How the Coronavirus Has Affected Supply Chains In China

Companies from Apple to IKEA to Starbucks are battening down the hatches, trying to figure out how they’re going to navigate a huge, unexpected disruption in their supply chain.

But if you haven’t followed closely you might have a few questions. Just what is this coronavirus? Why is it affecting supply chains so much? And what can you do to safeguard against it?

The Coronavirus Outbreak In a Nutshell

The Chinese wet market is basically a giant farmer’s market on steroids, with just about everything you can imagine coming up for sale. Meats of all types are set out for purchase, with live fish splashing around in tanks waiting for the fishmonger’s cleaver. Vegetables and fruits are set out in long rows under market tents. Blood and melting ice mix underfoot throughout the day as the work of preparing animals for the table goes forward, and this is where the trouble comes in.

The wet market is a beloved part of Chinese culture, but it’s also a fantastic breeding ground for disease. More than many other wet markets, Chinese wet markets are ripe for the spread of odd new bugs. Exotic captive animals with weakened immune systems are all over, making it more likely a strange new disease is able to mutate and cross from animal to human.

The 2002 SARS outbreak was linked back to a wet market, and this new coronavirus has tentatively been linked back to the wet market in Wuhan, Hubei province. Like SARS, it’s a respiratory disease with coughing, fever and difficulty breathing. A few have died so far and the United States has already seen cases of person-to-person transmission.

In China, though, it’s particularly problematic because the disease fell during the Lunar New Year. This new year started January 25, but in practicality, factories begin to wind down even earlier than this.

For the roughly week or so of the new year, factory workers who’ve flooded into manufacturing sectors to work the rest of the year will return to their home provinces to celebrate with their family.

The coronavirus outbreak in Wuhan thus has the potential to impact far more than just the immediate area, because people are traveling around more than they would be the rest of the year.

The Supply Chain Effects

Because of the outbreak, there are knock-on effects for all of China. Employees are staying home. So are factory workers. Many have been advised to stay in their home cities instead of returning to work, and even the ones that return to work may have to deal with quarantines or stay understaffed.

Some factories, especially in Shanghai and Guangzhou, aren’t even bringing people back to work till February 9 or later. Lunar New Year is always a little rough for people who run factories anyway, as some workers decide to stay home, get married or otherwise leave the workforce. But this year is going to be much, much rougher.

Airlines are suspending flights. Apple is trying to reroute its supply chains as Foxconn struggles in the wake of the virus. Car manufacturers are leaving their plants empty for an extra week.

The impact may be felt even beyond China’s borders, too. Though companies are scrambling to find other sources of manufacturing—and many already were, given the tariffs between the United States and China currently—they may not be able to.

That’s because China’s not just a source of final assembly. It’s also the source for many of the parts used in manufacturing elsewhere. Even if your factory is located in Thailand, Vietnam, Taiwan or Malaysia, you’re likely to run into trouble.

The closest comparison we have is the 2003 SARS outbreak, which slowed China’s economy significantly. The same may happen again. Quarantines and travel restrictions both inside and outside China may worsen the problem.

Wuhan in particular is a major transport hub, and many automobile manufacturers are based there. Those industries are likely to be hit particularly hard. Wells Fargo also notes that computer, electrical equipment and machinery are likely to take hard hits too.

What Does This Mean for My Business?

Unfortunately, it’s really hard to say how this will all play out. There are a few things we can state with confidence, though.

First, plan for a significant near-future slowdown in Chinese manufacturing. That might mean a big revenue hit. In the case of smaller manufacturers if they lose key personnel to sickness or death they might even shut down.

Some sources may not open immediately or ever. Start planning for alternate sources.

Unfortunately, if you haven’t laid any groundwork for manufacturing outside of China already it’s going to be pretty hard to pivot this quickly. You may have to ride it out. Most alternate options are already tapped out as big companies have tried to shuffle their manufacturing elsewhere.

Stay tuned to the news and make sure you don’t miss any of the ongoing developments, and make sure to stay in contact with anyone on the ground in China. It’ll be hard going for at least a little while, but hopefully the Chinese health authorities are able to get a handle on the coronavirus soon.