Coronavirus: What consequences can be expected for global supply chain management?

The highly contagious coronavirus is the cause of new headlines every hour. In addition to the threatening increase in the number of infections and deaths, the economy is also affected. As the world’s leading exporter and one of the fastest growing economies, China is a decisive business factor for companies all over the world.

The Chinese New Year, which already causes restrictions across all global supply chains, had already been extended by 3 days last week. Cities extremely affected by the virus, such as Suzhou, Shanghai, Ningbo or Hangzhou, which occupy part of the eastern manufacturing centre, have even extended the holidays until February 9th, 2020. This decision will simultaneously mean the shutdown of all Chinese hubs and therefore worldwide trade in goods.

Singapore’s Minister of Trade and Industry, Chan Chun Sing, commented on the situation:
“Today, China is not just producing low-end, low-value products, they are also in the supply chains of many of the high-end products. And that means that the impact on the supply chains will be significant across the entire globe.”

Disruptions in international supply chains

The impact extends far beyond mainland China: flights are cancelled, factories stand still, and container ships are delayed. Lufthansa, British Airways or SAS are just a few examples of airlines that are completely stopping their flights to and from China until the end of the week. United Airlines has even extended this suspension until the end of this month. This restriction affects not only passenger transport, but also cargo transport, which is thus lacking important supplemental capacities. Therefore, a special flight schedule has been established for full-freight flights.

Due to missing production parts and revenues, there are large gaps and indefinable delays in global supply chains. Especially the automotive, pharmaceutical/medical and high-tech industries are affected by their manufacturing sites located in Wuhan, the epicentre of the virus. Apple, for example, has temporarily shut all its stores in mainland China, which is one of Apple’s major markets. Two of Apple’s top 200 suppliers are based in Wuhan, which leads the company to implement plans and initiatives to compensate these lost production parts.

Regarding international shipping, container fleet giant Evergreen Marine Corp. reports that all local terminals are operating as usual, excluding those to and from Wuhan until the quarantine is lifted. However, other shipping companies are experiencing the closure of numerous shipyards, resulting in a lack of availability of usable ships for the transport of goods at sea.

In order to determine the monetary damages, a comparison is often made with the SARS virus of 2003. The virus killed almost 800 people and caused economic damage of around USD 25 billion only in China. Although the Chinese economy was booming at that time, its share of the global economy has tripled compared to that period. Accordingly, the damage by the corona virus could be even more serious this time, especially considering the global economic situation. Zhang Ming, an economist from the Chinese Academy of Social Sciences, predicted that Chinese economic growth would decline to 5% or less (in 2019 China’s economy grew “only” by 6.1%).

The ongoing crisis calls for well-planned and applied risk management by companies. The resilience of the supply chain can be responsible for the existence of a company in such situations. How long these conditions will continue and what the full extent of the damage to the Chinese and global economic situation will really be, cannot be clearly determined or predicted these days. Getting the health threat under control is the top priority for the moment.

Header Photo: Gwengoat – Getty Images