The past week has brought about unprecedented levels of uncertainty and required us to modify our routines in a way that most of us have never experienced before. As we all take measures to limit the spread of COVID-19, the ripple effect is becoming evident throughout our economy.
About 20% of global trade in manufactured products originates in China (up from 4% in 2002). According to a recent report, the most impacted economies due to the outbreak of the COVID-19 virus in China will be the European Union, Japan, South Korea, Taiwan and the United States. So far, the estimated drop in trade with China represents approximately $50 billion. In the U.S., this particularly affects sectors such as precision instruments, automotive parts and communications equipment - sectors that are vital to the economy of Utah.
Even as China begins to reopen its factories, problems persist. There will need to be a massive resetting of the global supply chain before the movement of products to and from the U.S. returns to anything approaching normal.
For example, there is a significant shortage of international shipping containers in China and other Asian locations, as so many are stranded in the U.S. and Europe, backlogged from the height of China’s outbreak. Shipping lines are dispatching massive vessels to the West Coast ports of Los Angeles and Long Beach simply to evacuate tens of thousands of empty containers back to Asia so they can be filled with the goods our economy requires.
While trans-Pacific trade has been under assault from a tariff war, and complicated by the annual Lunar New Year slowdown, the impact of the COVID-19 outbreak cannot be understated. This combination has pointed out, in clear and stark relief, how fragile our long global supply chains are. It has made clear that the more reliant we have become economically on far dispersed single-lane supply chains, the more at risk we are.
Many American cargo owners, the ones who stock our shelves and fill our orders, are responding by shortening supply chains and multiplying trade lanes. Shortening supply chains includes things like “near-shoring,” which moves manufacturing back to the U.S. or places like Mexico (import volumes from Mexico are up 33% month-over-month).
Looking at multiple trade lanes increases complexity, but provides flexibility and the opportunity to shift as needed by routing shipments through multiple gateways.
Some U.S.-based producers are moving away from the traditional “supply chain” where the goods are sourced from China or elsewhere and are shifting to the more nimble, agile “demand chain” model. In this approach, the raw materials or intermediate level components are warehoused and production is “just in time.” This has the added benefit of potentially creating higher-skill and higher-wage jobs.
Utah is well placed, by grace of geography and long-range thinking generations ago, to continue to be a crossroad in this shifting landscape and provide that vital goods movement link in the U.S. economy.
If recent events have taught us anything, it is that we must lean into these issues and be open to new ideas and new ways of transporting the products that are vital to our way of life. Now more than ever, we need a robust and well-organized logistics network to support our economy and our daily lives.
Jack Hedge
Jack Hedge is the executive director of the Utah Inland Port Authority. Prior to coming to the UIPA, Hedge has almost 20 years experience in trade and logistics at the Port of Tacoma and Port of Los Angeles.