Supply chains slammed by coronavirus, but is news all bad?

It is becoming increasingly clear that the worldwide economic impacts of the coronavirus emergency will be devastating if widespread  lockdowns and social distancing measures continue more than a few weeks. Early contradictory reports on its effects on container movements and volumes are resolving into a consensus that supply chains will never be the same, and may never go back to where they were.

While the logistics situation is fast-moving and all speculation must be taken with caution, here is a roundup of some logistics issues affected by the virus. The impacts are by no means all negative for farmers; some food prices are going up, and while demand for some products is plunging, panic buying has increased outbound trucking of any items, especially food.

On March 21, Customs and Border Patrol announced the partial closing of the border between the U.S. and Mexico (Canada has already closed its borders to the U.S.), but said truck traffic was deemed “essential” and would not be affected.

Panic buying fuels outbound trucking volumes

Also on March 21, FreightWaves magazine reported that the outbound tender volume index  (OTVI), a key measure of freight volume, is now at 12,483.78, more than 8% higher than the previous week. “This is by far the highest point in the three-year history of OTVI,” the publication noted. “Not only are volumes spiking higher, but they are spiking higher at a faster rate. In the past three weeks we have seen volumes increase 6%, then 7% and now 8% this week. Year-over-year comparisons are almost becoming meaningless—OTVI is up 24% since this time last year.” The publication attributed the surge to panic buying and shelf restocking.

Port container volumes

Container coming from abroad presented a different picture. Port Miami closed container terminals indefinitely due to a lack of cargo. Port Houston temporarily closed container terminals at Barbours Cut and Port Arthur after a longshore worker tested positive for the virus; but those facilities reopened March 20 after an investigation of the worker’s contacts, which the port said were few.

In American Shipper magazine, John McCown, co-founder and former chairman and CEO of U.S. flag carrier Trailer Bridge Inc., which provides container service to Puerto Rico, wrote, “The impact of the coronavirus and all of its economic ramifications will now completely drive the container volume story in 2020. Its impact on China will make achievement by China of its Phase One commitments nearly impossible.”

However, shortly after this was written, U.S. corn prices rose on reports that the Chinese had indeed purchased 1.1 million metric tons of corn, soy and wheat in the U.S. in one 48-hour period. A recent update from the USDA confirmed that progress is being made on Phase 1 commitments.

McCown included a table showing coastal port container import volumes for February. Most were down, with a 10.4% decline on average. Los Angeles volumes were down 22%.

But a few ports were up. The port of Houston was up more than 3%, and the port of Charleston, South Carolina, was up 13.5%. McCown said the chart registered the beginnings of coronavirus effects, but mixed with other effects unrelated to it, such as a tailing off of demand related to the end of Chinese New Year.

Towboats continue to move

Towboats and barges continue to move on the nation’s inland waterways. The industry’s trade organization, The American Waterways Operators, issued stringent safety and sanitation protocols for boat crews. Interior surfaces are now sanitized twice a day aboard towboats. Barges already have a ton-mile advantage over other transportation modes. Towboat crews can move cargoes with much less contact with others than other transportation modes. So far there have been no reported cases of COVID-19 among any towboat crews. 

A federal agency has released a list of workers deemed “critical” to the economy, response and recovery efforts. The agency is the Cybersecurity and Infrastructure Security Agency, part of the U.S. Department of Homeland Security. The list is part of a guidance that is not binding, but could be helpful in exempting towboat crews and other maritime workers from any possible lockdown orders or state orders limiting the sizes of gatherings. It was issued March 19 by Christopher Krebs, director of CISA. Truckers and all transportation workers were also listed as essential critical workers.

Towboat Capt. Terry Hall told Reuters, “"We move a lot of stuff that this country needs desperately. We’d clog up every road in the system with trucks if we stopped moving out here.”

Ethanol demand—both sides

Apart from truckers, Americans are driving far less, thanks to orders to “shelter in place” and avoid large gatherings. That drop in demand for gasoline has ethanol producers and processors worried.

AgriCensus reported that the ethanol industry fears that the nation’s response to COVID-19 could result in a drop in demand for blended gasoline. Normal gasoline demand in the U.S. is just under 400 million gallons per day, according to the U.S. Energy Information Administration. A drop in demand between 10% and 20% could translate to a loss of ethanol demand of 5.9 million gallons per day, or about 50,000 metric tons of corn.

Some market sources told AgriCensus that if demand drops by 20%, it could result in thousands of tons more corn being stockpiled and depressing corn prices further. Ken Eriksen, senior vice president at market consulting firm IHS Markit, told High Plains Journal that if the demand reduction continues, it could remove up to 1 billion gallons of ethanol from the supply chain, which translates into perhaps 300 million bushels of corn. Those bushels would move into ending stocks, potentially driving down corn prices further.

The flip side of that equation for farmers, though, is that as less ethanol is refined, prices for dried distillers’ grains or DDGs—the byproduct of ethanol refining that is used for high-protein animal feed—are soaring.  When DDG stocks become unavailable or too expensive, the shortfall is made up with purchases of corn or soymeal feed. “Crushers will do well in this crisis; they will be crushing a lot more meal than oil,” said Eriksen

Rationalizing supply chains

As far as containerized goods go, Eriksen said demand will remain strong for frozen foods, non-perishable and paper goods, all of which move by truck. He said manufacturers of many of these goods are “rationalizing” the logistics process by consolidating SKUs to streamline order processing, and by temporarily refusing to sell half-truckloads or partial loads to customers. “So Walmart asks for a half-truckload and they say, No thanks, you have to take a full load, and Walmart says, ‘OK, thanks,’” said Eriksen.

Keeping trucking safe

“One issue is the supply of truck drivers,” said Eriksen. “Do we have enough drivers who can drive, and do they want to drive? Some are concerned about finding enough places on the road to eat safely, without unnecessarily exposing themselves.” But, he said, truck stops have been enacting safety and sanitary measures, including intensive sanitizing of showers and sinks. Some truck stops are limiting how many people can use their restaurants; others are closing sit-down restaurants and moving to take-out or drive-in service only.

Pilot Flying J said it has halted all self-serve food; implemented “fresh-cup” policies for drinks; and is considering whether or not to leave lounges open. In the meantime, it encourages guests to observe social distancing.

The Department of Transportation has temporarily suspended some trucking regulations, including an 8-hours-a-day limit on driving. Certain other regulations are suspended only for those truckers responding to emergencies or ferrying supplies deemed critical.

77-year-old trucking outfit succumbs

Finally, the combination of plunging oil prices and the added burden of coronavirus stresses led one Oklahoma trucking firm, Beaver Express, to cease operation after 77 years. The firm operated in a 5-state region and had 160 drivers, 210 power units, and 25 terminals in in Arkansas, Kansas, Missouri, Oklahoma and Texas.

The company’s president, Mike Stone, told FreightWaves magazine, “I’ve gone through the gamut of emotions from sad to mad to frustrated, but we tried everything and in the end, things just didn’t work out for us as we hoped.” He said the company had made arrangements with Old Dominion Freight Lines to continue deliveries. The company had been struggling for two years, he said, as its main customers were oilfields, which have suffered with the oil price downturn. A recent bump in deliveries of critical supplies for the COVID response came too late, he said.

David Murray can be reached at [email protected].