COVID and the Supply Chain
The top international story over recent weeks has been the increasing spread of coronavirus (COVID-19) with a significant impact on global tourism, it is inevitable that there is now a very real effect on the supply chain.
China accounts for 16.5% of world GDP and is the world’s second largest economy. It is therefore no surprise that this has had a great impact on the supply chain with severe disruptions to sea and air freight with factory lock downs in China causing shortages of materials and more.
With a significant financial fallout in the first quarter of 2020 it looks as though it is set to impact the second as well. With shipping being one of the major industries affected we are looking at how it has and what little can be done to counteract that impact.
How is Coronavirus affecting the Supply Chain?
As the breakout of the virus coincided with the annual shutdown for Chinese New Year, there was a reduction in port calls from major carriers due to lack of supplies. Factory shutdowns across the country have had a global effect as consumer – facing industries within the UK rely heavily on imports for many specialist components and materials that are sourced from China. This, of course, has a knock on effect – possibly delaying production of certain goods for an unforeseen period of time.
Air cargo has been hit hard with some services being suspending to the country, however Airlines freighter is not affected at time of writing, however the reduction in capacity will mean major backlogs when things start back up.
Whereby the Chinese New Year had already led to reduced capacities shipping lines are only able to wait and see what transpires. Many forwarders are concerned about boxes that are left in ports although some are assuring customers this won’t happen.
With a reduction in parts and supplies it can have disastrous results for workers here in the UK. Where demands may be high in certain industries, there isn’t the supply to meet those demands and therefore business are having to adapt and change working weeks or reduce the hours of their staff in order to protect their business. Though there may be alternative suppliers they may also lack capacity to fulfil requirements and so knowing the potential shortages and risks can be invaluable.
It seems as though the industries with the higher risk include tools and hardware, electronics & appliances and auto parts. Whilst other industries will of course be effected many of them, including telecoms and computer parts ought to be able to reduce supply chain risks through the scale and resources afforded to them.
What can be done?
The unfortunate occurrence of the Coronavirus has taught many a lesson in the importance of risk assessment throughout the supply chain. Of course much of what happens going forward is out of our control, with no time frame and no signs suggesting the spread is slowing let alone stopping. However it gives an insight into how to prepare for such issues later on.
Make sure to keep things under review, keep communications open and all key players up to date. For future proofing; knowing the risks within your supply chain and inputting mitigation strategies will help you to identify potential threats and reduce the severity of the impact on your business.
It is too early to tell what the long term effects of coronavirus will be to supply chains and the logistics industry. There is likely to be a downturn in the quarterly results of many global companies, and the outbreak must be a warning to all that many modern supply chains lack support needed for such events. Processes need to be put in place to increase resilience going forward.