Coronavirus turmoil creates mounting logistics disruptions, Kuwait's Agility says
UAE among three most attractive emerging markets for logistics firms, Agility-sponsored study shows
Kuwaiti logistics company Agility, which has operations in China, said the coronavirus outbreak is disrupting global supply chains, delaying customs procedures and hampering trade amid dwindling transport links with the country.
China is a “major” contributor to Agility’s revenue but it remains too early to determine the effect of the deadly virus on its first-quarter earnings, Bassel El Dabbagh, the company’s head of chemicals logistics for Middle East and Africa, told reporters on Monday. The company has implemented safety precautions such as advising some of its staff in China to work from home and continues to monitor the
“It is causing disruptions in the supply chain, not only in China but globally – today China is the factory of the world and supplies the rest of the world,” he said.
“Every day there is a new requirement, depending on the region and type of goods, so the situation is very fluid.”
China’s death toll from the coronavirus has topped 900, exceeding the number of people killed globally from the Sars epidemic. The director general of the World Health Organisation, Tedros Ghebreyesus, has said the current level of confirmed cases may just be “the tip of the iceberg”.
The spread of the virus has prompted governments to issue travel restrictions, airlines to halt China flights and some major companies such as Japanese car maker Toyota to suspend their operations in the country. The world’s second-biggest economy is a major global manufacturing hub, and with some factories remaining shut beyond the week-long Chinese Lunar New Year holidays, there are mounting freight and logistics disruptions.
Agility said there are delays across ports and airports inbound and outbound from China, with the biggest impact on air freight. In addition, maritime and road freight are also taking a hit as clearing procedures for customs take longer and drivers are in short supply.
“We’re not reducing operations from our side, we’re monitoring day-by-day to see what alternatives are available to shippers – our customers,” said Mr El Dabbagh.
The coronavirus crisis has dampened hopes of a recovery in the air freight industry in 2020, after its worst year in a decade, the International Air Transport Association said last week.
Some analysts are cutting their forecasts for China’s annual gross domestic product growth for the year as the virus takes its toll on the economy. Citigroup economists are expecting China’s full-year growth to slow to 5.5 per cent, from a previous forecast of 5.8 per cent.
Agility said its outlook for this year remains clouded by uncertainty surrounding the agreement on the terms of Britain’s exit from the European Union and ongoing trade relations between the US and China beyond their Phase-One agreement.
“I would say there is still a lot of uncertainty, we do not foresee big growth for sure … for Agility and the industry,” he said.
Agility on Monday released the 11th edition of its Emerging Markets Logistics Index, compiled by research company Transport Intelligence, that ranks 50 countries across emerging markets based on their attractiveness to logistics companies, shipping lines, air freight carriers and distributors. It is based on a survey of 780 top industry executives and takes into account three sub-indices: business fundamentals; domestic logistics; and international logistics.
The UAE ranked among the top three most attractive countries in emerging markets for logistics operators, after China and India. Other markets in the top 10 include Indonesia, Malaysia, Saudi Arabia and Mexico.
Government spending on infrastructure, national railway links, supportive trade and financial regulations as well as measures to encourage the growth of small-and-medium enterprises make the UAE attractive as a logistics hub, Mr El Dabbagh said.
Saudi Arabia’s “ambitious” economic overhaul to diversify from oil and pledge to spend $100 billion (Dh367bn) on logistics infrastructure helped the kingdom attain its sixth place in the ranking.
However, this momentum may be undermined without a single regulator for land borders, customers, ports and airports, he said.
Egypt jumped six spots to the 20th position on the index, thanks to improved stability, measures to rein in inflation and incentives to attract private investors.
Globally, the picture is more grim: 64 per cent of the logistics executives surveyed said a global economic recession is likely this year, citing uncertainty stemming from the US-China trade dispute that dented international trade volumes in 2019.
While 70 per cent of logistics companies that are invested in China said they would not change their current operations, another 3 per cent said they would relocate. Vietnam, India and Malaysia emerged as the alternative manufacturing and sourcing destinations for those exiting China.
Respondents identified India as the emerging market with the most potential, given uncertainty in China and India’s economic growth.
On the other hand, Syria, Iran, Venezuela, Iraq and Libya have the least potential as logistics markets, the study said.
The biggest growth drivers in emerging markets are modernisation of customs procedures and increased internet penetration.
Updated: February 10, 2020 07:32 PM