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- Jul 18, 2019
Supply chain news round-up for Feb 27 via r/supplychain
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Burgers on notice, chronic mask shortage highly likely. "Major shortage of masks in US hospitals are likely soon - HMFA (the US Hospital Management and Financial Association) is reporting (Link) that most hospitals are experiencing delays of three to five days on orders of N95 respirators because the majority of the manufactured masks are needed in the country of manufacture; this means there isn't much surplus available to ship to meet US demand. On Feb. 26, U.S. Health and Human Services (HHS) Secretary Alex Azar told the House Appropriations Committee that the country has a stockpile of 12 million N95 masks, but according to HHS estimates, it needs 300 million to cover an emergency. The article adds that the maximum annual production capacity in the U. S. and Mexico is 65 million (Note from me: I couldn't find any information whether this can be ramped up further)."
Fuck. I feel like I read somewhere that China requisitioned a 3M plant, maybe that's what "needed in the country of manufacture" refers to? How do we only have 12 million masks stockpiled?
Supply chain news round-up for Feb 26 via r/supplychain
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Burgers on notice, chronic mask shortage highly likely. "Major shortage of masks in US hospitals are likely soon - HMFA (the US Hospital Management and Financial Association) is reporting (Link) that most hospitals are experiencing delays of three to five days on orders of N95 respirators because the majority of the manufactured masks are needed in the country of manufacture; this means there isn't much surplus available to ship to meet US demand. On Feb. 26, U.S. Health and Human Services (HHS) Secretary Alex Azar told the House Appropriations Committee that the country has a stockpile of 12 million N95 masks, but according to HHS estimates, it needs 300 million to cover an emergency. The article adds that the maximum annual production capacity in the U. S. and Mexico is 65 million (Note from me: I couldn't find any information whether this can be ramped up further)."
Fuck. I feel like I read somewhere that China requisitioned a 3M plant, maybe that's what "needed in the country of manufacture" refers to? How do we only have 12 million masks stockpiled?
Supply chain specific news
US Pharma supply chain sustainability - The Washington Post has run a story (Link) reporting that for the US it's not possible to identify where drugs come from or even how much is being imported. Pharma companies tend to buy active pharmaceutical ingredients (API) in bulk it explains, adding that this isn't tracked. “We cannot determine with any precision the volume of API that China is actually producing, or the volume … entering the U.S. market,” Janet Woodcock, director of FDA’s Center for Drug Evaluation and Research told Congress last autumn/fall Link.
Major shortage of masks in US hospitals are likely soon - HMFA (the US Hospital Management and Financial Association) is reporting (Link) that most hospitals are experiencing delays of three to five days on orders of N95 respirators because the majority of the manufactured masks are needed in the country of manufacture; this means there isn't much surplus available to ship to meet US demand. On Feb. 26, U.S. Health and Human Services (HHS) Secretary Alex Azar told the House Appropriations Committee that the country has a stockpile of 12 million N95 masks, but according to HHS estimates, it needs 300 million to cover an emergency. The article adds that the maximum annual production capacity in the U. S. and Mexico is 65 million (Note from me: I couldn't find any information whether this can be ramped up further).
Uniserve predicts return to normality in China by beginning of March - in its latest blog post on its website (Link) it says the situation is stabilising and that production will return to 98% by week 11 but that transport restrictions will be lifted slower that factories . Airfreight capacity is at 50% whilst trucking is at 40% (personal note: this is an improvement, two weeks ago it was around 10%). Supply chains are likely to be disrupted until at least April. It warns of new threats in Europe if outbreaks develop there.
Surcharges introduced due to virus disruption - Supply chain giant DB Schenker announces Corona Impact surcharges on exports to the far East, India and Middle East and for LCL (Less than full Container Load) from March 1st. Link to their website announcement.
Air cargo likely to surge in demand - Atlas air (a large cargo airline) expects a surge in demand from China over the coming weeks according to its chairman and CEO adding that the group was getting a “lot of calls from some very experienced and knowledgeable shippers, freight forwarders and brokers” (Air Cargo World Link). The company has been taking volunteers to fly in and out of China and implemented some programs including premium pay to do so. He expects the demand to remain even when the commercial belly capacity (passenger planes) return to the market due to a huge amount of demand. Note from me: For now the cargo only carriers have the market almost entirely to themselves due to passenger flight suspensions but all airports except for Wuhan are reported as operating normally for cargo freight.
Seafreight: Inactive container tonnage hits a new record - Splash247.com reports (Link) that 2.04m teu (Twenty foot Equivalent Unit, the unit of measure in container shipping) are not being used at present. This beats the previous high of 1.59m when Hanjin shipping collapsed as well as the 1.52m teu level at the height of the global financial crisis. They report that a shortage of truck drivers remains whilst the PRC's ports still have more than twice the recent average of containers waiting to be unloaded.
Australian consumers starting to experience hygiene product shortages - Supermarket chain Coles says in a Yahoo Finance report (Link) it's running low on hand sanitiser and hand wash products with shortages expected for other non food related products such as stationery, clothing and electrical goods. It is also keeping an eye on the availability of local based suppliers who source raw materials or packaging from China. Rival chain Woolworths is also reporting high demand for hand sanitiser. Note from me: the same might be happening in the UK, I decided to get some hand sanitiser and Boots (a major drug store here and the obvious go to) seems to be sold out via its website. In the end I used a b2b supplier who happily sold it to me as a b2c consumer and will ship to my home address.
Australian companies beginning to experience other shortages too - Business Insider reports (Link) that Unleashed (a supply chain software company) says that some customers either can't get deliveries or are only getting partial deliveries. With infections continuing to rise in Japan and South Korea, more areas may be put underneath restrictions next month, exacerbating the disruption. Price rises may rise and in some cases may have to be passed on to the consumer. A finance portfolio manager is also quoted in the article, saying that short term disruption is manageable for the next month or two but after that component part inflation and availability issues may increase. He adds that SARS is not a relevant benchmark because it was less contagious, had a shorter incubation period and was quicker to recover from, and adds that the (stock) market has been complacent so far in pricing in adverse outcomes. Personal note: If that's the case, expect global stock markets to fall further as a result. Continuing the article, it adds that Treasury Wine Estates (which sells much of its wine to China) has experienced significant drops in demand whilst various retail and tourism related firms are also experiencing significant drops in share prices.
Question marks over whether the new iPhone will roll out on time - Reuters reports (Link) that this is the time of year when Apple engineers fly out to Asia to fine tune manufacturing face to face in March through to May before production ramps up in June. There is a problem; they're not travelling. A former Apple engineer identifies that it's hard to do the necessary engineering collaboration if you're not working face to face, a view echoed by an executive in a semi conductor firm that supplies smartphone companies. "You're really talking about two lost months, which in the consumer electronics cycle is huge."
Profit warning from Microsoft - Microsoft has warned it no longer expects to hit it's Q3 earnings for its "More Personal Computing" division due to supply chain impacts from the virus. Its Q3 ends March 31st and the divison's activities include windows, Surface, accessories and gaming plus MSN advertising. CNBC Link
Another warning from LOL Surprise! Doll maker MGA Entertainment - There's been several articles due to their (rather vocal) senior execs that I've recently highlighted and this is another - the founder has told Yahoo Finance (Link) that this is the worst disruption he's ever seen. Already one of his most popular toys will be delayed by seven weeks because production has dropped by 60% compared to last year meaning the company will miss Easter. Already he is worried about being able to catch up for the all important autumn season. The company depends on China for nearly 90% of its production and whilst workers are returning to factories, raw material shortages remain a major problem.
No problem with toy manufacturing says Xinhua - The Chinese state news agency carries a report (Link) contradicting MGA Entertainment above suggesting that Chinese toy manufacturing is not experiencing difficulties. It quotes the VP of product development at University Games as saying " The Chinese government and the factories are doing a great job, really planning ahead and making sure that they get ahead of the virus, so that we're ready to continue our operations just as soon as everything is clear". Personal note: The article is somewhat ruined because the examples Xinhua has cited are all companies with annual revenues under $10m USD (according to a quick internet check) whilst MGA Entertainment's revenue last year was $9.6 billion USD. Make of Xinhua's article what you will, I just wanted to point the discrepancy out.
Georgia port (a major US Seaport) expects a hit to the local economy - AJC (A Georgia based news outlet) says (Link) that the state's economy is likely to start taking economic impacts very soon with shipments into the state's ports dropping up to 40% in March and April. Cuts and closures in China have not yet evidenced themselves in Georgia because sailing time is 30 days. About 440,000 jobs (roughly 1 in 9) jobs is dependent on the ports and the commerce that moves through them with half of those jobs based in metro Atlanta. Jobs are likely to be threatened if the problems persist for more than a few months the executive director of the Georgia Ports Authority said. Personal note: expect major European seaports to report the same in a week or two as their time lag is even longer than Georgia's.
Electrical equipment and data centre infrastructure giant Schneider Electric affected - the company says (link) its Q1 revenues could be down as much as €300m (approx $326m USD) due to factory closures in China halting production. Techerati reports that 80% of the factories have now reopened (Personal note: it doesn't say how operational they are which is really important). The CEO expects to make up the losses by the end of the year. The data centre industry as viewed in the article as being fairly shock resistant as they have piles of inventory and can cope until at least March. Nevertheless, some large tech firms are experiencing share price falls whilst one analyst from IDC thinks the worst is still ahead for the industry.
Stock out threats to small-scale Amazon sellers who use China factories - the WSJ reports (link) that Amazon's ranking algorithm heavily penalises products that are out of stock meaning they appear lower in searches. To avoid this, sellers are rising prices to avoid stock outs whilst attempting to shift production to other countries. One Michigan based seller of kitchen products said that he doesn't think the Amazon platform has ever "seen such a massive amount of inventory problems as we are about to see", adding a supplier in Southern China has warned him that even if the local government lets them reopen, they will be short staffed for weeks whilst workers from other provinces self quarantine. Already the kitchen seller is out of two products and his rankings are dropping on Amazon as a result. Amazon is said to be working with suppliers to secure additional inventory plus given advice on how to protect the health of accounts on the platform. The article goes on to give several examples where many sellers will begin to run out of products by early to mid March. It adds that other sellers are already beginning to worry about stockpiling enough Christmas inventory due to the long lead times involved.
Africa e-commerce is also beginning to be impacted - QZ reports (Link) that Jumia (the rapidly growing Amazon of Africa) has said in its Q4 earnings report that immediate growth prospects may be impacted by the Coronavirus outbreak. Its CEO clarified that they are starting to face issues with fulfilling cross border sales and many of its sellers (like Amazon above) are starting to face procurement issues which is affecting both availability and prices.
Indian steel industry woes - Business Standard (a major English language business newspaper in India) says (link) that continued weak demand due to the virus is expected to keep domestic steel prices under pressure. China's domestic hot-rolled coil prices have dropped to 39,000 rupees in recent days although a price rise of 500-750 rupees per tonne is expected from March 1 due to global coking coal prices (a key ingredient) rising due to difficulties in shipping it out of China. Iron ore prices have also dropped due a decline of imports from China due to the virus causing global prices to drop from $125 per tonne to $83 a tonne.
Mining giant Rio Tinto returns a world record dividend but warns of short term supply chain issues due to the virus - Most of the article by City AM (a UK business focused newspaper - link) discusses its results but the end paragraph says that it's closely monitoring the impact of the virus - at present products are reaching its customers. This is one to watch too if the virus lingers for several months.
Labour crunch and supply delays: Some construction firms in Singapore feeling the strain of COVID-19 - Channel News Asia reports (Link) that some firms are having to seek deadline extensions of their projects due to difficulties in getting labour and materials. Their first patient was recorded on Jan 23 and they currently are reported as having 93. The situation is not helped by a mandatory 14 day quarantine for arrivals with travel history to China whilst there's been a sharp rise in Indian and Bangladeshi workers requesting to return to their home country. As with the US hospitals, the Singaporean construction industry is facing a shortage of N-95 masks, necessary when cutting or cement mixing.
Supply chain news round-up for Feb 26 via r/supplychain
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The current situation in China:
Chinese post-outbreak maritime trade in graphs - Freightwaves (Link) has a fascinating article about Cargo metrics (who seem to be a big data company) that reveals the true nature of marine cargo trades to and from China. It is an in depth article but the TLDR is that the graphs are easy to read and the commentary says that bulk imports are "in free fall" although container imports are actually slightly up. Container exports traditionally dip over the Chinese New Year yet they should have bounced back by now but haven't. If you like data displays you'll probably like this.
Logistics update from Bollore - the French supply chain giant Bollore Logistics has updated its FAQ with the latest information (worth a read if you're a forwarder): Link. It clarifies that the trucking situation is slowly easing with a red/yellow/green QR code assigned to residents to track people who are infected. Truck drivers with green QR codes will have no restrictions now for inter provincial transport. So far 100 Chinese cities have adopted the system and it continues to roll out nation wide but some drivers are facing 14 day quarantine when returning from high infection areas. Transport prices have risen between 20-100% due to the shortage of available road transportation but whilst flight frequencies have severely reduced, all airports except for Wuhan are operational and there are limited rail services to Europe.
Small Chinese companies struggling to restart but bigger factories in a better position - the SCMP reports that only 30% of small businesses are back to work with many struggling to find labour resources. Susan Wang, sales manager at a textiles exporter in Zhejiang, said that despite local government notifications at the start of the month that production could resume, “the most optimistic forecast [of back to normal production] would be no earlier than mid-March. Most of our suppliers have only restored less than one-third of production capability,” she said. “Most of the work resumption for small businesses is in the administration and sales departments, but the production part is still paused. All the factories are undergoing a severe shortage of migrant workers”. The government estimates that 10m migrant workers are still trapped at home , unable to return to work. Bigger companies are finding it easier, having chartered planes, buses and trains to get their migrant workers back. The Austrian engineering giant Andritz says it has 80% of its blue collar workers and 91% of its white collars are now back but adds that inter provincial transport of freight remains a challenge.
Economics:
CNN: Coronavirus is fast becoming an economic pandemic (Link) - Four of the world's top 12 economies (between them representing 27% of global GDP) are scrambling to contain the virus whilst Germany is teetering on the brink of recession (as is Italy, even before the virus arrived). The bulk of the Italian cases are clustered in Lombardy which is home to Fiat and many luxury goods makers. It goes on to point out that with many South Koreans likely to stay at home to avoid catching the virus, consumer demand could suffer whilst there's growing consensus that the US Federal Reserve may soon have to cut interest rates.
Shifting production out of China won't be a cost-effective option - China's news agency Xinhua continues a coordinated position that's being struck by several Chinese state owned news outlets that moving supply chains out of China is not possible (Link). It flags up several high profile companies that have restarted operations such as VW and Honeywell, but does not clarify what percentage of normal capacity they're operating at.
Bangladesh food prices starting to rise - Ginger and garlic imported from China has been found to have significantly risen in price reports Freshplaza.com (Link) with only limited supplies available. Garlic was up 70-90 taka whilst ginger is up 20-40 taka. 1 taka = €0.011. Wholesalers are beginning to look for alternative sources including importing from neighbouring India.
Supply chain specialists situation:
Maersk lowers its full year revenue forecast - The LoadStar says that Maersk’s guidance for a mid-point lower ebitda of $200m less than 2019 looks increasingly inadequate, but then caveats by saying it's impossible to figure out what the situation will be over the course of the year noting its competitors have the same problem. The article then goes on to talk about Maersk's 5 year business plan which did not take the virus into account.
Forwarders report cashflow problems - The Loadstar (always a good source of supply chain news if you've never heard of it) says that the ongoing issues with widespread factory and transport shutdowns continues to affect global supply chains causing cashflow restraints for forwarders - some small or medium sized forwarders may struggle to avoid bankruptcy. It flags that smartphone and smart speaker companies are particularly badly affected due to their highly labour intensive operations. The Taiwanese market intelligence firm TrendForce estimates for Q1 2020 that shipments of smart watches will fall by 16%, smart speakers and notebooks by 12% and smart phones by 10% whilst the global auto market will decline by 14%. One Frankfurt based forwarder told Loadstar that more and more customers are complaining that Chinese shipments are not arriving whilst Indian automobile firms are rescheduling launch dates of new models.
Paper documents struggling to move between parties causing delays to shipping - As many will know, the shipping industry is still very paper based rather than electronic resulting in a demand for couriers. Some critical documents such as bills of lading and letters of indemnity aren't arriving in China resulting in ship owners being unwilling to release cargoes to buyers without these documents. This is adding further delays to maritime deliveries. The cause is a shortage of couriers.Link
Port of Los Angeles reports a 25% drop in cargo traffic - Bloomberg reports that the port expects the total container volume in Q1 2020 to be 15% less than the same period last year. Once the outbreak passes, a glut of both full and empty containers in the US will need to be moved back to US which is likely to cause a backlog before it's all cleared creating an artificial spike in traffic volumes in both directions until things stabilise. The article flags that things might not fully settle back down until Q4 2020.
Automotive:
Toyota restarts four Chinese factories - - Toyota says it has restarted production at its four Chinese manufacturing facilities (Link). Plants will operate on single shifts, meaning that they will be operating at half normal capacity. Toyota has been lucky because its factories are located in less affected cities but Honda's factories in Wuhan remain closed. Meanwhile Goldman Sachs says that if normal pre-outbreak levels are achieved by late March, the impact on US businesses will be minimal but adds "The impact might also become much larger if the coronavirus outbreak spreads quickly and slows down activity in other countries, disrupting supply chains further".
No plan B for other automotives - Forbes (Link) has interviewed leaders in supply chain firms about the automotive supply chain situation. “What our clients are learning is that they’re not as prepared as they could or should be,” said Jeffrey Pratt, Supply Chain leader at BDO (an accounting and business services firm) whilst the CEO of LLamasoft (a supply chain strategy firm) predicts that automotive in particular will run out of buffer inventories within the next month, adding that in some cases the automotive supply chain's backup suppliers are also located in China (which is fine for flooding or earthquakes, but not for a widespread epidemic).
Other industries:
More disruption warnings for Vietnam textile industry - Reuters reports (Link) that Vietnamese textiles will face severe shortages of materials in Q2 according to he chairman of the Vietnam Textile and Apparel Association. The industry is the 3rd largest export earner in the country. The reason is due to difficulties in importing materials from China - more than 50% of their materials come from the country. All 16 people infected in Vietnam with the virus have since recovered.
Rubber and chemical supply chains also having problems - Rubber news (subscription required unless you don't mind reading the source html, see Link) says that Petrochemical demand alone could fall by between 2.4 - 4 million tonnes due to the virus. The article goes on to add that China's daily consumption of crude oil has fallen by 1.4m barrels vs. this time last year and that OPEC is still deciding how to react to current market conditions, adding that a shortage of naphtha could impact feedstock balances. Several key companies in these industries say they're not yet affected but are keeping a close eye on the situation and have banned employee travel to China.
Tech - "The worst I've ever seen" - An article in digitaltrends.com reports (Link) on the tech supply chain situation; a tech supply chain consultant says the situation is "horrendous" and we are only seeing the beginning, with many factories that have restarted operating at only 15-20% capacity. The consultant points out that resourcing component parts can take up to 18 months because specialised facilities are required and testing and qualification certification demands are extensive. Whilst other facilities exist elsewhere in Asia, they are becoming overloaded with orders and it may be months before deliveries come through meaning new gadgets could become scarce.
Coca-Cola the latest to warn of impacts - CNN reports (Link) that Coca Cola says in its annual report that supplies of artificial sweeteners may deteriorate if the situation does not improve soon but did not specify which of its various sweeteners were affected. The company estimated its case volume could decline by 2 to 3 percentage points, organic revenue by 1 to 2 percentage points, and first-quarter earnings-per-share by 1 to 2 cents.
More companies issue profit warnings - Bloomberg reports (Link) that Mastercard is flagging that sales and profits are impacting their financial reporting whilst United Airlines has abandoned a forecast citing the unpredictable nature of the outbreak. Meanwhile, Singapore Airlines has pulled more flights through to the end of May and Air New Zealand has also warned of reduced revenue. Other companies to issue warnings include Adidas, Procter & Gamble, Pernod Ricard SA, Nestle and Burberry.
