current as of February 4th, 7:00 p.m. CST.
What is Coronavirus?
Coronavirus is a type of virus, named for the appearance of its membranes, which resemble the sun’s corona. We’ve seen the dangerous potential of these viruses in recent outbreaks of SARS (Severe Acute Respiratory Syndrome) and MERS (Middle East Respiratory Syndrome), which killed hundreds in the early 2000s and mid-2010s, respectively.
Coronaviruses are typically illnesses of the respiratory tract, with symptoms like fever, severe cough, difficulty breathing, and shortness of breath. Chinese authorities have recently reported some cases that have deviated from this, with patients experiencing gastrointestinal symptoms before the onset of the other, more typical symptoms. The virus, which is believed to have first passed from animal to human in Wuhan, China, is likely transmitted interpersonally by coughing and sneezing, but health officials are exploring other ways in which the virus may be spreading.
What’s the latest?
The outbreak has officially been declared a global health emergency, but it’s still hard to estimate the exact impact on supply chains so far, as most of China’s businesses were already closed due to the Chinese New Year holiday. The Chinese government, however, has extended the holiday and Shanghai and the coastal provinces of Zhejiang, Jiangsu, and Guangdong have ordered all nonessential businesses to keep their doors closed until February 10th. It’s still unclear if this timing will hold or be extended further.
What disruptions are we already seeing?
While the stoppage in manufacturing and other business functions on which importers of Chinese goods heavily rely was expected for the Chinese New Year, other parts of the Chinese economy and companies who have business there are taking a hit. The holiday time taken for the Lunar New Year is typically full of tourism, but major tourism sites throughout China have closed, in addition to businesses with large presences there, like Starbucks and Ikea, who are already bracing for the long-term financial impact.
Some business functions are running, albeit at limited capacity, by encouraging employees to work from home. Navegate’s entire Shanghai team is currently working from the safety of their own homes, much like countless others throughout the region. Unfortunately, one can’t work an assembly line or load a truck from a laptop computer.
Due to heightened fears of the spread of the virus and the impact it may have on demand in China, markets have slumped dramatically since Monday. China is one of the world’s largest consumers of industrial commodities, and the largest oil importer. Flights in the region in and around China are a major source of jet fuel consumption. With travel and economic activity at a standstill, oil and copper prices have plummeted.
Numerous major retailers are already bracing for the disruption in manufacturing. According to Panjiva, an estimated 450 U.S. importers source goods directly from the Hubei region, the epicenter of the outbreak, and countless others have tangential relationships to the goods that are produced there.
From what we can tell so far, major Chinese ports and terminals are running close to standard operation levels, though some minimal congestion has been reported.
What does it mean for supply chains?
There were already major disruptions anticipated at this time of year due to the Lunar New Year, but the rapid spread of this virus will expand these disruptions in ways for which we couldn’t have planned. Many factories will be closed for far longer than anticipated, and many of those, when they return to operation, will do so with a limited workforce. The significant reduction in output from China will likely lead carriers to blank many of their planned departures from Asia, disrupting the schedules of the few goods that will sail out of China in the coming weeks.
Once manufacturing does resume, those exports will face limited capacity as they squeeze a backlog of product out of the country. Many major airlines like American, Delta, United, and British Airways have scaled back or altogether suspended their flights to China in an attempt to truncate the spread of the outbreak. This lack of airfreight capacity, combined with the demand that we anticipate seeing for it, is sure to make a significant impact on the movement of goods in and out of the region.
What can we do about the coronavirus?
Unfortunately, we can’t stop things like this from happening. Even the best and most advanced supply chains can’t really prepare for these types of events. What is most important when dealing with a crisis, is making sure you have the proper tools to react as best as you can.
Communicate with Your Vendors
As we mentioned, many business functions are still operational in their remote form. Now could be a good time to do what you can with other operations. A good vendor management software or process will allow your vendors to work with you remotely. Good communication throughout your supply chain will give you a better feel for where you stand currently, and what needs to be done when things are back up and running.
Make Sure You Have Visibility
Without visibility into your supply chain, it’s impossible to know where you, your goods, and your supply chain’s health stand currently. Did your freight make it out of the region? Did it make it out of its port of loading? When will your next purchase order be fulfilled? Clear visibility is essential to making a timeline and a reaction plan to get things moving smoothly when operations resume.
While there’s little to be done in terms of prevention at this point, there are plenty of lessons to be gleaned from this. It seems that most of the world is learning just how heavily our economies depend on China right now. Could this be a lesson in supply chain diversification? While it’s worth considering, it may not be the right choice for every supply chain. The one lesson that everyone can take away from this, though, is the necessity of a backup plan. While we don’t want to discourage anyone from being a glass-half-full type, preparedness can sometimes be as simple as considering the worst-case scenario.