COVID-19 Impact on Iowa’s Supply Chain

Victor Restis Commentary Connecting Heartland States to International Supply Chains

International shipping and trade extend well beyond our coastal countries, states, and cities. Cargo and container shipping accounts for 80 percent of world trade (goods) volumes that are transported transoceanic. Once cargo arrives at a port, it is offloaded into warehouses and re-loaded onto trucks for drayage transport. The global pandemic affected all of it.

“The spread of the virus globally affected both the markets and the vessels operations significantly,” said Victor Restis, president, Enterprises Shipping & Trading S.A.

For the U.S. State of Iowa that leads the nation’s top hog-production, the health of national and international supply chains is just as crucial as any coastal state or port city. Any weakness in the supply chain affects the entire system.

Iowa’s farming and rural communities are all dealing with the effects of COVID-19. In addition to personal guidelines outlined by the Center for Disease Controls, and adopted by state health officials, Iowans are under tremendous stress as they cope with livestock supply chain clogs, closed meat packing plants, and further unforeseen circumstances created by the virus.

Iowa’s Governor publicly stated that the state’s farm economy had been devastated.

Iowa State University economists are saying Iowa’s pork industry has lost more than $2 billion; the beef industry, $700 million; corn, nearly $800 million; and soybeans, more than $200 million.

The strains of the Iowan agriculture and livestock industries present a series of problems that affect the global supply chain. Iowa Select Farms is the fourth-largest pork producer in the United States and experienced its challenges due to the global pandemic.

In the early weeks of COVID-19, supply chain interruptions caused a clog in operations forcing the producer of pork to euthanize thousands of livestock because packing plants were closed or were running at insufficient capacity. Closures were a direct result of stay at home orders, self-quarantines, and illnesses from workers. This interruption caused a decrease in supply as demand sored due to people stocking up on food and supplies while under stay-at-home orders.

“Although the market was affected, the demand was there but it was suppressed waiting for the next day,” said Restis.

Fortunately, the meatpacking plants have recovered and are running near 90 percent capacity. The downtime in production allowed the industry to review its processes and current capacity levels. The result is to immediately create a process to work through the backlog, stop euthanizing livestock while looking ahead and launching expedited plans to increase capacity.

The Iowan farming industry is essential and critical to the global food supply chain that feeds this nation and beyond and helps fuel the global commodities trade market. Drayage services ship food processed in Iowa to multiple points across the country, including port cities where products are loaded on cargo ships for international destinations. The stress placed on supply chains during the COVID-19 pandemic has put those products at risk of spoilage, or not being able to reach its destination because a port, unloading crew or warehouse is running under capacity.

Stresses in the supply chain fall mainly in the shipping and transport sector of the industry. If the product arrives late, or not at all, it mostly falls on shipping. Because of the instability in the supply chain movement caused by COVID-19, some ports have taken the precaution to declare ‘force majeure’ to pre-empt claims and legal liability.

The effects caused by the pandemic may be covered through this declaration, but these are not uniform and may not always be available. For example, if the cargo is deemed non-essential cargo, it cannot be moved to the ports during a national lockdown resulting in the inability to offload cargo from arriving vessels incurring costly demurrage. The result will be a legal and contractual conundrum of who ultimately bears responsibility for these losses.

However, there is optimism that the markets will rebound quickly.

“The demand that has been accumulated during the period that the virus spread across the globe will cause a slightly faster climb and it will reach the pre- COVID19 days easier since the rates at that time were not that high anyway,” concluded Restis.