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Lighthouse - March, 2020.

CORONAVIRUS AND ITS IMPACT ON THE GLOBAL SUPPLY CHAIN

The news splashed on the front pages of newspapers all over the world is the Wuhan novel coronavirus and alarming rise of its death toll. Reports of confirmed coronavirus cases are coming from all corners of the globe every day, and the disease has taken the scale of a global pandemic.

The coronavirus has closed the doors to China and has put a severe strain on the global economy.  There has been upheaval and disruption in worldwide businesses and supply chains, depressing asset prices. All this has forced multinational companies to make hard decisions with limited information.

Most of all, the impact on the trading, logistics, and shipping industry worldwide due to the widespread coronavirus is quite significant. From the travel bans both in and out of China to a shutdown of production in Chinese factories and global fall in oil prices to a severe slump in China-bound imports, the impact has been stupendous.

The scale of this pandemic has been such that nobody can draw a timeline on how long the quarantine will last and when it will get back to being business as usual.

The industrial city of Wuhan

Wuhan, an inland city about 500 miles from the capital city Shanghai, has grown to be an industrial hub. Wuhan is also home to China’s burgeoning steel industry.  A manufacturing center for global giants like Nissan, Honda, and GM, it also functions as a corporate hub for companies including IBM, HABC, Honeywell, Siemens, and Walmart. The economy of Wuhan has exploded in recent years due to lower living and housing costs and easy availability of labor. Part of your supply chain may originate or pass through Wuhan for manufacturing, assembly, or finishing. It is but natural to expect severe shortages, delays in materials sourced or manufactured in Wuhan.

The risk to your supply chain

Since no one can predict the length of the Wuhan shutdown, your global supply chain for raw materials or finished goods stands at risk.

The impact on supply chains will largely depend on the following factors

  • How long businesses remain closed
  • The extent to which supply chains have been effected
  • Companies and logistics service providers take precautionary measures

Freight volumes, activity levels, processes, and volumes will be impacted to varying degrees. But as always, supply chains do adapt and adjust to the demands of the situation to ensure that freight movements happen unhindered.

Alternate plans

It is in a crisis of such a scale that one realizes the need for alternative sourcing and manufacturing strategies. Many countries have started looking beyond China already and have discovered other Asian manufacturing hubs. The coronavirus is but a rude wakeup call for supply chain service providers to have sourcing and manufacturing hubs in various geographical locations spread across the globe as contingency plans in the case of natural or political upheavals.

China might be back in business in the next few weeks, which might even extend to a month or more. Shippers and logistics service providers should continue to watch how long the gridlock on China will continue and then develop remedial plans to surmount this crisis.

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