Forward Thinking
By | February 3, 2020
Supply chain disruptions could last three to six months, experts say.
Supply chain disruptions due to the coronavirus could last from three to six months, conditions similar to what businesses saw in the wake of 2009’s swine flu outbreak, according to experts from supply chain software firm Resilinc.
In a January 30 presentation, Resilinc CEO Bindiya Vakil said that 280 supplier sites near Wuhan, China, where the outbreak began, had been affected by the Chinese government’s response to the crisis. The government had extended the Chinese New Year holiday to this past Sunday, February 2, to deal with the virus, leaving factories shuttered and employees home as transportation systems were shut down. Although markets reopened in China today, many businesses remained closed and millions of Chinese remained on lockdown; Resilinc said it looked like the government may extend the shutdown through February 11.
As of this past weekend, the Chinese government had reported more than 17,000 cases and more than 360 deaths from the virus, which is an upper respiratory illness similar to the severe acute respiratory syndrome (SARS) virus that killed hundreds in 2003 and also originated in Asia.
To date, the shutdowns and related efforts to contain the coronavirus outbreak have delayed shipments and disrupted global supply chains.Vakil said a clearer picture of the business impact will emerge when health organizations begin reporting recovery rates from the illness, but for now she said businesses should expect more supply chain snags ahead. To date, she said industries most affected by the disruptions include aerospace, automotive, general manufacturing, consumer goods, consumer electronics, food and beverage, life sciences, and industrial chemicals.
Resilinc tracks real-time data from more than 100,000 suppliers and as a result is recommending a host of precautionary steps for companies sourcing in the Wuhan region, which is in China’s Hubei province and home to a range of manufacturing industries. Vakil said companies with primary and sub-tier suppliers in the region should plan for a range of scenarios, such as generating time horizons and reviewing inventory levels among those suppliers. Items hit hard in the pharmaceutical industry include hospital gowns, which are in short supply, for instance. She offered key steps businesses can take to prepare for the disruptions, including scenario planning, communicating with suppliers and subcontractors to ensure readiness, training employees on scenarios and next steps, and determining weak links in their supply chains.
“You are only as strong as your weakest supplier,” Vakil said.
A separate report from Coresight Research details the effect of the outbreak on the global economy. Many U.S. restaurants and global retailers have closed stores in China, particularly in Hubei province, the researcher said, while U.S. and global airlines have halted flights or reduced capacity to China, affecting travel-related businesses as well as supply chains, as cargo shipments face delays and rerouting.
North American agriculture and forest product exporters are taking steps to prepare for rising costs associated with such delays. In an open letter to ocean carriers, the U.S. Agriculture Transportation Coalition (AgTC) has asked carriers to refrain from charging detention and demurrage penalties on landed exports in China as well as imports marshalled for and awaiting export until a clearer picture of the transportation landscape emerges. Many ocean carriers have agreed to extend such exemptions, referred to as “free time,” until February 9, but because of the uncertain outlook more time is needed, according to AgTC.
“Unfortunately, the World Health Organization and national health agencies predict the coronavirus will be a threat well beyond February 9. Thus, initiatives by China and other countries (including the United States) and transport providers such as air carriers, to suspend passenger and cargo movement will extend well beyond February 9, generally with no specific end-date announced,” AgTC Executive Director Peter Friedmann wrote.
The AgTC asks that carriers extend free time “until such time that WHO, national authorities, and/or air cargo carriers believe normal transportation services at the ports and inland China can safely resume,” Friedmann wrote.
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