Corona Update: What are the consequences for businesses?
The Corona / COVID-19 virus has spread to over ninety countries across the world. The number of people getting infected is still rising, on the other hand, the number of people recovering from corona as well.
What Countries Are Affected Most?
A few countries have been hit harder than others by the virus. The biggest outbreak was in the Wuhan region in China, where the virus seems to have originated. Because of the outbreak, the spreading of the virus and the measures the Chinese government took to try and defeat it, many factories closed down or did not reopen after Chinese New Year. The factory of the world, which is what China is called, came almost to a complete stop. With production facilities closed down to stop the spread of the virus, shortages were just around the corner. And then there is the problem of transportation, which has just started. Products that were ready to be shipped didn’t leave the airports and seaports, as flights and ship departures were cancelled.
Another Asian country that was heavily hit by the virus was South Korea. A large number of companies shut down there as well. For a while, it had the dubious honour of being the number two country in the world with corona cases. While it still holds that position in the Asian region, the second-largest outbreak of the virus is not in Asia, but in Europe.
Italy now has the second-largest number of confirmed infections. After first closing down and “quarantining” the whole north of the country, the Italian government has now decided to close down the whole country. This is has a big impact on the Italian economy.
What Businesses Are Affected Most?
Any business which gets the majority of their supplies from China is impacted, but there are some industries that are hit more severely than others. China is one of the main producers of electronics and related components. Another industry that was impacted is the automotive industry. The main problem for them is their Just In Time production schedules. With almost no inventory on hand, they were among the first to run into problems. The good news is that Factories in China are starting up again, however, there are still huge backlogs and shortages.
Other companies seeing spikes in demand from consumers are online retailers. The Coronavirus is causing a scare amongst consumers. They want to buy in larger quantities to stockpile at their house, and they are also ordering more online, so they don’t have to go to crowded places like supermarkets.
Many businesses have started to look for sources in countries other than China, but that has been challenging as well. With many flights cancelled and ships not leaving port, there is a huge backlog. The problem isn’t just getting the goods from China to Europe and the Americas. Because of the shortage in transportation capacity, it is also difficult to get products out of countries like Vietnam or elsewhere in Asia. It needs to be shipped to hubs in countries from which the US and Europe can be reached by plane, but there isn’t enough capacity.
Unfortunately, it is not yet clear how the situation will develop. Many businesses will be affected, that is for sure. Now that production capacity in China is slowly coming back to speed and the ports and airports are starting to ship out again, the backlog will slowly start to get smaller. It will take months before it’s business as usual again.
With production in China back to around 80%, we will see problems arise further down the supply chain. Looking at ocean freight, for example, it can be something as simple as shipping containers that could turn out to be a problem. With no ships leaving ports almost all containers in China have been filled up. A huge number have been stranded outside of China and they first need to be brought back.
Container shipping lines have a missed revenue of close to two billion dollars and the airline industry has a missed revenue of a staggering 135 billion dollars. The airlines missed a lot of revenue from passengers as well, but you have to keep in mind that around 50% of the cargo shipped via air is transported in the hold of passenger jets.
Make Sure Everything is Checked
Especially now it is important to make sure that all permits, certificates and other documents are in order when you are importing or exporting your goods. Delays are already here, so you don’t want to add even more time to that, because goods are being held by Customs. Fines and import duties that you do not have to pay if you paid better attention.
Especially when you are starting to do business with countries that you have little or no experience with, these dangers are easy to forget.
Talk to one of our specialists, if you have any questions, or if you just want to be sure. They can help you and make sure your goods are imported and exported without delay.
We will keep you posted on further developments.