Due to globalisation, very few industries have remained unscathed by the epidemic in China, with electronics and textiles especially affected. Compounding the problem is the fact that most large corporations have subsidiaries inside China. Many of those have been totally or partially closed and their employees told to work from home.
Empty shelves and stock-outs are already becoming commonplace all over the world and ecommerce businesses are finding it increasingly difficult to maintain supply.
International shipping has been hardest hit by the crisis, with a study and various reports by trusted media such as the New York Times and Financial Times showing the following dramatic repercussions in the period January-February 2020:
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A 30 percent drop in container volumes from China, which translates to a 9 percent fall in container volume worldwide.
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The cancellation of around 105 sailings from and to China in January and again in February, representing a shortfall of at least $1 billion in revenue.
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Ports in the United States, The Netherlands, Britain, France, and elsewhere have reported a drop in cargo volumes ranging from around 5 percent in January to an estimated 25 percent in February.
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Some ports in China are clogged with arriving containers of iron ore, while warehouses are choked with goods that cannot be exported due to lack of trucks.
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Charter daily rates for bulk freighters and tankers have plunged by more than 70 percent since early January due to the fact that China is buying less iron ore, oil, and coal.
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While most Chinese ports are operating normally, the flow of export goods has been significantly affected by roadblocks, lack of truck drivers, and closure of factories.
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Some Chinese factories still have warehouses filled with goods that they produced and failed to ship in early January, before the Lunar New Year holiday that transformed into a nationwide shut-down of about a month, due to a lack of trucking capacity.
Many factories in the West have throttle down or and are temporarily shut manufacturing and assembly plants.
Many large corporations have relied on their stockpiles to make up for disruptions in the supply chain, but as they typically carry only 15 to 30 days’ worth of inventory, they are now starting to feel the pinch.
This is how some companies are coping with the shortfalls:
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Samsung is flying electronic components for its latest Galaxy smartphones from China to its factories in Vietnam
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General Motors is airlifting supplies to its North American truck production
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Deere is using costly expedited shipping to avoid disruptions
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Most companies are scurrying around trying to find alternative procurement options until the crisis plays itself out.
In the United States, a significant number of multinationals had already begun tying up alternative suppliers when a full-blown trade war threatened to erupt between Washington and Beijing last year. In other words, some are already at last partially immune to the Coronavirus epidemic.
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The World Economic Forum warns that COVID-19 has “potentially serious” implications for the global economy and says it is already taking its toll on economic players around the world, including farmers and ranchers in the Americas and tourism operators worldwide.
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Economic think-tank CFO reports that there is currently a severe imbalance of shipping containers, mainly in the Pacific Rim zone. It cautions that should the virus spread, the issue of container imbalance will become dominant. Once sailings resume, it adds, the price of limited container space will balloon out of proportion and port congestion will spike.