Coronavirus cripples Global Supply Chain

The aftereffects of the coronavirus epidemic are becoming more and more evident with every passing day. The supply chain industry is one of the worst affected sectors. We present you with the specifics of how big the impact is.

Expected GDP drop 

Chinese is one of the biggest production hubs in the world. China’s sheer prowess in the manufacturing and supply chain can be estimated from the fact that the Asian nation alone contributed 39% in the global GDP of 2019.

Source: Euromonitor International

Impact on Global Supply Chain 

Recently in an interview with FreightWaves, economist Paul Bingham, director of transportation consulting at IHS Markit talked about the ongoing and potential effects of the virus that is slowly traveling around the globe.

On being asked about the state of supply chain managers in the region and the impact of the shutdown, Paul says, “What’s happening is that the gap you managed against is now extended. If these factories don’t restart or if they restart and then they run out of parts [due to issues with first-tier suppliers], how quickly that trickles down will depend on how tightly supply chains are being managed in terms of lead times and buffer stocks. But I think that it will be less than a month before you’d start to see evidence of disruptions.”

Effect on foreign manufacturers

The conditions prevailing in the Chinese subcontinent have put a question mark on the operations of foreign organizations as well. Both domestic and international supply chain routes in the region are facing increased restrictions with every passing day as the virus spreads further.

Impact on the automotive supply chain

Carmakers, suppliers, and logistics providers are prioritizing their employee health and safety. Initiatives have started to get the ex-pats employees out of China. Groupe PSA with the French government’s support is flying workers and their families back to France while Nissan has also taken similar action by flying several expatriate workers and their families back to Japan.

Ford is keeping an eye on the situation and would act accordingly “The situation is dynamic and evolving daily,” “As of [Wednesday 29 January] Ford China has extended the Chinese New Year holiday by two days through February 2 and deferred the resumption of production at our CAF [Changan Ford Automobile] and Jiangling Motors [JMC] joint venture plants to February 10 as well,” said a spokesperson for the company.

According to DHL Resilience 360, DHL’s supply chain risk assessment service, Out of all manufacturing in Wuhan, 50% is related to the automotive industry. Inbound and outbound air cargo shipments, trucking and rail cargo services have reported several disruptions along with heavy port congestion for vessels along the Yangtze River near Wuhan. “The regional lockdown has already severely impeded logistics operations that rely on access to highways to carry goods into and out of the region,” said the company in a statement.

Conclusion

As per the industry analyst IHS Markit, production losses for the first quarter due to the crisis are expected to hit around 350,000 units (-7%) if the plants stay closed until February 10.

If the manufacturing plants do not resume operation till mid-March, a nation-wide supply chain disruption is expected. The potential loss in production is estimated to be more than 1.7m units just for the first quarter which is 32.3% less than the market expectations.