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Coronavirus and its impact on the global supply chain

Updated: Apr 29, 2020

As I wandered through the empty aisles of a local supermarket recalling the news and chewing over conspiracy theories as to the cause, origination and purpose of Covid-19, my thoughts turned to its effect on businesses as we have seen some of the biggest impact to economies caused by Covid-19 since the subprime mortgage crisis of 2008.

With global cases of the Coronavirus, Covid-19 surpassing 3.1 million (at the time of this article being written on the 6 March, the global case count was just over 100k), in this article we take a look at the disruption caused to the world’s supply chain.

  • (Sport and Entertainment) Rugby’s Six Nations, match between England and Italy has been cancelled. (Impacts SME suppliers of Security services, food and beverage providers, delivery couriers)

  • (Tourism) FlyBe gone into administration. (2000 employees lose their jobs, SME providers of inflight meals and consumer goods affected. Hotel reservations are down. This impacts the SME providers of fresh produce which in turn impacts the Farmers)

  • (Economics) The US central bank has slashed interest rates in response to mounting concerns about the economic impact caused by Covid-19. (Impacts the cost of borrowing)

  • (Technology) Microsoft stated that its ‘More Personal Computing’ segment was experiencing uncertainty in its revenue projections as a result of the Coronavirus. (Impacts shipping and haulage firms, many who are self-employed drivers)

  • (Logistics) The Wall Street Journal reported that U.S. Ports were likely to see a slump in cargo volume.

  • (Haulage) As Chinese factories struggle to ramp up production, containership operators have cancelled nearly 60 trans-Pacific sailings to the ports of Los Angeles and California. Carriers have cancelled roughly 110 trans-Pacific sailings to North America from early February to early April, according to Denmark-based maritime research group Sea-Intelligence.

Supply chain impact

The SME Supplier community provides services to many of these large organisations who rely on their transactions for revenues. With production at the Chinese manufacturers down for components used to produce things like iPhones, there are less product to be hauled to the ports.

With less product at the ports for shipping, there's a reduced need for Couriers to collect and dispatch products. With reduced product for delivery and slowing footfall through high street retailers, there's less need for a full complement of staff. Some staff now work on zero hour contracts so many employees will not be receiving a full salary as a result of employers keeping down their overhead costs.

"94% of the Fortune 1000 are seeing coronavirus supply chain disruptions"

There are winners

Ironically, there are some industries who do exceptionally well during times of ‘Special Situations’. In the world of Investment Banks and Asset Managers:

"A special situation is an unusual event that compels investors to buy a stock or other asset in the belief that its price will rise. The special situation by definition has little to do with the underlying fundamentals of the stock or any other rationale that investors ordinarily use to select investments."

In the instance of the Coronavirus, Pharmaceuticals as a sector can thrive. We saw the share value for Alpha Pro Tech, Ltd rise to over 500% for a period as demand for their medical face mask outstripped supply.

Additionally, Financial Spread Betters were set to make large fortunes (millions of dollars) gambling that the markets would fall in value. In the image below, you can see the Dow Jones fell by some 4000 points. Spread Betters gamble the market will go Up or Down and put a set $ value on each point the market moves in the direction they think.

Example: Day Trader gamble the market will go down (short) 10 points so s/he gambles $10/point. If the market behaves as they gambled, they set to make $10 x 10p = $100. Now when you multiply that gamble with $100/point and the market moves 4000 points in the direction you gambled you begin to see how vast sums of money can be earned from this special situation.

If there are winners, then there must be losers

Unfortunately there are a number of significant losers. A survey from the consultancy Retail Economics found that 24% of High street retailers said that supply chain disruption was having a significant impact on their business. This will impact trade impulse purchases. Britons spend an estimated £21.7 billion on impulse purchases each year, according to new research.

A report conducted in conjunction with the law firm Squire Patton Boggs, says online retail could benefit significantly. The report found that half (49%) of shoppers would consider buying more goods online.

According to the Harvard Business Review, they predict that the peak of the impact of Covid-19 on global supply chains will occur in mid-March, forcing thousands of companies to throttle down or temporarily shut assembly and manufacturing plants in the U.S. and Europe. Now, for many large, Blue Chip companies, in cases of disasters, they will invoke a Disaster Recovery (DR). But moving to potential remedies for your company if the HBR are to be proven correct, how can you prepare your supply chain for Coronavirus:

  • Start with your people – Postpone unnecessary business travel. Review your ‘Work From Home’ policy to reduce to chances of contamination.

  • Maintain a positive scepticism – Provide your staff and business partners with accurate information and avoid hysteria.

  • Run DR scenarios to mitigate impact on your business – Depending on your industry, figure our solutions to problems in advance. If you’re a restaurant, what alternative meal menus could you have.

  • Create a comprehensive, emergency process – Ensure staff have the right phone numbers to call, people to contact and their individual responsibilities.

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