Will the coronavirus impact supply chains?

Along with the tragic human impact of the coronavirus, importers of goods from China around the world should also be paying attention to potential supply chain impacts. Buyers, carriers, and supply chain managers foresaw and adjusted for the expected slowdown in China related to the Chinese New Year. Now, depending on the spread of the coronavirus, they should be considering at least the possibility and a second, unexpected slowdown.

To date, significant virus impacts within China are mostly isolated away from major coastal manufacturing centers like Shenzhen and Ningbo. Effects have been more prevalent in inland cities like Wuhan; it is likely the virus will make its way to several more cities due to Chinese holiday travelers spreading the virus before quarantines took effect.

Even if the important coastal ports and manufacturing cities remain mostly untouched, no city is an island unto itself. As of January 28th, 2020, Wuhan, along with fifteen other cities were under quarantine to prevent further spread of the virus. These quarantines impact nearly 50 million people. It is reasonable to believe a portion of these people were holiday travelers that won’t be returning to work in coastal cities after the holiday.

Moreover, there are very likely factories in places like Shanghai, Ningbo, and Dalian that purchase parts and raw materials from impacted inland manufactures in China. There is a fair amount of manufacturing in Wuhan, which is now on lockdown. It stands to reason if the coastal cities can’t procure needed parts from standard suppliers, even if they have a healthy workforce, there may not be an average level of manufacturing going on. Because of the timing of the virus being around the Chinese New Year, many factories were already shuttered. As a result, there was no way of accelerating manufacturing to get in front of a possible coronavirus related slow down. 

As it stands, the virus outbreak is in its’ acceleration stage. Supply chain managers, importers, and carriers will be keeping watch to assess whether there is corrective action needed. Look for contracts to go unsigned and ocean carriers to announce blank sailings. These are signs there is a genuine fear the coronavirus will extend the Chinese New Year slow down until the outbreak has eased. Whether there will be an impact will become more evident the further we move away from the Chinese New Year holiday, which has been extended to February 8th, 2020. While changing everything related to everything isn’t prudent at this point, forming a contingency plan would be an excellent first course of action.