Coronavirus and new problems in supply chains. How much will the global economy suffer?

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Coronavirus and new problems in supply chains. How much will the global economy suffer?

It’s been almost a month since the coronavirus started to spread, and with it, the problems in logistics and production are increasing all over the world. In some countries, this causes fears of economic collapse, but there are also those who expect dynamic growth after short declines.

The disruptions in factories in China caused by coronavirus break  supply chains and prevent production at industrial plants around the world. The virus hit the mining, automotive, electronics, pharmaceutical, transport and logistics industries in early February. The majority of producers, such as Nissan, Hyundai, Toyota, BMW and Volkswagen, Bosch, Webasto, Huawei, Xiaomi, Lenovo, ZTE, Realme, or Vivo stopped production in their Chinese branches.

Some companies have resumed production in China (e.g. Apple or Toyota, which launched 4 factories closed so far this week), but this does not mean that the problems are over. Last week, Apple told us that “the global supply of iPhone will be limited” as coronavirus affects the supply chain. Although most of the iPhone factories are outside Hubei Province and all have reopened, it will take more time than Apple planned to restore full capacity.  

These shortages in iPhone supply will temporarily affect revenues worldwide,” the company admitted.

According to TrendForce’s latest forecast, sales of products such as smartphones, computer monitors and televisions from manufacturers to retailers will also fall by millions of units in the first quarter of 2020 due to the coronavirus. Car sales are also forecast to fall by more than 8% due to supply and demand disruption since the outbreak.

“The potential unavailability of materials remains the biggest risk factor directly affecting the automotive industry,” TrendForce experts report. 

Although car manufacturers are able to compensate for the shortage of materials through foreign factories, it is still expected that the process of increasing productivity and shipping of goods will create gaps in the entire production process.”

Machine manufacturers solve the problem

The coronavirus has also affected the supply chains of major construction and agricultural machinery manufacturers – JCB and John Deere. Both companies are struggling with shortages of components for production.

JCB has decided to reduce production levels in UK factories. This means a shorter, 34-hour working week for about 4,000 own employees and those from agencies. This will continue until further notice.

“The disruption of the components supply chain in the UK occurs at a time when demand for JCB products is very strong. Although this is very unfortunate, we have to protect the company and our skills base,” said Mark Turner, JCB’s Chief Operating Officer.

Currently, more than 25% of JCB suppliers in China are still closed, and those who have been reopened are working with reduced capacity and have difficulties in shipping. However, the company claims that it has the situation under control and expects a sharp increase in production after a period of supply disruption.

The problems in the supply chain caused by the coronavirus were approached differently by agricultural machinery manufacturer John Deere. The company plans to spend $40 million to speed up shipping to ensure continuity of supply.

DSV seizes the opportunity 

DSV wants to use the potential of the aircraft of the Panalpina acquired last year to fly to China. Since yesterday Panalpina’s Boeings 747-8F are to fly three times a week between Huntsville and Shanghai.

To help our customers deal with some of the disruptions in the supply chain, DSV offers a unique solution through our charter network,” announced the company.

Italy fears the collapse of the economy

For the past week, Italy has also been struggling with the economic consequences of the coronavirus pandemic. This applies in particular to ports, reports the transport association Trasportounito. The organisation is particularly concerned about the port of Genoa. The association believes that the pandemic will also affect imports and exports from Italy, which could fall by up to 20%. 

According to Trasportounito, the coronavirus pandemic, which coincided with the Chinese New Year, affected between 40% and 50% of all truck drivers in such a way that the smooth functioning of the transport chain and container handling in Chinese ports became increasingly problematic every day. By reducing by more than 30% the volume of goods on every ship that sails between China and Europe, “the coronavirus domino effect affects maritime routes in container transport,” the organisation reports. This will inevitably have a serious impact on the handling of goods in Italian ports and terminals in the near future and thus on the entire transport chain.

According to the association, in addition to the crisis in the Italian transport industry, fuel prices can be expected to rise and freight transport and demand for goods can be increasingly concentrated. Trasportounito, therefore, requests the Ministry of Transport to take exceptional measures to protect the Italian economy (e.g. tax relief or temporary tax exemption).

Germany is also concerned about the effects of coronavirus in Italy

The rapid spread of the virus, especially in the north, is affecting the Italian economy and is currently creating additional uncertainty for the German export industry,” said Volker Treier, Head of Foreign Trade at the German Chamber of Commerce and Industry (DIHK).

“The volume of trade in the Italian province of Lombardy with Germany alone is almost as large as our trade volume with Japan,” he added in a statement to the German Press Agency (dpa).

Treier explained that these effects are related to the protective measures taken by the companies with respect to employees on site. “But if the supply chains were to be broken, they would cause production losses.” 

Coronavirus and German ports

The economic consequences of the coronavirus epidemic are likely to be felt in the ports of Wilhelmshaven and Bremerhaven, although the specific consequences for maritime trade with China are still unclear, reports the transport portal “But it is certain it will have an impact,” said Holger Bruns, spokesman for the port of Bremerhaven.

According to the Eurogate terminal operator, at the JadeWeserPort in Wilhelmshaven the effects of the coronavirus epidemic are not being felt at the moment. 

The virus will spread for another month?

CRA Moody’s has revised its global growth forecast downwards by 0.2 percentage points, assuming that the G20 economies will grow at 2.4% per year and China at 5.2%. However, the agency’s analysts expect the coronavirus to stop spreading by the end of March, so that Chinese factories will start working normally. Also, Mark Haefele, Director of the Swiss bank UBS, believes that the negative impact of the virus will be mainly limited to the first quarter of 2020. 

The impact of the coronavirus on growth and profits in the short term may be significant, but it is also likely to be temporary, and the now subdued demand will result in a sharp recovery in growth later this year,” wrote Haefele in a note in early February. 

However, the head of UBS points out that if Europe and North America have to implement such drastic measures as China to deal with the virus, the global economy will suffer greatly.

Photo: Pixabay

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