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Corona virus puts pressure on supply chain

[ March 4, 2020   //   ]

The Coronavirus is a real threat to the supply chain, warns Steve Purvis, operations director at property firm Bis Henderson Space. Hyundai has temporarily closed South Korean plants because of a shortage of wiring harnesses, Fiat Chrysler reported that one European plant is two weeks from closure because of shutdowns at one critical supplier (and potentially three others), while Ford was airlifting parts out of China while it still can. In the UK Jaguar Land Rover was reported to be having parts couriered out in suitcases.

Shipping will also be affected. There are reports of backlogs building on the Yangtze River, airfreight out of China is well down, and ship operators may be unwilling to visit Chinese ports due to the risk of a viral outbreak. If vessels are avoiding China that also reduces service to intermediate ports such as Singapore. Meanwhile empty containers are stranded in the wrong locations.

It is too late to start stockpiling Chinese goods but businesses will be loading orders on to alternative suppliers – particularly where these suppliers are in other Far Eastern countries that could be at risk from the virus, although with the disease now established in Northern Italy, even sources closer to home cannot be considered secure. Companies may also be bringing forward orders, even from suppliers in currently unaffected areas, before global prices rise.

This will undoubtedly lead to stockpiling but there are other effects that will increase demand for warehouse space in the UK. A manufacturer whose production is slowed or halted by the absence of perhaps just a single component still has all the other parts coming in – indeed, many of these may already be on the high seas. The supply tap can’t be turned off instantly and these materials will have to be stored, either as they are or as semi-finished goods for completion when normal service is resumed.

Component and finished goods suppliers in this country also will prefer to maintain some level of production rather than shut down, even if their customers here or abroad can’t or won’t take delivery. These goods too will need to be stored and, for parts in shortage or for high-end finished goods, security of storage will also be an issue.

For many businesses there is a real likelihood that stocks will build up at some point in their supply chains, and it is only sensible to start scoping out contingency arrangements.

One Bis Henderson Space retail client reports that only 5% of its Chinese production capacity is operative, and even stock that exists at production sites cannot be transported due to movement restrictions. It is looking for additional domestic supply and expecting slower unit sales, which will require an forecasted stock holding of 35,000 extra pallets. An end to the epidemic would not be the end of the problem: a return to ‘normality’ later in the year would see a surge of container movements creating a requirement for additional de-stuffing capacity.

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