Impact of the Coronavirus on Global Supply Chain

According to Dr. Hau Lee and co-author Corey Billington, supply chain management is the integration of activities that occur at the base of the network to create raw materials, move them into intermediate products and then comes the final finished product and distributes the product to the customer through the distribution system.
 

The global supply chain is the process of transforming raw materials into final products, often occurring in some different countries, transporting products and services from manufacturers to consumers. Through increased globalization and international finance, this process is expanding day by day throughout the world.

Evidence shows that Covid-19 has dramatically affected global supply chains:
As we all know, global supply chains based on the operating principle of "Just In Time". But in the first half of 2020, the Covid-19 epidemic disturbed them. According to Morgan Stanley Investment Bank, by the end of February, the production rate in China could only reach 60-80% of the average level. The supply chain would surely be significantly disturbed in many industries if the supply in China is interrupted.
Also, imports from abroad into China will also be strongly affected when demand is falling, and people stop all normal consumer activities; Nomura Bank - Japan forecasts that China's first-quarter growth will be only 3% compared to 6% of the previous quarter. The longer the crisis of health, the more difficult it is to transport goods around the world. Recently, Dun and Bradstreet estimated that about 22 million businesses - equivalent to 90% of all businesses operating in China, are located in the area affected by the disease. Accordingly, at least 56,000 companies in the world will suffer damage due to the coronavirus spread, "tier 1" and "tier 2" vendors.
 

(i) Flow of goods - commercial activities are interrupted
According to UNCTAD (United Nations Conference on Trade and Development), currently, about 80% of goods transactions in the world are being transported by sea. Moreover, 7 of the 10 largest container ports in the world located in China. The country is the world's manufacturing hub, so the closure of factories and industrial centers in China has greatly affected container shipping, as it is a significant factor in both internal supply chain regulators and global supply chains. Not only that, but this will also affect many industries and limit the need to transport goods by containers. "
 

Many companies shipping cargoes from China to the rest of the world say they are reducing the number of shipping vessels because of measures to prevent the spread of Covid-19, and this is threatening to destroy the Global supply chain.
Some of the global production chains, supply chains, and production facilities in China have been temporarily interrupted; the most affected is the supply chain of electronic components and phones. , high technology, auto parts ...
This pandemic has caused some companies to stop production: Hyundai Motor Corporation recently announced that they had suspended production at their factories in South Korea because of the disruption in the supply of Chinese supplies and components. Ericsson AB - the Swedish telecom equipment manufacturer, said the company had suspended production in China. Airbus has temporarily closed a factory in Tianjin, China .. Besides, this pandemic also disrupted the smartphone manufacturing industry like Apple.

(ii) Supply chain disruptions - The supply time is prolonged because of epidemic control.
Due to the disease's impact, many commercial agencies and factories were closed, which led to ships not being able to dock, and many other ships stuck at ports because there was no machinery worker cargo handling equipment. In addition, there are still many ships that have been denied entry to port and stranded at sea.
 

While many countries such as Australia, Singapore, India, ... refused to allow ships that had Chinese ports to enter their ports until the crew was declared not infected with the Coronavirus.
Many large shipping companies such as Maersk, MSC, Hapag-Lloyd, or CMA-CGM said they had to reduce the number of ships, reduce shipping capacity on routes connecting China and Hong Kong with India, Canada, United States, and West Africa.
Such a strong drop in transportation demand is also reflected in the recent changes in oil prices. The backlog of shipments usually takes place after the Lunar New Year and will be made worse by the current plague, which pushes up ocean freight rates and also increases transit times.
The outbreak of Covid-19 in China had a substantial impact on global supply chains and accelerated the movement of supply out of China, which was dubbed the "world's factory".

(iii) The movement of global supply chains:
As production and business activities stalled due to the long closings of cities and factories, supply chain changes, which began in the U.S.-China trade war, continued to change. And change more reliable than ever. Multinational corporations did not anticipate the risks of relying too much on the China-Asia supply chain.
 

The shortage of labor due to the shutdown of manufacturing factories has adversely affected the logistics sector, such as transportation, especially for the transport of frozen goods.
According to Reuters: "Many vessels carrying frozen chicken containers from the US to China are being transferred to ports in Hong Kong, Korea, Taiwan ... because ports in China are full of space for reefer containers because they need to have electricity."After all, retailers and manufacturers still want their products, even though they're still using inventory," said Jeremy Nixon, CEO of Ocean Network Express. However, in some places like North America, current inventory is quite low, so they need to add more.
Therefore, retailers, as well as manufacturers, have begun to review their supply chains when they are running out of inventory, Nixon said. Accordingly, they are paying more attention to the countries in Southeast Asia to make up for China's shortage.
The supply chain is a competitive weapon of the business. Companies such as Wal-Mart, Dell, ... all understand that the supply chain is a vital difference. They are constantly forced to find ways to add value, expand boundaries of performance, and always improve their supply chains to stay ahead of the competition. They know that today's competitive advantage will be a barrier to their competitors tomorrow.
That strategic change stems from a trade war between the US and China. Now the outbreak of Covid-19 in China is making this process accelerate.
According to Qima's report, a Hong Kong-based supply chain inspection company, US buyers have started to divert supplies from China, with demand in 2019 down 14% compared to 2018. Most of this shift is toward Southeast Asia and Taiwan, where demand from American brands increased by 9.7% in 2019 compared to 2018; and South Asia, where demand increased by 37%.

(iv) Air and road transport is also interrupted
Nevertheless, in the face of the current epidemic situation, not only sea transport but also air and road transport are affected. According to a statement on the website of IAG Cargo - an air transport branch of the parent company IAG of British Airways, since Monday they have canceled all services to and from mainland China in at least for the rest of this February, based on citing the travel advice of the British Government.
Germany's DHL Group has issued a report on "serious disruption" for domestic and foreign air shipments, road, and rail freight services. "We have a big impact on manufacturing and supply chain operations in China in industries such as automobiles, pharmaceuticals and healthcare, high-tech manufacturing." Other carriers like UPS and FedEx Express said it had been noted that demand for their services is declining due to the current closure in China.
However, in the current epidemic, not only sea transport but also air and road transport are severely affected. According to a statement on the website of IAG Cargo - an air transport branch of the parent company IAG of British Airways, since Monday they have canceled all services to and from mainland China in at least for the rest of this February, based on citing the travel advice of the British Government.
Germany's DHL Group has issued a report on "serious disruption" for domestic and foreign air shipments, road, and rail freight services. "We have a big impact on manufacturing and supply chain operations in China in industries such as automobiles, pharmaceuticals and healthcare, high-tech manufacturing." Other carriers like UPS and FedEx Express said it had been noted that demand for their services is declining due to the current closure in China.

 

Editor: Nguyen Van Dung