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Coronavirus Updates

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As Global Trade Slows, How Can Businesses Mitigate Interruption to Supply Chains?

March 13, 2020

The spread of coronavirus has exacerbated supply chain issues and is causing business interruptions and supply chain disruptions in the United States and abroad.

What can companies do to mitigate business interruption?

The world’s economy has never been more dependent on international trade and logistics. As a result, we are in uncharted territory. In the infamous scene from Godzilla, frantic people ran aimlessly away from the perceived threat and got clobbered by the falling buildings. The most important thing to do is to remain rational, obtain pertinent, accurate and official information and to make sound strategic decisions. For example, the Trump Administration announced on March 11 that travel and cargo from Europe were banned for 30 days. There was some misunderstanding, as the ban is only on travel and not cargo. Hence, it is important to obtain accurate information before making any key decisions.

As it becomes necessary to identify alternative suppliers, conduct digital meetings or temporarily halt certain practices in order to maintain critical business operations, it is important to evaluate and understand the legal implications to strategic decisions.

Companies should monitor developments in other countries that could impact manufacturing and sourcing and have contingency plans in place. They also should review their purchase/sale agreements and supply chain contracts now in anticipation of disruption and to put in place a plan to limit exposure to the extent possible.

It is important to understand the availability of shipping equipment and resources that are being impacted and shifted daily by the impacts of coronavirus and determine what, if any, alternatives are available to minimize the disruption in the supply chain.

Where alternate supply chains and sourcing are not possible, companies may consider increasing inventory capacity in connection with long-term planning. Likewise, if temporary or long-term suspension of business operations becomes necessary, companies should evaluate any applicable insurance contracts that may provide coverage for direct losses as a result of business disruption from coronavirus.

Trade from Asia slows

Factors existing in China prior to the appearance of coronavirus, such as widespread travel associated with the Lunar New Year, and the uncertainty created by the trade war, had already slowed Chinese trade.

China has experienced city-wide lockdowns and quarantines, factory suspensions and shutdowns. There also have been considerable shifts in the Chinese labor force responsible for producing goods, as well as trucking those goods to the ports, and loading and piloting the vessels. These factors, among others, are affecting global maritime and air transportation, port congestion and cargo volume.

The spread of coronavirus in countries such as Japan, Korea and Italy is creating further pressures on demand and supply chains, impacting domestic and global trade.

U.S. experiences steep drop in port activity

The United States is experiencing decreased container volumes at some of its ports—notably, exports and empty containers are piling up at the Port of Los Angeles.

Ports in the Gulf of Mexico, which are not as impacted by trade with China, are beginning to see impacts as a result of the expanding impact of coronavirus.

Collectively, the United States is experiencing an imbalance of shipping containers, which is anticipated to continue to apply undue pressure on the transportation and logistics industry for at least the short term.

As more information on the impact of coronavirus becomes available, it is critical for all companies to be vigilant and adhere to government agency alerts and guidelines.

Key recommendations from the U.S. government and private associations

The Department of Homeland Security (DHS), based on guidance from the U.S. Customs and Border Protection (CBP) and a Presidential Proclamation, has suspended entry into the United States for certain groups of individuals.

Businesses should pay attention to the DHS for entry requirements and restrictions for incoming passengers, particularly individuals coming to the United States from China, Italy (excluding Hong Kong and Macau) and Iran.

It is anticipated that the Commerce Department will be providing guidance and protocols in the near future and it is imperative to be aware of any export/import restrictions or requirements that are developed to contain coronavirus’s impact. Pursuant to the World Trade Organization (WTO), governments have the legal autonomy to take measures to restrict trade necessary to protect human health and safety of its citizens. There are historical examples of such harsh actions being taken, albeit they have been on a limited basis based on products, regions and time period.

At this time, neither the World Health Organization (WHO) nor the United States has recommended any restrictions on trade. However, on March 5, the International Chamber of Shipping (ICS) issued guidance for the global shipping industry to help combat the spread of the coronavirus. The guidance was produced in concert with the WHO, the International Maritime Organization (IMO), the European Centre for Disease Prevention and Control (ECDC) and the International Maritime Health Association (IMHA).

The U.S. Chamber of Commerce has created new task forces dedicated to helping businesses deal with unexpected strains due to the coronavirus. The goal is to provide policy recommendations to Congress and the administration on how best to provide businesses with some relief.

The National Association of Manufacturers has also urged the administration to speed up negotiations for a “phase two” China trade deal, as well as suspend or remove tariffs on some Chinese goods. It also suggests temporary duty waivers and expedited entry procedures to facilitate cross-border trade in health care items.

Our team will continue to share the latest developments and provide insights on the spread of coronavirus and its impacts on international trade, logistics and transportation.