Embracing digital solutions may enable businesses to keep essential trade moving and help build resilience
Trade Economist, HSBC
International trade has been heavily disrupted by the COVID-19 pandemic, with particular impact on sea and air freight volumes. However, embracing digitalisation may provide firms with greater resilience against further trade problems in the future.
Each year, over 11 billion tonnes of goods leave seaports and airports around the world, destined for consumers and businesses in other countries. We rely on the seamless movement of traded goods across borders for the production and consumption of thousands of everyday items.
The COVID-19 outbreak initially resulted in container congestion at Chinese ports as the Lunar New Year holiday was extended to contain the virus. Mainland China accounts for around 30 per cent of global container throughput and was home to six of the top 10 container ports in the world in 2018. In 2019, Chinese seaports processed around 715,000 containers each day. However, activity dropped quickly in February this year.
As China resumes work, lockdown restrictions and weak consumer demand in other countries may affect seaborne trade in the other direction. Several Indian seaports are facing congestion and there is a risk that containers may pile up at European and North American ports. At the same time, clothing exporters in China and Bangladesh are having orders cancelled by buyers. And globally, over 130 container sailings are being suspended each week on average.
These delays may have serious commercial implications. Maritime transport is the backbone of global trade, particularly for manufacturing supply chains. It is estimated that more than 80 per cent of world merchandise trade volumes is carried via sea. According to the United Nations Conference on Trade and Development, international maritime trade volumes grew 84 per cent between 2000 and 2018. The impact of trade disruption has so far been felt most severely by the automotive and electronics industries. Hyundai, for instance, temporarily suspended auto production in South Korea due to issues sourcing parts from China in February 2020.
Embracing digital solutions may enable businesses to keep essential trade moving and help build resilience
Movement restrictions due to the COVID-19 outbreak have also wiped out a significant chunk of global air cargo capacity, with many passenger flights being grounded. Airfreight accounts for around 1 per cent of global trade volumes but 35 per cent in value terms. Prior to the COVID-19 outbreak, around half of global air cargo was carried in the bellies of passenger aircraft, with the remainder carried by dedicated freighters.
The urgent need for medical supplies and increases in online shopping are supporting demand for air cargo services amid the virus outbreak. In response, air freighters have increased operations, while a number of commercial airlines are running cargo-only flights in passenger aircraft.
Embracing digital solutions may enable businesses to keep essential trade moving and help build resilience to future trade shocks. This could include digitising trade documentation and using digital platforms to book cargo shipments. Businesses should also continue to monitor developments on key trade lanes to anticipate delays, and look into alternative means of transport where possible.
Governments have also made efforts to facilitate the flow of goods across borders amid the COVID-19 outbreak by temporarily loosening some regulations related to cargo. Maintaining these trade-facilitative measures even once the virus dissipates would be hugely beneficial, and may help cushion some of the impact of the anticipated hit to global trade volumes this year.
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