Pressure mounts on the U.S. food supply chain
As the COVID-19 outbreak continues to force the closures of some of United States’ largest slaughterhouses and production plants, the country’s food supply chain is being pushed right to its limits. This has led to a knock-on effect further down the supply chain. Many grocery stores are seeing shortages in supply, leaving customers with reduced options, and in some cases, no options whatsoever. Alongside this there is also disruption at the very other end of the supply chain, the tens of thousands of animals that are processed daily have nowhere to go.
“The food supply chain is breaking,” according to John Tyson, chairman of Tyson Foods Inc., the biggest meat company in the United States. “Millions of pounds of meat will disappear. In addition to meat shortages, this is a serious food waste issue. Farmers across the nation simply will not have anywhere to sell their livestock to be processed when they could have fed the nation.”
Almost a third of pork capacity in the country is down, with JBS closing another beef production facility on Sunday and poultry plants in Brazil and Canada also closing. As a result, the U.S. Department of Agriculture predicts that 2020 beef prices will rise by 2%, poultry will reach 1.5% and pork could increase by as much as 3%.
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Tight airfreight capacity will hamper post coronavirus recovery
Companies, who are trying to recover from coronavirus-driven lockdowns, will face hurdles in shipping markets caused by deep capacity cuts and weeks of disruptions in global trade, according to the chief executive of the world’s largest logistics company. Frank Appel, chief of DHL parent Deutsche Post AG, has said in an interview that freight volumes will increase significantly as Europe and the U.S. begin to ramp up factory production and reopen stores but there will continue to be a shortfall.
This will be the case especially for the high-value goods such as industrial parts and electronics, which are often transported in the bellies of passenger planes. Airlines have cancelled thousands of flights as the pandemic spreads, and airfreight capacity could be limited for months due to rock-bottom travel demand.
This has reshaped the airfreight market and sent prices skyrocketing as shippers hunt for space on freighters and charter flights to deliver their supplies. While several commercial airlines are now repurposing passenger planes as cargo-only flights, space remains limited. This could force businesses to switch some shipments to ocean or rail transport for some time according to Appel.
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PwC: Supply chains unlikely to relocate post-coronavirus
Supply chains will diversify in the wake of the coronavirus pandemic, but they will only relocate completely as a last resort, according to a survey of 305 chief financial officers (CFOs) conducted by PwC. The survey found that since there has been a return of some manufacturing activity in countries hit early by the virus, this has diminished the possibility of long-term supply disruption.
The survey also found that immediate supply chain concerns have also lessened. This is because CFOs have gained further clarity on what to expect in the short term and what kind of changes are necessary to weather shocks like the COVID-19 pandemic in the future. However, CFOs recognize the value of diversification. 56% plan to find alternate and additional sourcing options in reaction to COVID-19 but this is a somewhat long-term goal as diversification is three-year exercise, according to Amity Millhiser, PwC vice chair and chief client’s officer.
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Have a lovely and safe weekend!