The impact of Coronavirus on global supply chains

coronavirus

The recent corona virus outbreak that began in China now has over 75 thousand reported cases and over two thousand deaths, which has consequently impacted the global supply chains. It was first detected in Wuhan city, Hubei Province. On February 11, 2020, the World Health Organization named the disease the coronavirus disease 2019 (abbreviated COVID-19).


It has been dubbed Novel Coronavirus or nCoV as it is a new strain of coronavirus that has not been previously identified in humans. Coronaviruses (CoV) are a large family of viruses that cause illness ranging from common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV).


As with other respiratory illnesses, the infection can cause mild symptoms including a runny nose, sore throat, cough, and fever. The virus has been reported to be more severe for some persons and can lead to pneumonia or breathing difficulties. In rare occasions, the disease can be fatal to older people and those with pre-existing medical conditions. These individuals appear to be more vulnerable to becoming severely ill with the virus.


So far there isn’t any dedicated medication to prevent or treat the novel coronavirus. However, those infected with nCoV are advised to receive appropriate care to relieve and treat symptoms with existing medications. Those with severe illness should receive optimized supportive care.


There are some treatments that are under investigation and are pending clinical trials. Currently, the World Health Organization is helping to develop medicines with a diverse range of partners.


This virus has been observed to spread mainly from person-to-person.
•    Among people who are in close contact with one another (within about 6 feet)
•    Via respiratory droplets produced when an infected person coughs or sneezes. These droplets can land in the mouths or noses of people who are nearby or possibly be inhaled into the lungs.


When it comes to the economy, today’s supply chains are global and more complex than they were even a decade ago. Not only are Chinese factories affected by lockdowns and quarantines, production sites in other countries are already running low on parts because of shortages from China. For example, Apple works with suppliers in forty-three countries, all of which receive components from the company’s contract manufacturers in China and as a result, is facing a considerable shortage these days.


According to Reuters, another example of disruption is that ships carrying refrigerated cargo containers of chicken from the U.S. to China are being diverted to ports in Hong Kong, South Korea, Taiwan and Vietnam as ports are running out of space for refrigerated containers that need to be plugged into electrical sources.


The effect this has on supply chains is called the supply-chain bullwhip effect. A retailer experiences a drop in demand for a product and surmises that future sales will also be lower. The retailer concludes that current inventories are too high and cuts orders to the wholesaler by twice the amount of the drop in demand. The wholesaler, using the same logic, cuts orders to the manufacturer by double that amount, or four times less than the retailer’s drop in demand. And so, on and so forth down the chain. This pattern reverses only when demand revives.
Commercial data and analytics company Dun and Bradstreet estimate that there are around 22 million businesses (90% of all active businesses in China) within the regions impacted by COVID-19. This is likely to impact at least 56,000 companies around the world with suppliers either directly or indirectly.


Another major concern has been that U.S. buyers had already started moving their sourcing away from China before the spread of nCoV. Much of the manufacturing moved to Southeast Asia and Taiwan, with the onset of nCoV, this shift has increased its pace.


With regards to the Indian perspective, the outbreak of the virus in China has hit manufacturing and exports sectors, particularly medicines, electronics, textiles and chemicals. This is not insignificant as China is India's biggest source of intermediate goods, a sector worth $30bn a year. Up to 70 percent of active pharmaceutical ingredients and close to 90 percent of certain mobile phone parts come from China.


Global efforts to control the epidemic are underway by multiple nations and coordinated international initiatives are being undertaken. It is advised that basic hygiene be followed such as washing of hands regularly and wearing masks in public spaces like airports and train stations.


The effects of the coronavirus on supply chains is already evident and much rests upon the international scientific and healthcare response to the outbreak. Countries are not taking the issue lightly and are making concerted efforts to quarantine, provide medical access and control the spread of the disease.

This blog was authored by Kartikeya Saigal.