The eyes of the world are watching the daily updates as the virus spreads. Context has left the building (seasonal influenza appears to be more infectious and more deadly at the time of writing). Just like with SARs, there is fear and hysteria. The WHO have now been let into ‘ground zero’ to help manage the contagion and the Chinese Government are putting more resources into managing the outbreak. Talk of containment are more frequent.
However, China is largely ‘on pause’. Mass quarantining on an unprecedented scale has been implemented across the planet’s most populous nation. 760 million people are in effective lockdown, with movements to and from apartment blocks being controlled and, in some locations, each household is limited to one family member leaving every couple of days. Places where people congregate are being avoided. In major cities, offices are quiet as staff work remotely at home. Restaurants, bars, shopping malls are ghostly silent. Schools have been suspended. Travel restrictions, both internationally and domestically have left transport hubs idling. China’s central bank is even going disinfect and store used banknotes before re-circulating them. Uncertainty prevails with no known end in sight, just the constant update to the numbers; cases confirmed, deaths and recoveries.
What does this mean for China sourcing? What does this mean for Asia Sourcing more broadly? The Chinese manufacturing sector had already been hit in 2019 by Trump’s tariffs and this outbreak has further deepened the impact on factories across China.
From a China sourcing perspective, the current picture is one of confusion, with local municipal authorities implementing their own preventative measures. This requires each factory to submit detailed records of where workers have been, potential quarantines and additional preventative measures on the factory floor. The net result is that although large swathes of China’s manufacturing belt have ‘officially’ been opened from the 10th February, factories have not been granted permission to open at a local level or, if they have, they are still waiting for non-local workers to either return or complete a 14 day quarantine period.
The impact on the Chinese workforce.
Other than Hubei Province – on complete lockdown – you will need to understand the individual circumstances of each factory. How many non-local workers do they have as a mix of the entire workforce? When will permission to open be granted? What will be the capacity and output when they open? Are there any bottlenecks further down the supply chain with the supplier’s suppliers?
Beyond the factories, transporting goods to warehouses and through the Ports will likewise be problematic. There will be inevitable disruption as Carriers have removed capacity, and as output picks up it will take time to adjust to bring capacity back (and potentially address a surge in outbound shipments).
Asia manufacturing will undoubtedly also be impacted. China’s size and scale has cast a shadow across its South East Asian neighbours. For example, components that are usually shipped from China to Vietnam’s factories will be delayed. Chinese managers, who are often commonplace in factories beyond China, will be stuck due to travel restrictions imposed in some countries. There is therefore no doubt that the ripples of this outbreak are not solely limited within China’s borders but will be felt across the world from the factories of Asia right through to retailers and Brands.
Although this was certainly not part of our predictions for 2020, we have been speaking to our factories and partners across China to get some insight on what this will mean. Clearly there are still a lot of unknowns but China and its workers want to get back to work. They need to.
1. Impact on Shipments
As a broad estimate, we are seeing this adding between 2-4 weeks to shipments post CNY. You need to understand what the impact is at a factory level and when the situation can begin to ‘normalise’.
2. Stock Levels
Given the disruption, it is essential to try and ensure that you have priority when it comes to capacity. Add volume to upcoming orders, and quickly, to both confirm capacity and to replenish stock levels given the potential inbound delays. It may also help to place stand alone replenishment orders that can quickly be produced and shipped out.
3. Development Cycles
It may be that development cycles have been impacted and critical paths have missed certain milestones. Look at how you can fast-track these to make up time, or by using technology (for example, photos rather than waiting for couriers to ship to your home country).
4. Other Countries
Although it always takes time to onboard suppliers, it may be that there are opportunities in other markets across the Asia sourcing spectrum. India and Vietnam are good options.
Just like after SARs, when there was a bump in economic activity, it is likely that there will be a surge in both orders and shipments coming out of China once factories have worked through the preventative measures that are needed on site. In particular, this may impact freight rates in the short term. Make sure you are leveraging any relationships you have with your carriers in this regard to secure ship dates as well as good pricing.
The impact of this outbreak has been unprecedented, having been amplified by the timing around the CNY holidays and the movement of some 700 million people. We are constantly working with our suppliers in China to get timely and accurate updates to our clients.
At ET2C, we are always looking to find solutions for our clients. Should you have any queries on China sourcing or more broadly Asia sourcing and new opportunities, please contact us at email@example.com.