Trying to determine the extent to which the novel coronavirus will impact the world’s supply chains is a moving target at this point, but some indicators are already pointing to some fairly significant negative impacts over the next few months.
For starters, China extended its annual Lunar New Year holiday. Already extensive in terms of its impacts on the country’s supply chains—namely because it’s a time when workers return home for a week or more to celebrate with their families—the extended timeframe could impact commerce for a longer period of time.
Wuhan: The Epicenter
Because so many companies have production facilities in Wuhan—the epicenter of the novel coronavirus—its quarantined state is impacting numerous industries. PepsiCo, German conglomerate Siemens and French automaker Peugeot Citroen all have bases in Wuhan and the wider Hubei province, according to Business Insider.
Big manufacturing companies operating in the area include German multinational conglomerate Siemens, Chinese smartphone maker Xiaomi and the electronic component maker BOE Technology Group. And, a total of nine car factories—including Peugeot Citroen, Renault, Honda and China’s Dongfeng (China’s third-largest car manufacturer)—are all based in Wuhan. “The spread of the virus is predicted to have a damaging effect on the economy, and many businesses in the area have suspended operations in an attempt to contain the virus,” it adds.
According to Forbes, the extension of the Lunar New Year shutdown created a backlog in the world’s supply chain that will “not be repaired for many weeks (at a minimum), and there is still a lot of uncertainty when factories will actually start up again, and what will happen when they do.”
The coronavirus is hitting electronics manufacturers particularly hard, the publication reports. “The electronics manufacturing community is facing a challenge it has never handled before,” it concludes, noting that factories typically expect that only 80-85% of their workforce will return after Lunar New Year, as many workers are actually from distant regions of the country. “It’s not yet clear how the extended shutdown and complexities of the coronavirus will impact staff returning, but rates are expected to be worse than normal.”
What is the Coronavirus?
A unique pairing of virus that are generally spread between different species of animals, according to the CDC, the novel coronavirus’ origins are similar to MERS-CoV (Middle East Respiratory Syndrome), and SARS-CoV (Severe Acute Respiratory Syndrome).
Like the other coronaviruses, this new strain originated with animals. Many of the infected individuals either worked or frequently shopped in the Huanan seafood wholesale market in the center of the Chinese city, which also sold live and newly slaughtered animals, The Guardian reports, which points out that new and troubling viruses typically originate in animal hosts.
At press time, the novel coronavirus outbreak had killed at more than 800 people and infected more than 37,000 globally as it continued its spread through China. According to CNN, international researchers are racing to develop a vaccine and halt the virus' spread, with some promising signs, it adds, and some countries were advising their citizens to leave China altogether.
Widespread Issues
Wuhan is home to numerous high-tech component suppliers and a key transportation hub. This could spell trouble for some of the world’s large electronics manufacturers. “The impact on our supply chain looks inevitable,” Hitachi’s Mitsuaki Nishiyama said in WSJ. “Hitachi is concerned about the possibility that infections may become more widespread and that the supply chain may be affected. [It’s] unclear whether production can be resumed immediately when the holidays are over.”
Other electronics giants, including smartphone maker Apple Inc. and contract manufacturer Foxconn Technology Group, also rely on Chinese factories, and any disruptions could ripple across the global tech industry. “Other companies with big factory footprints in China, such as global auto makers, are also preparing for supply issues,” WSJ reports.
The outbreak’s effects on the tech sector aren’t yet known for sure, according to WSJ, which says that many companies have built additional flexibility into their supply chains, following the upheavals from U.S.-China trade tensions. “That could help companies weather supply issues in the short term, IDC’s Stephanie Krishnan told the publication. “If things escalate in China, some industries will need to build in further contingencies.”
Some companies are less vulnerable in the short term, Financial Times reports. For example, semiconductor and liquid crystal display (LCD) panel fabrication plants don’t stop operations during the holidays because of the huge costs of halting some production equipment.
“But the display industry is hugely exposed to Wuhan itself, where five display fabs are located. BOE Technology, the world’s largest LCD panel maker which accounts for 17% of global supply, started ramping up its Wuhan facility in November,” the publication adds. “The company’s plans to start mass production in January have been hit by the virus outbreak.”
Logistics Impacts
In “Coronavirus Supply Chain Effects: What to Expect,” Kellie Lynch writes that airfreight will see the hardest impact as demand for air travel to and from China falls from fears of the virus, travel restrictions and canceled flights. The primary method for stopping the virus in China so far has been lockdowns and quarantines. This has virtually halted most transportation across the country, especially in affected areas.
“Essentially, the extended factory shut down will cause companies to run low on inventory. While air freight may have been a quick fix for importers any other time, lack of commercial flights due to the coronavirus means that cargo aircraft will be severely overbooked,” said UWL’s Chris Krawczyk. “Airlines may pull planes from the Asia market and redeploy them elsewhere, which will even further reduce capacity.”
