How the CARES Act will Affect Supply Chains

Editorial by Morgan Forde, Supply Chain Dive
Supply Chain Dive

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion economic stimulus package, provides emergency funding for individual Americans, businesses and industries as the economy grapples with COVID-19 response efforts and disruptions to daily life.

"Securing these funds could make the difference between keeping a business up and running over the coming weeks or being forced to reduce salaries, lay off employees, or shutter businesses entirely," the U.S. Chamber of Commerce said in a statement applauding the bill’s passage.

While the CARES Act offers financial support, "It's more like a band-aid right now in the short term, and we're all hoping for the best in terms of the time to recover," LevaData CEO Rajesh Kalidindi told Supply Chain Dive in an interview. "Do we think that being out of work and getting $1,200 per person actually is enough stimulus to get through even a couple of months? I think the situation is very similar for the manufacturers and these companies. It will not be enough."

The effectiveness of the legislation will depend on how quickly the government can get funding to businesses that need it, and on how long the coronavirus causes global disruptions, Kalidindi said. Otherwise, he said, it will only be a matter of weeks before businesses ask the government to do more to avert a deeper economic crisis. 

$350B to $500B to help small and large businesses stay afloat
Manufacturers are "hanging on as long as they possibly can and keeping their employees on the payroll," National Association of Manufacturers President and CEO Jay Timmons said on a media conference call Thursday. "That’s why we were so pleased to see many provisions in the CARES Act and incentives to maintain that employer-employee relationship."

These incentives include tax credits for employers that retain and continue to pay their staff (whether or not operations have been shuttered)​, and $350 billion in funding for loans to businesses with 500 or fewer employees — the portions of which used to cover payroll costs will be forgiven. For larger corporations, a pool of $500 billion in loans and other financial and tax relief is available.

Many firms have already laid off staff as operations slow or shut down entirely. Six of the 11 U.S. states with the highest number of unemployment claims, according to the Department of Labor’s most recent reporting, noted layoffs in the manufacturing, retail trade, transportation and warehousing industries.

Timmons said he anticipates businesses and production facilities will need a significant number of staff to ramp up operations and meet consumer demand once the pandemic resolves. To prepare for that, taking advantage of federal assistance to retain and pay employees now, as opposed to layoffs, will help businesses have the staff required to come back online quickly, he said.

$10B in loans to keep USPS' last-mile service moving
Last-mile logistics have become ever more crucial for shippers with domestic inventory ready to ship to consumers, as online orders of groceries, cleaning supplies and other consumer goods have skyrocketed in recent weeks.

For the duration of the COVID-19 national emergency declaration, the CARES Act provides $10 billion in loans to the U.S. Postal Service with the following provisions: "(1) shall prioritize delivery of postal products for medical purposes; and (2) may establish temporary delivery points ... necessary, to protect employees of the Postal Service and individuals receiving deliveries from the Postal Service."

The legislation did not specify how this could affect shippers seeking to deliver non-medical goods to consumers.

Private carriers do not have a governmental mandate to serve customers. However, UPS and FedEx have been designated as essential businesses.

UPS announced on Monday, "a stepped up collaboration with FEMA to provide supply chain services for the agency’s distribution of PPE and necessary materials throughout the U.S., including respirators, N95 masks, and gloves." In addition, it is offering FEMA access to its Worldport facilities in Louisville, Kentucky, to stage shipments of overseas supplies.

FedEx announced on March 23 that it is setting up dedicated logistics service lines, including 28 flight legs and dedicated pickup and delivery services, to transport medical supplies and COVID-19 test kits across the country.

Securing medical supply chains and assessing gaps
The U.S.’ dependence on foreign manufacturers for its medical and pharmaceutical supplies has been laid bare in recent weeks, as hospitals struggle to procure enough personal protective equipment (PPE) and life-saving drugs and ventilators from China, India and other key countries experiencing diminished manufacturing capacity.

The CARES Act proposes setting up a task force to evaluate American medical supply chains and develop a plan to address their current and potential vulnerabilities using the following strategies:

"(A) promote supply chain redundancy and contingency planning; (B) encourage domestic manufacturing ... (C) improve supply chain information gaps (D) improve planning considerations for medical product supply chain capacity during public health emergencies; and (E) promote the accessibility of such drugs and devices."

In the meantime, private sector firms such as Ford, GE and others said they will begin producing ventilators, and software company Resilinc announced plans to launch a procurement platform called The Exchange, to enable hospitals to trade supplies and receive them from donors.

While supply chains, medical and otherwise, that began diversifying their international sourcing due to the U.S.-China trade war are somewhat better positioned to weather these shocks, the virus is affecting even the best-laid plans.

"As we all know, it's not just China now, it's everywhere," Kalidindi said. "Even those well thought out plans which took a lot of effort are still going to not be as efficient ... [but] they at least have multiple alternate sites that have already been qualified," allowing them to come out of the crisis much stronger than firms with less-diversified supply chains.

$7B for cargo airlines to retain workers, move freight
Severely curtailed passenger flights worldwide have reduced belly cargo space in the market and cargo-only flights remain limited, causing rates to spike. The CARES Act seeks to support the movement of air freight across the country by giving air cargo carriers financial resources to remain in operation.

Roughly $58 billion has been made available to airline industry as a whole, $7 billion of which is slated to help air cargo carriers and contractors.

Any air carrier receiving loans or other emergency financial relief from the government must "maintain scheduled air transportation service as the Secretary of Transportation deems necessary to ensure services to any point served by that carrier before March 1, 2020."

The secretary will also take into consideration "small and remote communities and the need to maintain well-functioning health care and pharmaceutical supply chains," when prioritizing routes.

Carriers must honor employment provisions in the legislation, namely not furloughing workers or reducing their pay.

Collectively, air cargo carriers will be eligible for up to $4 billion "that shall exclusively be used for the continuation of payment of employee wages, salaries, and benefits."

Up to $3 billion will also be allocated to support contractors performing functions, "directly related to the air transportation of persons, property, or mail, including but not limited to the loading and unloading of property on aircraft."

$60M to help manufacturers innovate their way through disruption
The CARES Act allocates $50 million to the Hollings Manufacturing Extension Partnership, a National Institute of Standards and Technology (NIST) program, to help manufacturers respond to the coronavirus. Businesses can apply for the funding for projects involving the production of critical materials, equipment and pandemic response supplies; reshoring or opening new facilities to produce drugs; and worker skills training.

Normally, the MEP operates on a cost-sharing basis between manufacturers and the federal government, providing funds for new research (in partnership with universities of a number of NIST's institutes) and the implementation of new technologies such as 3D printing and biofabrication. For projects aimed at COVID-19 response, the cost-sharing requirement has been waived and funding will be awarded in the form of grants.

In addition, "$10,000,000 shall be for the National Network for Manufacturing Innovation (also known as ‘Manufacturing USA’) … to support development and manufacturing of medical countermeasures and biomedical equipment and supplies."

While the exact time to process grant applications and disburse funding was not included in the legislation, they will be awarded "with speed and agility, as the Department of Commerce aims to work at the ‘speed of business’ to meet this unprecedented health challenge," U.S. Secretary of Commerce Wilbur Ross said in a statement.

Topics: Supply Chain, Shipping, Logistics, Blog, COVID-19