QuickHit: Status of Global Supply Chain in Time of Coronavirus
In this week’s QuickHit episode, Tony Nash speaks with George Booth, the President of Secure Global Logistics. SGL is a complete logistics company with global and domestic services. We dig deeper into the status of global supply chains within this era of Coronavirus or COVID-19 and learn how companies move things across the globe, and what that is looking like right now.
Last week’s Quick Hit episode was about how SMEs are affected by the global pandemic and pieces of advice from an expert on the best course of action. Watch it here.
TN: Hi, this is Tony Nash with Complete Intelligence. This is our weekly Quick Hit that we publish each week. We’ve got George Booth, President of Secure Global Logistics in Houston, Texas.
We’re really interested to understand George’s view on the impact of Coronavirus on global logistics, supply chains, and trade. And what the impact is on the volume, timing and magnitude of trade. George, first could you tell us just a real quick overview of SGL? Then let’s get into some of the topics.
GB: Yes, good morning, Tony. Good to be here. The SGL is a complete logistics company. We do a full suite of global and domestic logistics, including import, customs brokerage, exports by air and sea and domestic by air and road. We also do 3PL logistics, so full warehousing, packing and getting ready for export.
TN: Perfect. That’s great George. Thanks very much. And I really appreciate you taking the time to talk. I know there’s a lot going on as shippers and the other folks try to figure out how to get goods to destination with the disruption of the supply chain. Can you help us understand, what are you seeing in terms of volumes for your clients?
GB: Yeah. Well, interestingly, the volumes haven’t dropped off yet. We would expect that to happen almost immediately. Shut down hasn’t started to happen here. It hasn’t happened yet. I think we’ve been slightly helped with a buffer by China coming back online.
In January and February, we took a real hit from our customers that import from China. That’s when they just shut down and factories were closed. We saw nothing coming in, but that’s now picking back up.
For example, we have a customer who does a monthly freight out of China. That hadn’t happened in like two months, and this week we’re moving 21 ton of freight out of China. And he said, “Get it here fast.” They want to get the product on the market and sell it.
We haven’t seen a drop off yet. We’re also seeing a big spike in freight this past week, and even yesterday, as a lot of clients are preparing for a shutdown. So they’re trying to get that product moving and maybe converting from sea freight, ocean freight to air freight to get it moving and to get to the destination before the shutdown happens.
TN: OK. So volume has been pretty consistent. What about, you know, as we’ve seen, say, the crude price, because I understand some of your clients are big gas firms. With the crude price declining as it happens, what impact has that had on shipping rates? And what is the typical relationship of crude price and shipping rates?
GB: Well, this is really interesting. I’ve been in the shipping industry for all of my career of about 25 years. And this is the first time we’re not seeing a direct correlation between lower oil price and low freight rates.
That’s been really challenging, our clients are suffering from a lower price, but we have had to present them with much higher rates from the carriers and particularly air freight.
The air freight in the past, when the oil price was down, the freight rates go down with it. And then when they go up, you see a big spike included fuel surcharges. But because of capacity issues, air freight has now become almost the highest bidder scenario.
Some airlines are selling to the highest bidder. We are seeing freight rates in some cases 10 times what they normally ask. Something would have paid a dollar fifty per kilo in the past, we’re now seeing going for up fifteen dollars.
I’ve seen a lot of lack of flexibility from the air freight carriers, as well. While in the past you might have booked it, and the factory wasn’t quite ready or it wasn’t ready to export. You’d still book it into the next day with no charge for lost slots.
If you don’t show up with your freight, they’ve been really clear, which, again, from a supply chain, you can understand, they’re not getting the same return. So they’re making it inflate.
I once had an airline say that the best deal for them is that the cabin, first-class cabin is full, economy empty, and the belly full of freight. Now, they don’t do first class. So they’re making all their money on the various freights.
TN: Are you seeing sea freight come down or stay the same or what’s happening with sea freights?
GB: Well, sea freights have been very interesting as well, because the distribution of liner and equipment, shipping containers, there’s a backlog in China because China hasn’t been moving.
A lot of equipment is stuck in China. The past few weeks, we’ve started to see competitive, very competitive sea freight rates coming out of China as China tries to boost the economy, get freight moving. And also as liners are trying to get the equipment back in the right places.
Conversely, trying to export from Europe or from the US. We’re seeing much higher rates because there’s a lack of capacity and a real demand for liner and equipment. So that’s proven a challenge. So it depends where your ship has been from and to, based on the allocation and relocation of liner and equipment.
TN: Okay. It is interesting from your perspective to see China’s actually back online. We’re actually seeing the physical goods coming and you’re seeing the volumes come in. I think that’s very interesting.
So what is the biggest kind of concern that your clients have right now in terms of logistics and some supply chains? What do you hear from them as their biggest concern?
GB: Yeah. I mean, a lot of our clients are tied to oil and gas. They operate as a squeeze-in. And as it squeezes, it comes all the way down. And I always say the fate of logistics is at the end of the food chain.
We get the squeeze all the way down. Some of our clients are being asked to take 40 percent reductions in the rates. And now squeezing that back down to all that supply.
At times in, well, of course, we want to work with you. But we’re also presented with air freight that is 10 times what used to be. It’s proven very challenging commercially for our customers, and for us to keep those relationships. They want to continue to be a partner at a time when they want us to share the bin with the promise of sharing the prize when it comes back.
But the oil and gas industry, as you know, has been depleted since 2015. So we’ve all been sharing the bin for a long time. So there’s not much left in the market for starters being distribution goes.
TN: OK. And George, I don’t know if you can answer this question, but how long do you expect this to last? What do you expect, what do your clients expect? Are they expecting this next month or two months or six months or a couple of weeks? How long do you think this will last in the US?
GB: Yeah, I think China’s a good indicator of the length of time they needed to end it and start to come out of it. So we have been planning for the same length, 120 days.
I mean, based on the president’s comments yesterday, it seems like there’s a real bullish approach to not going into this too long. I don’t know if that’s keeping with health advisory or not. But it seems that America wants to get back to business sooner rather than later.
I think we’ll see that big spike as we have this past week and this week as people try and get product moving before very they put it in shutdown. And then we’ll see the wall. And then there’ll be a backlog and people will start and try and get goods moving again.
So we were making our plans 90 to 120 days. And we’re hopeful, obviously, that it comes back.
But, our industry has also led the charge in health and safety, so we’ve been talking about our safety language for many years, even decades. And this is a time to prove that we care for our people, care for our supply chains and for our communities.
And we’re thinking very much the safety of our employees at our every week touch points, literally and figuratively speaking. Even four weeks ago, we had a memo out to our staff saying to be ready to work from home. And that this is coming. And we saw it coming because we were in daily contact with our partners in China and Italy and in Europe. So we could see what was happening there.
So, and we’ve been preparing for this. We operate from the cloud. So a lot of our people are operating from home. I’ve got so much scale and staff, and we rehearsed it.
TN: Fantastic. George, thanks very much. Thanks for your time. I really appreciate it.
If any of the viewers have questions, leave me comments or send us an email at Complete Intelligence. Thanks very much.