Skip to main content
Sister Publication Links
  • European Rubber Journal
  • Plastics News
  • Tire Business
Subscribe
  • Login
  • Register
  • Subscribe
  • News
    • Automotive
    • Tire
    • Non-Tire
    • Suppliers
    • ITEC
    • Silicone
    • Online Exclusive
    • Latex
    • Technical Notebooks
    • Executive Action
    • Government/Legal
    • Opinion
    • Rubber Division IEC
    • Blogs
    • Sustainability
    • Products
    • Wacky World of Rubber
  • War in Ukraine
  • Custom
    • Sponsored Content
    • White Papers
  • Resources
    • Directory
    • Classifieds & Mold Mart
  • Data
  • Events
    • RN Events
    • RN Livestreams/Webinars
    • Industry Events
    • Past Events
    • Rubber News M&A Live
    • 2022 Hose & Belt Manufacturers Conference
    • 2022 International Silicone Conference
    • 2022 International Tire Exhibition & Conference (ITEC)
    • 2022 Women Breaking the Mold
  • Advertise
  • DIGITAL EDITION
MENU
Breadcrumb
  1. Home
  2. Coronavirus
February 26, 2020 04:31 PM

As coronavirus hits auto supply chain, question looms: Who pays for pricey freight?

Dustin Walsh
Crain's Detroit Business
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print

    While the COVID-19 coronavirus is not yet a global health pandemic, the outbreak's costs are mounting more than 7,000 miles away, and it's not yet known who will be left holding the bill.

    Automotive suppliers and auto makers are gaming out how to ensure parts shipments depart China and make it to the U.S. West Coast and in plants throughout North America without even costlier disruptions.

    Companies with a large presence in China, where the outbreak began in early January, are beginning to make predictions on the virus' impact. Plymouth, Mich.-based Adient P.L.C. is projecting at least a $60 million hit to its income in 2020 from the virus; Troy, Mich.-based Aptiv said the outbreak will drop income by as much as $80 million; and Van Buren Township. Mich.-based Visteon Corp. said revenue in the first quarter alone with be impacted by $60 million.

    Many government-mandated quarantines in China have been lifted and production has resumed at nearly every factory in China, though many are not at full capacity. Anderson Chan, global communications manager for Ford Motor Co. told Crain's the auto maker restarted production on Feb. 10 and will "continue ramping up our production without compromising the safety of our employees.

    "Now, the industry is faced with the problem of getting those parts from China to the U.S.—and quickly. The industry ramped up production ahead of the Chinese Lunar New Year, where most plants shut down between Jan. 24 and Feb. 2, but with typical freight taking six to eight weeks to reach U.S. shores on freighters, many companies are using costly expedited air freight.

    Related Article
    Coronavirus outbreak: Conferences, expos and meetings rescheduled

    The arguments arising are because expedited air freight is very expensive, especially as demand for those services ramp up.

    Moline, Illinois-based Deere & Co., the maker of John Deere agricultural equipment, told investors on Feb. 21 that it anticipated spending $40 million on expedited air freight on exporting out of China in the first quarter of 2020.

    Air freight prices for moving product out of China have increased from roughly $3.65 per kilogram ($1.65 per pound) to $6.65 per kilogram ($3 per pound) in the last month, American Shipper reported on Feb. 25.

    Executives from New York-based freight company Atlas Air told investors last week, during its fourth quarter earnings call, that it's in discussion with customers to secure future freight as capacity is already running out, American Shipper reported.

    In the auto sector, battles are brewing over who is responsible for paying the shipping costs, said Daniel Sharkey, partner at Birmingham, Mich.-based law firm Brooks Wilkins Sharkey & Turco P.L.L.C., specializing in automotive contract law.

    "The arguments I'm having today are who is responsible for filling any gaps in the parts supply pipeline," Sharkey said. "Some of the (automakers) are saying they will pay for expedited air freight, no problem. Others are are saying the supplier has to do everything its power to get those parts out of country and pay for it."

    Sharkey said FCA Automobiles is taking a hard-line stance in attempts to force suppliers to pay for expedited freight.

    "FCA continues to monitor its global supply chain in relation to the coronavirus outbreak and is working with our supplier partners to ensure the safety of all personnel and to facilitate on-time deliveries," Michael Palese, FCA's communications manager said in an emailed statement to Crain's. "We do not comment on supplier contracts."

    Suppliers are seeking to exercise the force majeure clause in their contracts with automakers to shift costs, said Tom Manganello, partner at law firm Warner Norcross & Judd L.L.P in Southfield, Mich.

    The clause excuses companies from fulfilling contractual supply obligations and penalties from an "act of god" beyond their control. Force majeure have been previously used in several major catastrophic events, such as the 2011 earthquake and tsunami in Japan.

    "Shipping is going to be expedited, and there will be disputes on shipping terms," Manganello said. "This all really just puts a magnifying glass on the interdependence of the supply chain. The irony, of course, is the (auto makers) started this big push for the supply chain to go to China and now they want them to pay for (the shipping during this problem) too."

    BorgWarner Inc. and Lear Corp. declined to comment on contracts with customers.

    The China Council for the Promotion of International Trade, which controls the issuance of force majeure in China opposed to contracts in the U.S., had issued 1,615 force majeure certificates as of Feb. 17 for companies in more than 30 sectors, totaling a total of $15.7 billion in contracts, The China Daily reported.

    Coincidentally, the limited trade deal China and the U.S. signed in December also has a force majeure clause that allows China to forgo its obligation to purchase $200 billion of U.S. goods and services over the next two years.

    U.S. stocks plummeted Feb. 25 after the U.S. Centers for Disease Control warned Americans to prepare for a COVID-19 outbreak. Shares of General Motors Co. and Ford Motor Co. were both down nearly 4 percent in Tuesday afternoon trading.

    Aptiv was down 3 percent, Visteon down nearly 5 percent, BorgWarner down 3 percent and Lear down 1 percent.

    The virus has infected more than 80,000 as of Feb. 25, mostly in China, and claimed the lives of more than 2,700. However, it's spreading outside of China quickly. There are now 52 cases in the U.S. with no reported deaths.

    Letter
    to the
    Editor

    Rubber News wants to hear from its readers. If you want to express your opinion on a story or issue, email your letter to Editor Bruce Meyer at [email protected].

    Most Popular
    1
    Wacky World of Rubber: The true story behind the rubber match
    2
    Continental to build $40 million hose plant in Mexico
    3
    Goodyear targeting full petroleum oil replacement by 2040
    4
    Rubber process oil suppliers face push of demand, pull of continued logistical issues
    5
    Michelin growth strategy looks at tires and beyond
    SIGN UP FOR NEWSLETTERS
    EMAIL ADDRESS

    Please enter a valid email address.

    Please enter your email address.

    Please verify captcha.

    Please select at least one newsletter to subscribe.

    Get our newsletters

    Staying current is easy with Rubber News delivered straight to your inbox, free of charge.

    Subscribe Today

    Subscribe to Rubber News to get the best coverage and leading insights in the industry.

    SUBSCRIBE
    Connect with Us
    • LinkedIn
    • Facebook
    • Twitter

    MISSION

    To serve companies in the global rubber product industry by delivering news, industry insights, opinions and technical information.

    Contact Us

    2291 Riverfront Pkwy, Suite 1000
    Cuyahoga Falls,
    OH 44221

    Customer Service:
    877-320-1726

    Resources
    • About Us
    • Digital Edition
    • Staff
    • Advertise
    • Order Reprints
    • Privacy Policy
    • Privacy Request
    • Terms of Service
    • Careers
    • Ad Choices Ad Choices
    • Sitemap
    Partner Sites
    • Tire Business
    • European Rubber Journal
    • Plastics News
    • Plastics News China
    • Urethanes Technology
    • Automotive News
    • Crain Brands
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • News
      • Automotive
      • Tire
      • Non-Tire
      • Suppliers
      • ITEC
      • Silicone
      • Online Exclusive
      • Latex
      • Technical Notebooks
      • Executive Action
      • Government/Legal
      • Opinion
      • Rubber Division IEC
      • Blogs
        • Products
        • Wacky World of Rubber
      • Sustainability
    • War in Ukraine
    • Custom
      • Sponsored Content
      • White Papers
    • Resources
      • Directory
      • Classifieds & Mold Mart
    • Data
    • Events
      • RN Events
        • 2022 Hose & Belt Manufacturers Conference
        • 2022 International Silicone Conference
        • 2022 International Tire Exhibition & Conference (ITEC)
        • 2022 Women Breaking the Mold
      • RN Livestreams/Webinars
      • Industry Events
      • Past Events
      • Rubber News M&A Live
    • Advertise
    • DIGITAL EDITION