Yves here. This coronavirus-induced problem illustrates how even a not-all-that-complex international trade relationship is still plenty fragile. One wonders how many companies with tightly focused markets or sourcing (for instance, businesses that rely on Chinese textiles) are sweating bullets.
A small US company that specializes in exporting US frozen and refrigerated food products to Asia, including to South Korea, suddenly got hit by the coronavirus-spread-prevention machinery that is now screwing up businesses around the globe, according to an employee who doesn’t want to be named – and doesn’t want the company to be named – because they’re not authorized to discuss the matter.
The person said that one of their customers in Korea had ordered some frozen product. The US company — let’s call it Company X — in turn ordered it from its supplier in the US, and the supplier shipped it to Company X’s freight forwarder’s cold storage location at a California port. The freight forwarder was waiting for the instructions to place the product in a refrigerated container and ship it to Korea.
Meanwhile, Company X tried to get the letter of credit from its customer in Korea. It won’t ship the product without a letter of credit. With a letter of credit, the buyer’s bank guarantees that the seller gets paid the correct amount on time. It’s a fundamental tool in international trade.
But the person then got an email from the Korean counterpart who explained that there was no letter of credit, that he tried to go to the bank to obtain the letter of credit, as he normally does, but that he couldn’t leave the office building to go to the bank because someone in the building had tested positive for the coronavirus. That was the first email.
On the US side, everyone thought that this was just for a few hours, that a special ambulance or whatever blocked the exit. In the subsequent email exchange, the Korean counterpart explained that no one could leave the office building because the whole building and everyone in it had been quarantined, that authorities didn’t want potentially infected people to leave the building and mix with people on packed subways or wherever and spread the virus.
The situation is still developing, and it appears a bit chaotic, but everyone who happened to be in the office building at the time could be cooped up in the office building for a couple of weeks.
So now there is no letter of credit and the frozen product cannot be shipped and instead is stuck in cold storage at the port in California with no place to go. No one knows for how long.
This is one of countless shipments of products that have gotten stuck on either side of the Pacific because of some event unrelated to shipping, such as an office building getting quarantined.
Since the Chinese New Year, container carriers have cancelled dozens of sailings between China and the US West Coast, largely for containerships coming from China, due to the problems in China, as workers and truck drivers cannot make it to the port and cannot load and unload ships. Even containers that left Chinese factories cannot be loaded on ships. And containers that arrive in China cannot be unloaded from ships. Everything is congested.
This has caused another issue: Imports from China are not coming to the US, and the containers that they would come in are not coming to the US either. And suddenly US exporters face a shortage of empty containers in the US. And “container shortage” is the latest worry for US exporters.
In other words, even if Company X finally gets the letter of credit and is ready to ship the frozen product, it may have trouble finding an empty refrigerated container.
But people are not just sitting on their hands. Everyone is jumping through hoops on all sides. They’re trying to get around the hurdles if they can’t get over the hurdles.
In Korea, they’re now stuck in an office building, possibly for days, but they’re trying to figure out how to get around or alter their long-established routines, procedures, and protocols of getting a letter of credit, and they’re working with the bank on it, and they’ll come up with modern ways that’ll satisfy everyone’s security procedures, so that letters of credit can be sent without going to the bank. But it will take time.
In the US, Company X has a good relationship with the freight forwarder, which has agreed to keep the frozen product in cold storage for free – at least for a little while. And they’re trying to make sure they have a refrigerated container lined up when the letter of credit gets in.
And everyone is hoping that no workers at the Korean port is diagnosed with the virus in the interim, which might shut down the entire port, creating more hurdles that they would have to figure out how to get around.
This is in a microcosm how simple coronavirus-anti-spread measures in one country hit businesses globally, in big and little ways, in unexpected ways, creating complications, inefficiencies, delays, missed opportunities, lost sales, and extra costs, while sending employees at all levels scurrying to solve problems that no one is prepared for.
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