GERMAN PERSPECTIVE—03.03.20
What happened this week: It is all about the coronavirus. People who visited Milan for Lineapelle have been watching to see if they develop any symptoms and some companies have decided to quarantine staff who visited the show. The virus is spreading quickly now and governments and health departments all over are hyperactive at the moment. The virus is now global.
As much as we all want to be healthy and protected one has to accept that normal life cannot be stopped. Precautions have to be taken, but complete safety does not exist. In the meantime business and logistics in Europe still run at a normal pace. What will happen next week or the week after nobody knows yet.
Shipments to overseas destinations are difficult. Payments from Hebei province are pretty regular and several containers have also already been cleared and transported. However, all is still far from normal. Other tanning centres are still blocked and factories still closed until this week. However, how reliable this information is and how many will and can actually reopen remains unclear.
We are not really too worried about production, but the effect on logistics will be much deeper and longer-lasting. We understand that Chinese ports are all working, but still slow and well below full capacity, which is intensifying the congestion instead of easing it. Shipping lines answer with slow-steaming or the cancellation of voyages. This might be okay for now due to a lack of empty containers in China, but it will lead to massive issues in the future.
Most annoying is the request for ‘peak season surcharges’ effective from next week. A: this is not a ‘peak season surcharge’. And B: shippers should not be penalised for something they are not responsible for. We all want to ship and have bookings at fixed rates so the blackmail is difficult to accept. We would also love to have the opportunity to add ‘surcharges’ to our clients whenever necessary. Anyway, there will also be a time after and we will remember.
Hardly anyone wanted to discuss business this week. China is still in standstill mode, other Asian destinations are rather patchy in their activity, while in Europe all is still in ‘business as usual’ mode. The next junction will be the abattoir buying for March and the larger renewal of the delivery programmes of fresh hides, which are due within the next week or ten days.
So far the repercussions for the European leather industry are limited and it remains unclear to what extent the supply chain could be hit. The biggest problem could be in the tanning clusters in Italy, but fortunately it things are still being handled in an appropriate manner there. An interruption to the supply of fresh, chilled hides would cause serious problems in the industry.
Sales this week were again limited and in our case mostly focused on the specialties and niches. The attitude in Europe, which is understandable, continues to be to wait until the very last moment. In Asia the delivery and clearance of the pipeline is the focus and when production will resume. This ends in a question about how much of the leather orders for the current season are gone and if orders for articles and collections for the coming season can still be secured in time.
The kill: The kill continues to be slow. Offers of live cattle are limited, prices firm and supermarket sales slow. This is a complicated cocktail and we would be surprised if the kill improves soon.
What we expect: It is impossible to make any predictions. The consequences of the coronavirus on the global economy are completely unclear. Certainly price is not the decisive factor. Commodity prices are falling rapidly and few people are expecting a V-curve this time, unlike at the time of the financial crisis of 2008.
