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Coronavirus Infects Alarmingly Global Supply Chain

February 13, 2020 Mr. Michael Tsakonas, Senior COPEX Consultant

When considering a major global pandemic like the Wuhan, China coronavirus, it creates, among others, alarm, uncertainty, and fear, to both the market and the consumers. As the death toll rises and the virus spreads to different and diverse parts of the world, the situation is becoming worse.

Examining the degree of severity that coronavirus affects trade and commerce, we experience travel bans in and out of China mainland, closed factories, decrease in China’s imports and exports, and as a domino effect, a drop in global oil prices. We have to respond to questions such as “How long will it last?” “What countermeasures businesses must undertake? “What happens next?”. Of course, answers are not easy to give at this period of time.

From a logistics (and supply chain) perspective, while it is still relatively early to assess the situation as a whole, the impact on all categories of trade, shipping, and moving freight is already quite significant, as companies will struggle to find alternative suppliers.

Production disruptions on Household goods, Hi-tech goods, textiles, and apparel are the basic categories to affect Global Chain. In fact, hi-tech goods are likely to be one of the most-affected industries as China remains the world’s largest producer and exporter. Several multinational companies have already been affected, and delays for extra inspections are expected (not to consider bans)

The Chinese government extended the shutdown of factories and businesses, and airlines canceled air routes to and from the country.

The automotive industry is a sector that is likely to be severely affected due to a concentration of activity in the region of Wuhan, China. As an indirect effect, car companies would also suffer from reduced production output in hi-tech goods, plastics, and chemical goods industries, which are among the industry’s core suppliers.

Air transport is expected to feel the impact and have an adverse effect on global supply chains, as large carriers, including Etihad, Emirates, British Airways, Lufthansa, Air France, and Qantas, suspended totally or partially their flights to China. Shortage of goods such as pharmaceuticals is a possibility (China is a large exporter), as reserved stocks will eventually decrease.

Freight transportation activity, processes, and volumes are likely to be affected to varying degrees, of course, especially considering meat and poultry.

Logistics companies, considering that there will be a negative impact on downstream supply chains as businesses, will remain closed for an extended and undefined period of time, must implement precautionary measures.

The total impact on industries will depend largely on companies’ capabilities to find alternative suppliers and the success of governments across the world to control the spread and eliminate the virus.

In any case, supply chain networks must (and will) adapt to do what needs to be done, in order to keep economies and freight flow moving forward.

COPEX offers a training seminar on Processes and Tools for Supply Chain Success which highlights Supply Chain Management (SCM). SCM is the broad range of activities required to plan, control and execute a product’s flow, from acquiring raw materials and production through distribution to the final customer, in the most streamlined and cost-effective way possible.

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