China's PMI (Purchasing Manufacturers Index) for February at lowest level since 2009 - Yahoo Finance has an article (
link) saying that activity in China's vast manufacturing sector likely shrank in February at the fastest pace since the global financial crisis. The PMI index is set to fall to 46, a level not seen since then. Anything under 50 indicates contraction instead of growth. It's a sign of the enormous economic damage the virus has caused Yahoo says and goes on to flag that many companies continue to struggle to find enough labour. The Chinese president is continuing to reassure world leaders that he expects China to hit its growth targets regardless of the virus issues.
DeutschePost DHL announces strong 2019 FY results - Transport intelligence reports (
Link) that DHL Group revenue was up by 2.9% to
€63.3bn with all five divisions contributing to this performance. The group’s operating profit (EBIT) improved significantly, by 30.6% compared with the previous year in which earnings were impacted by one-time effects. The group continues to invest heavily in profitable growth including a spend of €1.1bn on renewing some of their Express airplane fleet; the new planes are 18% more efficient helping to contribute to the group's sustainability goals. “Deutsche Post DHL Group had a very good year 2019 and a successful start to 2020 in January. Thanks to our broad geographic set-up and our comprehensive portfolio we are more resilient than other companies. However, a worldwide crisis like the Coronavirus does not leave us unaffected. It is currently hard to judge how strong the impact on our business will be,” said CEO Frank Appel.
(Personal note: I met Frank Appel at an employee summerfest when I worked in the group's global forwarding global HQ in Bonn. My friend asked him what he does to relax, he told us he likes to read up on the latest developments in neuroscience - he has a PhD in neurobiology - which was a rather unexpected answer). (Second personal note, if anyone's interested in the group's CO2 emissions, their 2018 corporate sustainbility report says on page 93 (link) it was 29.48m tonnes of CO2, slightly more than Sri Lanka's (link)).
Vancouver port being hit by import slow down - Supplypro.ca reports (
link) that volumes at the port are experiencing a larger than normal trade slowdown. It adds that the port's CEO "If the virus continues to spread, market quarantines could severely dent trade with Japan and South Korea, which together with China account for well over half of freight volume at Canada’s Pacific gateway." The port has additionally been affected by rolling blockades restricting access to the port by demonstrations in support of Wet’suwet’en hereditary chiefs opposed to a natural gas pipeline slated to bisect their traditional territory in northern British Columbia.
Other ports warning of economy impacts to their local hinterlands -Other N American ports are now starting to warn of negative economic impacts to their hinterlands. South Carolina says problems are starting to develop involving KION (a major forklift manufacturer) as well as poultry and pork producers (
Link) whilst a lack of empty containers may soon cause issues for exporters in Texas trying to use the port of Houston (
Link).
Experts warn of significant impacts to Detroit due to its bias towards manufacturing - The Detroit news reports (
link) that Michigan's manufacturing roots — with 14.2% of employment based in manufacturing compared to 8.5% nationally — will leave it more exposed to the potential for production slowdowns and layoffs from the virus' impact on supply chains. "I think it's absolutely going to have some impact on production in North America because we source not only stuff from China but stuff from other countries that has Chinese content," said Kristin Dziczek, vice president of industry, labor and economics at the Ann Arbor-based Center for Automotive Research. "We haven't seen this kind of viral outbreak with this level global integration on the supply chain to really know what's going to happen." Impacts could vary from some trim levels being unavailable through to complete production line shutdowns depending on what parts are unavailable.
Nearly 9% of global container shipping fleet now inactive -Supplychaindive says (
Link) that a lack of demand and quarantine measures has significantly reduced the amount of active ships; inactive TEU capacity is now 2.04m TEU (Twenty foot Equivalent Units, the industry standard measure), this is 500,000 more than at the peak of the global financial credit crisis in 2011.
South Korean container line cuts executive salaries by 10% - Splash247 reports (
link) that SM Lines has cut its executives salary by 10% as it wrestles with a significant drop in traffic between China and South Korea. SM Line, part of South Korean construction firm Samra Midas Group, operates a fleet of 17 containerships with a total capacity of around 74,000 teu. It has recently been selling a significant tranche of its fleet. It concentrates on intra-Asia tradelanes which experts say are the worst affected.
United reduces flights to Asia as outbreak spreads - Freightwave has a short article (
Link) that United Airlines has further reduced flights to Asia due to the spreading outbreak with flights suspended to Tokyo and Osaka, Japan, Singapore and South Korea.
Apple CEO however views the supply chain issues as temporary -Fortune says (
Link) that Apple will not make any sudden moves out of China due to the virus, viewing the situation as only temporary. “We’re talking about adjusting some knobs, not some sort of wholesale, fundamental change,” he said in an interview aired Friday 28th February on Fox Business. He deflected questions on whether it would impact their Q2 results (Q2 for them starts in June) but added that he’ll be watching the coronavirus situation unfold in Korea and Italy since Apple has suppliers and businesses there as well. “It’s very important to see what happens there,” he said.
Harvard Business Review: How Coronavirus could impact the global supply chain by mid March - The HBR (which is an excellent business journal, I subscribe to it) has an article (
link) about the supply chain impacts of the virus. It points out that ships leaving China just as the outbreak became a clear problem will be arriving here in Europe now and there won't be much coming afterwards for months. It will lead to supply chain outages by mid March the journal explains and quotes Allard Castelein, the CEO of Rotterdam harbor
as saying, “The effect of the coronavirus is already visible. The number of departures from Chinese ports has decreased by 20% these days.” Activity at the French port of Le Havre is also slowing and
could drop by 30% within two months.
Textiles industry problems extend to Latin America - WWD says (
link) that significant issues are occuring in the industry across Latin America due to Chinese import delays. It adds that this will have a knock on effect with delayed deliveries into North America for consumer sales. Some raw material production exists in Latin America, but not enough to meet production demand. In Mexico, trade association and brand executives making collections for the likes of Levi’s, Tommy Hilfiger and Disney have reported bottlenecks importing raw materials from China, but insisted they don’t yet foresee production delays for shipping apparel to the U.S unless the problems extend beyond 60 days.
Longer term implications of Covid-19
I've highlighted a few editorial opinion pieces about the dangers of being too reliant on a single country in the past but the Economist Magazine has provided a really good article today (
Link, requires subscription unless you read the source of the page). It argues that in the case of pharma supply chains, China has not been dominant for that long, noting that America's last penicillin fermenting plant only closed in 2004. Warnings in the US about the dominance of China in the global pharma supply chain have been coming for a while the article adds; a senior Pentagon official, Christopher Priest (acting deputy assistant director for healthcare operations and Tricare for the Defense Health Agency) declared in hearings in July 2019 that “the national-security risks of increased Chinese dominance of the global API market cannot be overstated.” The article concludes by quoting several senior thinkers on industrial policy that it's likely that once this is over many supply chains will be remodelled to reduce their dependence on Chinese cost and operational efficiencies in order to reduce supply chain security risks by having all their eggs in one basket.
Another decent editorial opinion piece comes from Bill Gates. Familiar with global health care due to donations of several billion dollars over the years through the Bill and Melinda Gates foundation, he discusses the measures needed to take to fight this outbreak and to prevent the next one including better international data sharing and keeping drugs available at an affordable price for all. So far the Gates's have pledged up to $100m to fight Covid-19. It's an interesting piece (but not supply chain related); if interested you can find it here (
Link)
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