For many perishables exporters and their logistics providers in the Americas, China has turned from an Eldorado into a nightmare.
Capacity has shrivelled up to a fraction of previous lift, and rates are headed for the stratosphere. Reefer capacity is in even worse shape, but these horrors pale in the face of the collapse that the market has suffered in the wake of the Covid-19 virus epidemic.
China has been the biggest driver of the growth in global perishables flows, but it hit the brakes because of the virus outbreak, leaving exporters scrambling to find alternative markets.
For Flying Fresh Air Freight, Canada’s leading perishables forwarder, seafood shipments to China went from overdrive to near standstill.
“We went to zero business in seafood to China,” said chairman and CEO Brendan Harnett. “Now we’re moving a little bit, but maybe 5% of what’s normally going.”
The end of the extended new year holiday is not reviving demand.
“China is going back to work, but volumes are horrible. Restaurants are still shut down,” Mr Harnett said.
Canadians are not the only ones who have seen their China exports implode.
“Exports via airfreight into China are off on food of all sorts globally, as people are not going out to eat and tourism is not happening,” remarked Chris Connell, senior vice-president perishables North America of Commodity Forwarders, a Kuehne + Nagel company.
US perishables exports to China are down less than Canadian volumes, as US farmers and fishermen already took a hit from the tariff war last year, he noted.
With China’s pledge to import billions of dollars worth of goods from the US this year under the first phase of the trade pact between the two countries, the US food sector was looking forward to a bumper year of exports, but the epidemic has shrouded the outlook in doubt. US trade bodies have pointed out that the agreement does not specify the details how China will go about meeting its import commitments. As the battle with the virus took centre stage, the Chinese authorities have not unveiled any details.
On the Canadian side, Flying Fresh is bracing itself for a resurgence in US perishables shipments to China. Mr Harnett reckons this will be partly driven by the US-China agreement. He expects to move more perishables from the Pacific north-west to China over Vancouver, but seafood exports from Canada’s east coast will be affected by efforts of US competitors to regain lost ground, he reckons.
Perishables exports from Latin America have also suffered. ASOEX, the Chilean exporters association, estimates that earnings of the country’s fruit exports could drop $100 million because of the outbreak.
Some of this is the result of diminished demand from China, some because shipments have been stuck in ports. On 20 February the Chilean minister of agriculture confirmed that as many as 2,300 reefer containers – most of them loaded with cherries – were stranded in China, up from about 1,500 two weeks earlier.
To alleviate the problem Chile has requested that the usual quarantine period of 2-3 days be cut to under 24 hours. The agriculture minister also suggested that fruit that is still in Chile at this point could be directed at other markets to overcome the crisis.
Mr Connell noted that no market can absorb the volume usually taken by China. He anticipates a repeat of last year’s pattern, which saw some efforts by US growers to develop new markets but mostly a stronger focus on domestic North American markets.
Mr Harnett sees some potential to shift exports to other Asian countries, but it will take a long time to develop those markets, he said.
For that matter, Asian producers are faced with the same dilemma. Banana growers in the Philippines lost their biggest market earlier this month when China suspended imports. Perishables exporters in Thailand, Myanmar and Vietnam have to choose between redirecting their produce at their domestic markets, driving down prices, and seeing their exports rot at closed border crossings with China.
Mr Harnett reckons it will take a long time for the Chinese market to recover, which augurs tough times ahead for perishables exporters and logistics providers.
In light of this, the current shortage of lift to China and the prospect of airfreight rates spiking sharply in the coming days are of relatively minor concern.
“High freight rates are not helping, but less demand is playing a larger role,” Mr Connell commented.
