Gauging The Coronavirus Effect On Supply Chains — And The Last Mile

Production supply chains are likely to feel the impact of the coronavirus as it spreads in China and spreads across borders.

As China cuts off transportation access to and from cities like Wuhan, and dozens of airlines have canceled international flights to the country, the question of just how trade and production gets done — and with whom — looms.

It’s a “last mile” question that has special urgency within and beyond the country, impacting any number of verticals.

Inside the country, as reported by The New York Times, the government has been mandating that farmers increase vegetable production and deliveries of a wide range of foodstuffs to the region. The directive by the Ministry of Agriculture and Rural Affairs has issued a notice to keep supermarkets stocked in quarantined areas.  Keeping Wuhan fed — and making sure it can function, headed into and after the extension of the Lunar holiday early next month — is imperative, as it exists as a national transport hub.

And as a transport hub, Wuhan is crucial for automakers such as Honda and Nissan. By way of another example, the Times reports that Cummins, a U.S. firm that makes generators and engines, has seven sites in Wuhan and does not know when those sites may reopen.

Impact to Tech Supply Chains

Sharp reverberation will likely be felt across tech supply chins. Apple may be among the more visible companies to be impacted, both in its supply chain and its retail presence. In the tech giant’s earnings call earlier in the week, CEO Tim Cook said that there are suppliers in the Wuhan region, and that it had closed a few retail locations.

“Many of the stores that remain open also have reduced operating hours,” said Cook. The company has alternative component sources, and according to the CEO is  also “working on mitigation plans to make up for any unexpected production loss.”

The fact that it is unknown if there will be any production loss is what has in part led Apple to issue a wider revenue guidance range for its current quarter than has been seen in the past.

In other examples of how supply chain shifts have been occurring — and may accelerate — Nikkei Asian Review reported that Pegatron, the world’s second largest contract manufacturer of electronics, will have new factories operational in Indonesia and Vietnam by the end of the year.

The trade war may have spurred companies to think about moving production, and now difficulties with supply chains resulting from the coronavirus crisis may cement those plans, moving them from thought to action.

It takes time, and it takes money, to shift supply chains. Assuming that in the meantime production is severely impacted to, say, auto firms, tech companies, and manufacturing, stock outs could happen, all things being equal. Idle production in China means a disruption to U.S. production, overall, which then means lost revenues.

Cathay Pacific, which is also a major cargo airline for China and Hong Kong, has said it will reduce flights to mainland China by 50 percent to the end of March. Might this have a ripple effect in driving up prices to firms (and their end consumers) as transport also is disrupted? Against a backdrop where spread of the virus is accelerating and widening, it’s hard to see how some impact may not (eventually) be felt by consumers across the globe, should present trajectories continue.