, saying they expect delays in shipping as a result of the coronavirus.
“Even if coronavirus were to magically disappear tomorrow, it would still takes weeks if not longer for supply chains to get moving again, and probably months before you felt like things were normal again,” said Robert M. Landry, the chief commercial officer of the Port of New Orleans.

The situation is likely to worsen over the next few months. Mike Jette, vice president of consulting services at GEP, which provides supply chain software and strategy for General Mills, Exxon Mobil, Macy’s, Walmart and other major companies, predicted that peak disruption for major companies with international supply chains would likely happen three months from now.
Mr. Jette said that companies making electronics, appliances and other products would exhaust their “safety stock” for components in the coming weeks.
In the longer run, supply chain experts say, the crisis may lead to restructuring — where apparel, electronics and pharmaceutical companies rethink their supply chains to make sure they are globally diversified, and less dependent solely on one location, like China.
But for the moment, the crisis is unfurling so quickly that companies are often unable to plan ahead.
“Right now, companies are trying to figure out if they’re going to be in business in the next couple months,” said Jon Gold, vice president for supply chain and customs policy at the National Retail Federation. “They are completely re-evaluating how supply chains are going to work, what consumer confidence is going to be and what consumers are buying.”
So far, many of the product shortages in the United States and Europe don’t stem from an actual lack of goods, but rather surging demand from nervous consumers, who are stockpiling bleach, toilet paper, diapers and dried beans.
Other shortages are occurring as producers of toilet paper, food and other products try to figure out how to reconfigure supply chains that are set up to provide bulk shipments to restaurants and schools to instead meet household demand.
“There’s no shortage of calories available, it’s just they’re in the wrong size bag,” Mr. Rogers said.
Companies that sell kegs of beer to restaurants and large rolls of commercial toilet paper to airports and schools can’t repackage and redistribute their products overnight. For industries with perishable products, this has been a major problem. Dairy farmers have been forced to dump milk they cannot get to consumers or to consider culling their herds.
Matt Herrick, a senior vice president at the International Dairy Foods Association, said the dairy industry was not facing any production shortages. Unlike other sectors of the economy, dairy farmers can’t shut down — their cows continue to produce milk. But unlike meat or grain, milk cannot be frozen or stored for long periods of time.
That means the dairy industry is facing the possibility of millions of pounds of food waste a week, now that milk is no longer in demand from the restaurants, ice cream stores, coffee shops and concession stands, Mr. Herrick said. That’s true for export markets like Canada, Mexico and China, as well as within the United States, where commercial food service accounts for roughly half of all food sales.
Most food producers have been designated as “essential” businesses, and continue to operate even through the pandemic. But some have lowered their output to comply with social distancing measures. And some farms and companies are also seeing shortages of truck drivers and migrant laborers, who typically plant and harvest fruits and vegetables.
Mr. Gold of the National Retail Federation, which includes Walmart, Target and other major food retailers, said it was too early to say whether consumers could see shortages of some food items in the coming months. But he said that states needed to coordinate to ensure that all links in the food supply chain remained open and continued to function.
“It’s not just the manufacturing facility, it’s the farm, the trucking facilities, the distribution facility,” Mr. Gold said.
Around the world, other lockdowns could portend shortages in metals and medicines. In South Africa, a lockdown has idled the world’s biggest mines for platinum and palladium. In India, which provides 40 percent of the American generic drug supply, as well as many of the active pharmaceutical ingredients that go into making medicines, health experts warn that stay-at-home orders could disrupt the supply of pharmaceutical products to the United States.
India barred exports of a few key drugs last month, but reversed the curbs this week under intense pressure from the United States. A nationwide lockdown could still complicate the process of making and distributing essential drugs, said Yanzhong Huang, a senior fellow for global health at the Council on Foreign Relations.
By Friday, 75 governments had already put limits on exports of medical supplies, according to tracking by Simon Evenett, a professor of international trade at the University of St. Gallen in Switzerland.
Those governments include the United States, which officially imposed its own ban on exports of respirators, gloves and surgical masks this week, joining the European Union, India, China and Turkey. These items now cannot leave the United States without the approval of the Federal Emergency Management Agency.
Restrictions that China put on exporting face masks, ventilators, thermometers and other products last week have also stopped American companies from shipping protective gear for their employees to use around the world.
Some countries are starting to limit food exports as well. Vietnam has barred exports of rice, Thailand has blocked eggs, Russia has restricted grains while Kazakhstan is preventing wheat, potatoes and other products from leaving.
Dr. Evenett said food bans were nowhere near as pervasive as the restrictions on medical supplies — or the restrictions on food that happened between 2006 and 2008, when the prices of some global food commodities spiked. But the potential for wider bans does pose a concern, he said.
Organizations like the World Bank and World Trade Organization have urged countries to refrain from imposing new export restrictions, particularly on medical goods, and to map out a coordinated response to ramp up production.
“No country is self-sufficient, no matter how powerful or advanced it may be,” Mr. Azevedo said in a video posted to the WTO’s site in March. “Keeping trade open and investments flowing will be critical to keep shelves plentiful and prices affordable

Link:https://www.nytimes.com/2020/04/10/business/economy/global-trade-shortages-coronavirus.html?referringSource=articleShare