Wuhan, China is at the epicentre of the Coronavirus (COVID-19) crisis, the effects of which have been far-reaching. As of 24 February 2020, China reported 77,362 cases of COVID-19 to the World Health Organisation (WHO), with the number of confirmed cases standing at 81,411 globally. Despite the increase in reported cases in Italy, the Islamic Republic of Iran and the Republic of Korea, the virus remains an epidemic regardless of speculation that the outbreak is reaching pandemic status.
Aside from the obvious impact COVID-19 is having on humans, the effects are now being felt across the global business community. Industries such as tourism, apparel, technology, construction and car manufacturing are feeling the pressure, and the global economy is showing signs of strain with the Dow plummeting more than 1000 points on 24 February 2020. Stocks plunged on the news that over 80,000 people have been infected, over 2700 have succumbed to the virus and Italy, South Korea and Iran were identified as new “hotspots” for the virus.
The Ripple Effect of Disease on Supply Chains
The Chinese auto parts industry is suffering under the impact of COVID-19, the ripple effects are being felt across the world with carmakers in the U.S and Europe warning of closures within weeks. Statistics show that China shipped $38.4 billion worth of automotive parts to car manufacturers across the U.S and Europe in 2018 alone. According to Channel Asia News, many auto parts factories have now been closed due to the Coronavirus, causing severe disruption across the global supply chain and impacting car manufacturers the world over.
Foxconn, the multinational electronics manufacturer who makes Apples’ iPhones in China, is reportedly operating at 50% capacity, which is causing concerns about the release of the new iPhone 12 later in the year. Apple is expected to ship approximately 10% fewer iPhone’s and will hold off on plans to increase the production of Apple AirPods. The impact of COVID-19 remains unpredictable in China and around the world, and its difficult to say when Apples’ China production will return to full capacity. Wuhan, also known as “Chinas Optical Valley” is a major manufacturing centre for semiconductors and electronic components. Wuhan is also a leading player in the 5G production process and disruption in production and supply has resulted in significant supply chain delays on optical fibres, mobile phone chips and circuit boards.
China is being hit from all angles with African Swine Fever (ASF) wiping out over 60% of China’s domestic pigs in 2019, and a quarter of all domestic pigs globally, an insidious crisis that will also threaten global trade in 2020. The disease kills over 80% of infected pigs and is resistant to freezing, thawing and disinfectant. China’s expectation of record imports of pork from the U.S in early 2020 was thwarted by the impact of the Coronavirus, with Chinese ports backed up and turning away reefer container ships.
Supply Chain Disruption
China commands more than 11% of global trade, however, this interconnectedness significantly increases supply chain risks and greatly impacts shipping lines, ports and businesses in every country. The very nature of supply chains means that businesses are interlinked in a global network design, so if one area is disrupted, then the entire chain is in disarray unless contingency plans are enforced.
Trade wars have hit the supply chain sector, and the slowing economy and pressures look set to increase. Industry giant Maersk, chief executive Soren Skou told reporters, “We are experiencing huge pressure at (Chinese) port terminals because there aren’t enough workers at the ports to move the containers, not enough truck drivers to move the goods, and no one to receive them at factories or warehouses”. These concerns are being felt industry-wide, with countless containers lying idle across Asia in numbers that look set to climb should the outbreak continue to worsen. Reuters reported that reefer container ships transporting meat from the U.S to China are being rerouted to ports in Hong Kong, South Korea and other countries because ports in China don’t have the capacity to store refrigerated containers that require an electricity source.
Europe remains on alert after news spread that four more people lost their lives to the virus in Italy. COVID-19 has infected more than 325 people near Milan alone with more cases in Austria, Croatia, France, Germany, Greece and Spain. Freight to and from Italy is expected to be disrupted which will impact supply chains across the whole of Europe. Northern Italy is a key industrial location with strong textile, steel and chemical sectors that are beginning to feel the negative effects of the outbreak. Supply chains are already under pressure in the region with Austria briefly halting rail transportation of goods from Italy and businesses being recommended to improve their resilience sooner rather than later. Despite 57 confirmed case in the U.S, President Donald Trump continues to downplay the effects of the Coronavirus outbreak in a political bid to prevent further panic in the markets. The Presidents’ reelection campaign is relying on a strong economy. As the virus continues to push its way across Europe, with over 1000 people currently quarantined at hotels in Austria, France, and Tenerife, Spain, President Trump attempted to reassure the public that the risk to Americans remains low. However, the situation continues to evolve with the Centers for Disease Control and Prevention (CDC) today being informed of the first case of COVID-19 in a person that had not recently returned from an overseas trip.
WHO reported the second case of COVID-19 in Africa this week, amid urges for the continent to increase their preparedness. The virus will hit the country hard, with many Africans distrusting their public health system, which will, therefore, exacerbate an outbreak. In business, South African companies rely heavily on the global trade network for business success and are encouraged to be ready with airtight contingency plans should an outbreak eventuate. Businesses are encouraged to ensure their supply chain is robust as manufacturers struggle with suppliers unable to fulfil orders. Many companies are leveraging on their contracts in an attempt to minimise disruptions by using ‘force majeure’ as protection. The COVID-19 outbreak is causing havoc for supply chains and shipping lines in Australia and countries around the world. Employees and consumers are grounded at home in China, halting or at least slowing the production and purchase of goods, delaying the unloading and loading of cargo at ports, a ripple effect that looks set to continue for the foreseeable future.