Covid-19 update Friday 28th February
https://www.reddit.com/r/supplychain/comments/fasn11/covid19_update_friday_28th_february/
Good morning from the UK. Happy Friday. Apologies in advance if I don't get an update out over the coming weekend.
Virus update first:
Infection overview - The FT (
Link) is reporting that four Iranian MPs so far have tested positive whilst the same blog reports that 1,000 people have been quarantined at home in the West German town of Heinsberg and that Nigerian authorities have now confirmed the first case in sub-Saharan Africa (an area that is viewed as being least prepared for an outbreak due to poor health infrastructure).
Panic buying has spread to NZ - The country has reported it first case from a passenger arriving on an Emirates flight. "Massive queues" have been reported in some supermarkets with heavy demand for water, hand sanitiser, soap and tissues. Checkout operators say it's busier than at Christmas time. (
NZ Herald Link)
Beijing crowd gathering restrictions - In a measure to stop the spread of the virus, Beijing authorities have introduced new rules including an average of 2 square metres per customer in supermarkets (causing queues to develop) and ten of the capital's most popular parks are now restricted to only 30% of maximum capacity (
Link to Xinhua article)
Global statistics - Multiple countries have now announced detections of the virus bringing the total to 50 countries; at time of writing there are 83,310 confirmed cases and 2,858 deaths. Source: WHO Dashboard:
Link.
Capital Economics has been providing a page tracking the virus in graphs that's available to the public (hat tip to The Guardian for highlighting it) - if you like graphs check it out here:
Link. The same company also says that the Chinese economy will contract in this quarter making it their worst quarter for over two decades.
Economics
Stock markets dropping around the world - Many stock markets are continuing to drop sharply with tourism / aviation stocks worst hit - at time of writing IAG (the owner of British Airways and Iberia) is down 10% today on the FTSE. The South Korean stock market finished with an 8% drop this week, the Europe-wide Stoxx 600 index is down 11.4% for the week (the worst performance since 200
, in Tokyo the Nikkei closed 3.67% today, in Sydney the AX200 was down 3.2%, Shanghai is down 2.95%, Hong Kong down 2.65% and yesterday the Dow Jones in the US experienced its largest ever points drop. Crude oil is down 3% and testing the $50 a barrel mark whilst safe havens such as gold and yen are up. Source: multiple, mainly (
Live Guardian blog)
Supply chain specifics
Honeybee supply chain collapsing - The Chinese honey industry (responsible for 25% of global output) is reporting that travel restrictions have severely impacted it because beekeepers cannot transport their hives to areas where they would normally feed. As a result, multiple bee colonies are starving to death says Naturalnews.com (
Link). In addition to disrupting the honey industry, the series of travel bans are also affecting other crops, specifically those that are heavily dependent on bees for their pollination. Currently, out of the 100 crops that make up about 90 percent of the food eaten around the world, 71
rely on bees for reproduction. This figure includes about 85 percent of the fruits produced in China, such as apples, oranges and grapes. The honeybee plays an irreplaceable role in growing almonds, pears and peaches as well as strawberries in greenhouses.
Major British clothing retail chain Primark looks to move away from China - The head of the finance unit at Primark owner Associated British foods has stated the company is exploring whether existing suppliers in Turkey, Bangladesh, Cambodia, Vietnam and Eastern Europe can pick up the China slack (currently China accounts for more than 40% of Primark's total imports). They state they have good inventory for several months but shortages may result if delays become prolonged but some parts cannot be made outside of China. The group expects a rise in sales of 4.2% this year.
Textilegence.com Link
Myanmar textile industry hit by supply chain disruption at their own ports - The Myanmar Times reports that several garment, footwear and bag factories around the city of Yangon has had to shut down or reduce operations due to raw materials shortages. The issue here is a bit different than in Vietnam; there are lots of containers of raw materials that have arrived but are not being released by authorities who are saying they may hold the containers for 2-4 weeks for inspections or quarantining. The chair of one of the industrial zones said the situation highlighted the need for Myanmar to develop the capability to produce raw materials within the country.
Link
American Micro-level example of supply chain issues - WBUR in Boston Massachusetts has written an article on the issues facing a maker of bike racks and other accessories. 80% of their manufacturing is done in Guangdong province in the Southeast of China. Their factory is up and running again but the company needs to catch up and is faced with not just a backlog in the factory but increased shipping costs due to high demand. The situation is worse for Vibram, a maker of footwear and rubber soles. It has three factories, one local to Boston, one in Guangzhou in China and the other in Milan which is the latest hotspot for virus infections. Their plan B to get the American and Italian factories to take on the slack from China is having to be reworked into a plan C or D.
Link
Port of Long Beach in California experiencing a slow down - the local newspaper LB Post reports that low cargo numbers have led to an overall slowdown at the port. As with the Los Angeles and Georgia ports yesterday, the executive director is warning it could have a major impact on the economy adding that labor levels have not been this slow for 4-5 years with rail and truck activity down 25%. They are optimistic things will get moving again once factories return to 100% and are working on being prepared for a surge. Several local regions in California have declared local energy despite no current cases.
Link
Kuwait bans some foreign ships - Port and Terminal.com is reporting that ships arriving our departing to China, Hong Kong, Singapore, Japan, South Korea, Italy, Thailand and Iraq will be banned until further notice with an exemption only for oil sector ships.
Link
Lloyds report drops in spot rates in container shipping markets - Lloyds List reports that faced with shrinking revenue and increased losses, spot rates are beginning to fall with the Shanghai Containerised Freight Index showing significant declines; Asia-Europe rates are down more than 12% from pre new-year levels, Transpacific rates are down 6-8%. Some operators have tried to offset these falls by blanking (cancelling) some sailings but this has led to more idles - currently 3.7% of the global container fleet is now idle, up from 3.4% last month before the Chinese New Year. The article adds that further blank sailings may double the idle fleet percentage in the coming weeks. Meanwhile in the ports, non local drivers from low risk regions will no longer have to face quarantine, the intention is which to significantly boost the amount of available truck drivers to reduce the port congestion in China.
Lloyds List link
Tanker charter rates down over 80% - Reuters reports (
Reuters Link) that tanker charter rates are down more than 80% due to the virus impacting major economies although there are hopes for a rebound later this year.
Scotland's health system checking on medical supply chain - the Herald Scotland newspaper reports an email has been sent from the procurement department of NHS Scotland to suppliers asking them to report if they are experiencing or expect to experience any issues with supplies. An anonymous supplier told the newspaper "It doesn't reassure me as it's a bit too late. If medical supplies are coming from China, then they would have left for the UK ages ago". Scotland's chief medical officer advised it's highly likely Scotland will see a positive case and cautions that major sport, music events could be banned across the country.
Link
Vietnam supply chain issues likely to linger for months - An article in the South China Morning Post (
Link) reports gives an example of one packaging firm in Vietnam which expects a significant drop in sales in the months to come. “If companies like Flextronics and Apple cannot produce products, then they do not need packaging,” Donegan said. “February numbers at my company will be a disaster. We want to get back on track for May or June, but it is uncertain at the moment. We do not have to make lay-offs for a while, we will see where we are at the end of March, but it is all depending on factories reopening in China.” Meanwhile, Samsung's very large smartphone plant in Vietnam is estimated to be operating at between 50-80% according to insiders, basing the estimate on volumes leaving the plant. The company was responsible for 28% of all Vietnamese exports in 2017 meaning a slowdown would have a significant impact on the Vietnamese economy. A supply chain director was also quoted anonomously as expecting big MNCs (Multi National Companies) such as Samsung, Nestle and Procter and Gamble may run out of supplies by mid March.
Air Asia defers plane deliveries and starts negotiations to reduce leasing costs - the budget airline has deferred 78 next generation A330neos and is aiming to return some leased planes early. Currently the airline has 24 planes. Air Asia's share price dropped to a new record low as it also posted another annual loss.
Link
Editorial: The problem of deeply interconnected supply chains - "Think about it: one-third of the world’s manufacturing capacity was idling for weeks and is still idling. That’s a big deal" says the financial post. The article goes on to explain that modern supply chains often involve multiple producers before the final product is produced (which won't be news to any else who works in the industry). Of more interest though is that it quotes unnamed Chinese officials as saying the work resumption rate in Guangdong and Shanghai is now back over 50%, but 65% of electronic manufacturers in the US have been told by suppliers there are shipment delays whilst the US construction industry is also likely to experience delays due to 30% of their products coming from China (personal note: already reports have emerged of delays in construction in Hong Kong and Shanghai so this seems very likely). The article also points out that it takes 2-4 weeks for shipments to sail from China to the US and this is the fourth week of the Chinese shutdown so soon we will start to see significant supply chain disruption for the North American economy. One supply chain academic at the end of the article suggests that additional backlogs could be created once things return to normal if post-coronavirus production is routed to domestic Chinese consumers first.
Link
Longer term impact
New bill aims to protect US medical product supply chain amid coronavirus outbreak - Yahoo Finance is reporting that Republican senator Josh Hawley introduced a new bill yesterday aimed at protecting the medical product supply chain in light of the virus. It would require manufacturers to report imminent or forecast shortages of live saving of life sustaining medical devices (just as they do for pharmaceutical drugs), all the FDA to expedite reviews of essential devices that require pre-market approval and increase the FDA's authority to request information from manufacturers of essential drugs or devices including where they source from and the use of any scarce raw materials. Democrat senators are also asking for more information from the FDA and there is growing cross-party consensus that there's an excessive reliance on China for the medical supply chain.
Link to Yahoo Finance article
EDIT: Rubber soles not robber soles
EDIT 2: 16:40 UK time - just seen a report on CNN that Corona beer is struggling with a brand launch campaign in the US due to connotations with the virus; a small survey of just over 700 drinkers found that 38% of Americans wouldn't buy Corona under any circumstances due to the virus whilst another 14% wouldn't order one in public. There's no relation between the virus and the beer brand other than the name similarity.
https://edition.cnn.com/2020/02/28/business/corona-beer-marketing/index.html
losangeles.cbslocal.com
