‘No return to normal in sight’ on coronavirus disruption

12 February 2020

Analysts have warned supply chain operations have yet to return to normal as shutdowns and quarantines remain in place in China following the coronavirus outbreak. 

Factories and shops in China were expected to be returning to business this week after an extended New Year shutdown. 

But some provinces and regions have extended shutdowns until 1 March, according to CNBC, as the number of reported cases topped 40,000 worldwide. 

Roger Diwan, vice president, financial services at IHS Markit, said: “Many large companies in China have told workers to remain at home, quarantines for provinces at the centre of the epidemic are still in place, and major manufacturers say their factories remain closed or are running low on manpower. 

“Some areas of the country less affected by the epidemic are returning to work, but a return to normal isn’t yet in sight.”

Plans from Foxconn – one of Apple’s key manufacturers of iPhones – to reopen this week were blocked by Chinese authorities, according to CNN Business.

Last month, Apple CEO Tim Cook told investors: “We do have some suppliers in the Wuhan area. All of the suppliers there are alternate sources and we’re obviously working on mitigation plans to make up any expected production loss. With respect to supply sources that are outside the Wuhan area, the impact is less clear at this time.”

In South Korea, Hyundai announced it would be gradually resuming production at its manufacturing plant this week, after suspending operations due to a shortage of parts following the outbreak of the virus. 

“The facilities will be flexibly operated in line with parts supply status,” the firm said.

Kerstin Braun, president of Stenn Group, said: “Coronavirus has caused China to come to an unexpected halt and it will take some time to restart the world’s manufacturing engine.

“This situation, more than the tariff war, could topple China’s dominant manufacturing position. It’s a wake-up call for companies that took a wait-and-see approach during the tariff war to consider diversifying their supply chains, even though this work is difficult, costly and takes a minimum of one year. 

“We know Chinese GDP in the first and second quarter will be impacted by the effects of the coronavirus and it's likely supply chains will move to Vietnam. We'll also see more advanced goods such as tech going to India, and more apparel going to Bangladesh. The end result would be more balanced global trade relationships.”

Sofia Nazalya, human rights analyst at Verisk Maplecroft, said countries in Southeast Asia including Singapore, Thailand, Vietnam, and Malaysia are facing the greatest knock-on effects of the virus due to their supply chain exposure to China. 

“The coronavirus outbreak has proven to be a black swan event that has already adversely impacted the global economy. [Southeast Asian countries] are particularly exposed due to their reliance on Chinese supply chains, particularly in the textile, automotive, logistics, electronics, chemical, and textile industries.”

Nazalya added commodity prices have also taken a hit, including rubber, coal and palm oil. 

One of the largest challenges is ensuring enough labour to resume operations in China, said Heiko Schwarz, managing director at software firm Riskmethods.

“Due to the quarantine and travel restrictions and bands that are set up across the different provinces, workers that may have travelled for the Chinese New Year are not able to travel back to the manufacturing sites to render the work that they should do.”

Meanwhile, the Asian Development Bank approved $2m in funding to help strengthen response capacity to the virus in Cambodia, China, Lao, Myanmar, Thailand, and Vietnam.

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