Supply Chain Security
Coronavirus: Understanding the supply chain impact
Since it was reported from Wuhan, China, on 31 December 2019, Coronavirus disease (COVID-19) has claimed thousands of lives and wreaked havoc on economies and supply chains globally.
As the epicenter of the coronavirus outbreak and a critical production center for international businesses, the situation in China is currently having an impact on the movement of goods around the world.
To combat the spread of the virus, officials at the regional level in China put in place restrictions on the movement
of peoples, which affected the ability of workers to go to their jobs. These restrictions vary by region as they are administered at the regional level, but collectively they have been in place for approximately a four-week period.
Even with most of the restrictions now lifted, the resumption of production is still quite slow with many factories still without 50% of their workforce. In fact, a recent survey by the American Chamber of Commerce in Shanghai noted 80% of manufacturing respondents were unable to find sufficient labor to keep their operation lines moving. Much of this is due to the fact that hundreds of millions of migrant workers hadn’t returned to their jobs as of February 14 and many more weren’t expected to return until the end of the month. Even among those facilities with sufficient staffing, there is the added challenge of being undersupplied with face masks, which could delay approval from regulatory authorities to resume operations.
Supply Chain Delays
The sluggish pace of production in China is being exacerbated by constraints on the movement of goods. Where labor is available, input materials for products can often be scarce, as is the availability of inland and inter-provincial freight services. Some truck drivers are required to be in self-quarantine for 14 days, and there are reports that drivers from Wuhan are not being allowed into neighboring provinces.
Furthermore, there’s a lack of dock workers at many ports in China, as well as warehouse workers, creating a backlog in outbound cargo. The situation is made even more complicated by port restrictions in numerous countries on vessels that have recently been to China, which has led to some ocean freight carriers having to drop planned sailings. The outcome has been a significant drop in China-origin cargo reaching the U.S. In fact, the Port of Los Angeles – the gateway for China-origin goods into America – predicts it will see a year-over-year drop of 25% for its February container volumes. On a broader scale, the American Association of Port Authorities, predicts cargo volumes across all U.S. ports could be down 20% in the first quarter of 2020. The decline in port volumes isn’t exclusive to the U.S. For example, Vietnam’s imports from China were down 16% in January.
However, it is important to note the U.S. Coast Guard has not yet placed any restrictions on the import of goods from China or the acceptance of vessels that had been in China in the 14 days prior to their arrival on U.S. shores (the incubation period for the virus). However, ship crew members who have been to China during the 14 days prior to arrival on U.S. shores will not be allowed to leave their vessel, creating potential delays in the unloading and clearance of goods arriving at U.S. ports.
As a result, there is little importers can do to expedite the import of goods into the U.S. or Canada as the delays
are related primarily to production and/or transportation challenges within China.
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