Coronavirus Collateral Damage: How a Case in Korea Hit a Small Business in the US

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.

By Wolf Richter, editor of Wolf Street. Originally published at Wolf Street

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.

It’s not only Chinese tourists, business travelers, and property buyers who’re not showing up, but also travelers from all over the world who’ve gotten second thoughts about sitting on a plane. Read…  Coronavirus Slams Airbnb, Airlines, Hotels, Casinos, San Francisco, Other Hot Spots

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48 comments

  1. Louis Fyne

    the situation in Korea is remarkably orderly—-news reports/video of queues of citizens waiting for 3+ hours to buy their face mask at pharmacies, post offices, stores—definitely a “keep calm and carry on” mentality.

    would the situation in the US be similar if the US had a similar per capita rate of the virus? Or would much of the US voluntarily hunker down?

    i don’t know the answer but really hope that Americans can band together—but then again the media and pundits give me no hope.

    Reply
    1. Samuel Conner

      It seems to me that people who can afford to hunker down are the ones who have sufficient $$ on hand or easily obtainable that they can stock up necessities. But the typical US household cannot meet a $400 unexpected expense.

      How does that saying go? “the wealthy do what they can, and the poor what they must”?

      ====

      I have the sense that the case for “democratic socialism” is getting stronger by the day. There may be vast political consequences to this entirely foreseeable but not foreseen event.

      Reply
      1. Eustache de Saint Pierre

        Yes, they appear to be doing a great job with the latest testing method being a drive in system so as to keep people isolated – goodness knows what the situation is North of the border.

        No Hajj this year as decreed by the Saudi’s which might not be very popular in some dark quarters.

        As for the above I know a fella who imports sports shirts from China & the woman who would normally organise this for him cannot go to the factory, which is in any case closed. He paid up front for 50 of them & they are needed within the next fortnight as they are to mark a commemoration of some sort.

        Other much larger companies I know of might end up becoming embarrassed or worse when their high priced & supposedly locally made products, become unavailable for what should be obvious reasons.

        It is interesting to try to imagine the possible consequences of all of this, which appear to be potentially legion.

        Reply
        1. Eustache de Saint Pierre

          Thinking about this further I did a search for the Hong Kong giftware show which is the world’s largest & due to take place in July. This is where likely many thousands of importers from all over the planet go to choose their wares, with lots of karaoke if it is still fashionable & plenty to choose from the girls of the oldest profession.

          This was looked forward to as a big treat for the management at the company I once worked for & I did not win any brownie points for refusing to go. One fella made the mistake of taking a video of certain people within a certain establishment & showing it around, which led to him being sacked on the spot. The owner was petrified that his hatchet of a wife would get wind of it & take him for half of his fortune.

          I suppose that they are lucky that the show wasn’t in January.

          https://event.hktdc.com/fair/hkgiftspremiumfair-en/HKTDC-Hong-Kong-Gifts-and-Premium-Fair/

          Reply
        2. JTMcPhee

          What happens we we throw a pandemic on top of the pile of fraud that makes up so much of “commerce” and “trade…”

          Reply
    2. Colhearted Liberal

      I was told today that: If you got to a hospital in Korea to get checked for the virus, it will cost you 160$. If you have it, the government will pay you back. If you don’t you’re stuck with the bill.

      If the government orders you for home quarantine, it will also pay you to stay home(I don’t know the rate though). If you violate the quarantine, it’s $10,000 fine or something. The church members are in a lot of heat because they refuse to follow the quarantine orders.

      Reply
  2. JTMcPhee

    “Inefficiencies.” Like someone posted yesterday about advice from a wise former boss, don’t confuse “efficiency” with “effectiveness.” Or, of course, “robustness” or “resilience.” And don’t ask whether this “trade,” this particular set of transactions, along with a lot of others, is wise, in any sense — lots of “trade” has brought disease, dependencies and invasive species, along with other ills, to a political ecology near you… for a nice profit, of course…

    We are, I guess, supposed to root for the little person to find a way around the trouble getting that letter of credit. Can’t join in that myself. GO AUTARKY!

    Reply
    1. notabanktoadie

      GO AUTARKY! JTMcPhee

      Yes, but we need some changes since I remember when the Big Three automakers and the big unions worked together to screw the US population with crappy autos. It took Japanese competition to make them do right…

      We can start with what we should KNOW is wrong: our fiat and credit creation systems and the unjust concentration of land ownership – both of which are contrary to Scripture in this largely Christian nation.

      Reply
  3. Ignacio

    In fact, the more efficient are supply chains and the logistics “on time” and “without stocks”, the more sensitive to disruptions. Quarantines doing more harm than good because the “bug” can also go around, over or after the hurdles. This joke from yesterday is still germane.

    Reply
    1. Harold

      My relative was a senior contracting specialist for the federal government, who also ordered supplies for the military. According to him, contracting specialists have always been very aware of the need for redundancy and the many dangers of reliance on just one supplier. I guess the efficiency geniuses, globalists, & disruptors at McKinsey have no clue. Why do we always have to be reinventing the wheel?

      Reply
      1. pat nixon

        BECAUSE TRUMP IS NOW DOWN TO THE 10TH LEVEL OF “COMPETENCY”.( people who can tie their own shoes without help)

        The man has never run a successful business – see 6 bankruptcies.

        Power plants always have two different manufacturers for the generators in case of a problem with one of the two, yet they only use one at a time.

        Reply
    1. rd

      The good news is that many of the hot, humid countries don’t have the money or technical capability to test for COVID-19, so it won’t be in their countries. Just like it is not in the US, because if it was we would know even in the absence of testing.

      Reply
    2. Expat2Uruguay

      It’s weird, but there’s absolutely no confirmation in that announcement. They don’t even name a study where they got the information from. They just spouted off like a US intelligence agency and move on to other subjects. I honestly expected more info.

      Reply
  4. TMoney

    *DISCLAIMER THIS IS NOT A CALL FOR REVOLUTION*

    Servants to the Professional Managerial Class (PMC), Janitors, Secretaries, Food Services Workers – Now is your chance for paid sick leave. Come to work with the Coronavirus, cough on everyone. You can’t afford to stay home. Paid Sick Leave Now.

    Can’t let a good crisis go to waste can we ?

    *END DISCLAIMER*

    Reply
      1. campbeln

        More, less or about the same level of immorality as functionally requiring said workers to attend work while ill due to a lack of paid sick leave/sufficient social safety-net?

        Two wrongs don’t make a right, but as a recent article here made the point; what is the cost of doing nothing? This. Spreading of the virus far and wide by workers with no sick leave and no option to take the financial hit, is the cost.

        Reply
        1. WobblyTelomeres

          I agree. I do not wish the choice on anyone. And it is inevitable that it will have to be made.

          I do worry about the impact of openly advocating illegal activities (knowingly spreading a potentially fatal infectious disease) in the NC comment section to NC/Yves/Lambert/etc.

          If this is gatekeeping, then so be it.

          Reply
          1. Dwight

            I read it as a rhetorical device and not actually advocating immoral and arguably illegal behavior, but agree that it is way over the line. The disclaimer should have at least been clearly applied to that.

            If the point is that the working class needs paid sick leave and that this is in everyone’s public health interest, it’s a good point that could have been made without the inflammatory rhetoric.

            I want to see companies posting their sick leave policies online so they can be held accountable by their customers. Good corporate citizens should show that their workers won’t be retaliated against or be impoverished for staying home. Smaller companies won’t necessarily have that ability to give paid sick leave, though.

            Ultimately we may see unlawful detainer cases flooding the courts as people are unable to pay rent, and this could extend up to leveraged landlords not able to pay mortgages.

            Blackwater and other private equity large-scale landowners, on the other hand, should not seek help from county sheriffs, in my opinion. Especially when they bought up land after the 2008 bailout for Wall Street. Give them another bailout as you will, DC, but don’t allow lives to be destroyed again.

            Reply
            1. ambrit

              Alas, we now live in a new “Robber Baron Age.” The ‘top of the heapers’ feel ‘entitled’ to run roughshod over the poor and the ‘lesser breeds.’ As was the case in the first ‘Robber Baron Era,’ the pushback by the working classes had to be done in fire and blood. Nothing else made any difference to the Oligarchs of that day. Today’s Oligarchs are cut from the same cloth. Unless and until someone pushes back in a manner that inflicts real pain on the top tier class, nothing will change.
              The corollary to such a creed is, “There Are No Innocents.” This is cruel and unjust, but, we are dealing with a class of people who take absolutely no cognizance of the concept of ‘Justice.’ As the rot progresses, cruelty and injustice arise organically from out of the ferment that is the Neo-liberal dispensation. Think, “Disruption and Innovation” carried on over into the Political sphere.
              As is fairly clear to all, I am not a Romantic Socialist. I come by my Cynicism honestly; as a result of a full immersion in the curriculum of the “School of Hard Knocks.” At that, I have been very lucky in my lifetime. Go figure.

              Reply
              1. notabanktoadie

                but, we are dealing with a class of people who take absolutely no cognizance of the concept of ‘Justice.’ ambrit

                Who does? Certainly not the MMT crowd and socialism does not have a bad rap for nothing. And Progressive meddling is legendary (Prohibition for example).

                Yet most people want justice (and that certainly includes restitution) but who is offering it?

                Reply
    1. TMoney

      Yves & Company,

      I got a little carried away here.
      You may want to take down the comment starting. I will not be offended or petulant.

      *DISCLAIMER THIS IS NOT A CALL FOR REVOLUTION*

      I apologize if it crossed the line – it probably did. Sorry.
      I do not want to offend the hosts or readers of the best site on the internet.

      TMoney

      Reply
      1. ambrit

        This reader is not in the least offended. The comment in question can be read many ways and thus meets the criteria of “plausible deniability.”
        Self censorship is a survival skill when engaging in comment on the internet web site cosmos. As such, it is more an art than science. Practice will have it’s usual salutary effect on your commenting style going forward.
        Also do not fear. The site administrators here have the power to “loose and bind” in all things relating to the site. They are not fools. Trust in their judgement.

        Reply
  5. TMoney

    I don’t disagree, however, the bottom rungs of society, the working poor are going to do this anyway, they CAN’T afford to stay home. How many pay checks can you miss at the bottom – none. The PMC have told the rest of us to work or die, poor people understand this and will work, even if they spread an infectious disease. The working poor are going to skip getting tested if it interfers with getting paid, they will work until they collapse on your desk.

    This is going to happen, which is why it’s not a call for revolution. It’s just a fact.

    Reply
  6. TMoney

    I did work at a company that switched from sick time to PTO, were sick time and vacation counts the same.
    Flu meant no summer on the beach. I went to work with flu. If the boss or coworkers got sick it was of no economic consequence to me. The loss of my holiday on the other hand….

    Perhaps this anecdote makes me a bad person, but I didn’t change the rules, just played by them.

    Corona Virus is the same but worse since it can kill, however the symptoms are such that if I were scraping along I would cross my fingers and not get tested. Ignorance is plausible deniability, especially if I can’t afford a test that tells me I can’t work.

    Reply
    1. jrs

      Well sure it makes you a bad person. Because when others get sick because of you coming in, they MIGHT use their vacation time for sickness that you refused to. So you are just FOBing it off on the next guy and making them lose their vacation instead of you. And some of them may not even have paid time off (are they contract workers, what about the janitor etc.?) But you’ve got yours.

      I would give up summer on the beach in a New York nanosecond to be able to stay home sick. Not even “for the good of society and infecting others”, but for far more selfish reasons: the pleasure of the vacation ISN’T WORTH the suffering it entails to work while feeling aweful. When I have worked without any time off it made me long with all my being for time off for things like sickness and doctors visits. My priorities got real real, real fast, and it wasn’t about vacation, but it was about seeing the doctor, what if I got sick, etc.. I mean look if I lived in a country that believed in vacation then it would be one thing, but we have to deal with actual reality here.

      Reply
      1. TMoney

        Agreed, I selfishly chose what was best for me. I did not optimize for the greater good. Please note, the company made the same choice first.

        I did make sure to tell my managers in advance of the consequences of the change to PTO.

        It’s an interesting example of “economic man”, I only followed my own interests, when I had sick time, I took it and everyone was better off because of it.

        I felt it was worth suffering at work to spend time off with family.

        Reply
        1. Expat2Uruguay

          I forgive you. I hope others do as well, when something that you deeply believe in, like providing sick care to workers, looks like it could be Advanced by something totally random, you can lose your mind a little bit, I get that.
          Down here in Uruguay, the workers are very protected. They have sick leave and vacation time and it heartens me to know that this may help when the coronavirus comes here in a few short weeks or months.

          Reply
          1. Scott1

            Uruguay is of great interest to me. I believe the country has become the sort of nation many of us believed the US would become by the time we are now in our 60s and 70s.
            Of course Uruguay paid dearly to arrive at the point they are.
            There is a lesson to be learned from that history.

            Reply
      2. You're soaking in it!

        “Ihr Herren, redet euch da gar nichts ein:
        Der Mensch lebt nur von Missetat allein!”

        (Don’t kid yourself, boss; people can only survive by doing ‘bad’ things)

        Reply
        1. Shiloh1

          I know for a fact that McKinzie had their 2 insurance related clients in the ~ 100 story named buildings in Chicago go to the kewl open office concept a few years ago. No Dilbert cube farm barriers for them.

          Reply
    2. Ken

      I went to work with flu. If the boss or coworkers got sick it was of no economic consequence to me. The loss of my holiday on the other hand….

      Perhaps this anecdote makes me a bad person, but I didn’t change the rules, just played by them.

      Corona Virus is the same but worse since it can kill,

      The 2018-2019 flu season had 80,000 deaths and 900,000 hospitalizations from that seasonal flu. Both COVID-19 and seasonal influenza are most serious for those with an impaired immune system–the elderly and the chronically ill. There may already have been hundreds of thousands of cases of COVID-19 that were mild and the people recovered without incident (maybe including myself with a “cold” acquired in Japan in January). We don’t know yet.

      In contrast, the 1918 Spanish Flu was most deadly among the young and strong. It overstimulated the immune system which caused the deaths. The death toll is estimated to have been 40 to 50 million people. What we must remember from that is that concentrating the cases greatly worsened the toll. Young WWI soldiers in barracks or troop ships died at a very high rate. Quarantining a cruise ship is a death sentence for many aboard, mainly including the crew.

      Reply
    1. jrs

      PMC are probably in pretty good shape to avoid restaurants if they want to (though not all food procuring). McDonald’s will probably still be in business though.

      Reply
      1. Isotope_C14

        Is there a way we could “sticky” some note with people who reside on NC with their twitter accounts?

        I’d love to follow more of you, I only know Yves right now and one other that I don’t know who if they want me to say.

        Mine is @Isotope_C14 – shocker.

        TMmoney – if you have a twitter DM me, I like the cut of your tweets.

        I hope everyone is ok with the coming supply apocalypse, I here my mom says all the metformin is made in China…

        Reply
    2. Expat2uruguay

      I imagine this epidemic could really change things. imagine that Some really nice restaurant is humming along and all of a sudden someone new comes on shift and can’t help but cough here and there. All of a sudden people get up, pay their checks and leave. Viola! a new company policy regarding working while sick. It’s All About the Benjamins baby

      Reply
    1. Yves Smith Post author

      Spoke to someone with an MD wife and tons of MDs and nurses in his family. This is exaggerated but will probably be accurate in enough cases to be a problem unless the CDC delivers enough hazmat suits.

      Reply
      1. ambrit

        Probably the best place to find hazmat suits in America would be the vasty caverns of the DoD warehouses. So, absent some serious turf battles, the American medical fraternity should be able to protect themselves adequately. The other question is, how long is this pathogen transmissible? Or, how long will serious counter-measures be required? Supplies wear out. There is a finite time limit to even the best supply source. Absent heroic industrial reproduction efforts by China, we are fallen back upon our own resources.

        Reply
  7. upstater

    An acquaintance repairs advanced medical imaging systems. The various units are tied together using a router/hub, making the images accessible to PCs all over the network (e.g., radiologists, other specialists and permanent patient records).

    The hubs are made in Wuhan, China. The end-use seller practices JIT inventory management. Very few are kept in stock, since another FedEx shipment was just an order and a few days away. Needless to say, the hubs have become unavailable… These hubs are designed with proprietary architecture, so the seller can screw the customers with exorbitant rent-seeking pricing, so you can’t buy them off the shelf someplace else.

    Consider a large US hospital that has maybe a dozen of these imaging systems and their hub goes down… how does it get put back into service now? Answer: it doesn’t.

    One example or probably tens or hundreds of thousands others.

    Reply
    1. Wukchumni

      Thanks for the story, its a different kind of spanner that’s gummed up the works, the spanner in question being the tyranny of distance.

      Reply
  8. The Rev Kev

    The idea of being quarantined in a random building just because you happened to be there when a person was diagnosed with Caronavirus sound ominous. I was just imagining some other examples of what could happen. What about at the United Nations building? Would those diplomats try to claim diplomatic immunity? Is that sort of immunity good for viruses as well? Maybe in all the spare time they had, they could sit down and sort through a few issues. How about the building at Avenue Appia 20 in Geneva, Switzerland – the World Health Organization Headquarters. If that happened, would they be willing to declare a pandemic then?

    Reply

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