As public health officials struggle to understand, contain and ultimately defeat the virus, companies that rely on Chinese supply chains are wondering how great a disruption to expect. The outbreak has drawn comparisons with the SARS epidemic of 2002-2003, but it’s uncertain whether the new virus, dubbed 2019-nCOV, will behave in the same way. At Genimex, we are heavily invested in Chinese manufacture on behalf of our many clients. We offer this update to help you understand the situation and make the appropriate plans for your company.
First, how deadly is 2019-nCOV? According to Exchangerates.org.uk, “Coronaviruses cause a range of symptoms from mild in the common cold while others are more severe and likely to lead to pneumonia.” Officials are presently uncertain where 2019-nCOV falls on that spectrum. Jaimy Lee writing for MarketWatch.com on January 29, reported that 2019-nCOV “has killed at least 132 people and sickened nearly 6,000 others” in roughly two months with an estimated mortality rate of 2 percent. By comparison, in 21 months from November 1, 2002 to July 31, 2003, the SARS epidemic produced 8,096 cases worldwide resulting in 774 deaths, for a mortality rate of 9.6 percent, according to the World Health Organization. For some perspective, The Centers for Disease Control reported 6,515 deaths from the flu in the United States in 2017.
Will 2019-nCOV begin to dissipate in the coming days and weeks, or will it erupt into a full-blown pandemic? At the present moment, officials studying the virus simply don’t know enough about it to hazard a guess. The next few weeks will tell the tale.
What does the health emergency in Wuhan mean for the global economy?
Speaking on CNBC, on January 24, 2020, Michael Osterholm, Director of the University of Minnesota Center for Infections Disease Research and Policy, predicted China’s trade partners would see a double effect: flu virus-like transmission from travelers who’ve been to China to residents, as well as a shut-down of the manufacture and delivery of critical products made within China, such as medicine. Thus, Osterholm said he believes this event “will lead to serious health consequences.” He stated we are in the first phase of “the Chinese corona winter” with “a long way before we get out of this one.”
The biggest potential supply chain problem is due mainly to impact on transportation and the ability to freely move around China. First, factories need workers. Chinese workers might not only succumb to the illness, but healthy workers might be prevented from going to work due to public transit shut-downs. Wuhan is not the manufacturing center of China, but it is the transportation hub that connects Shanghai, Beijing and Hong Kong. Therefore, a shut-down of Wuhan could effectively cripple supply chains. (As of January 24, China’s transport ban had affected 41 million people.) Osterholm warns that “the response the Chinese are using right now is questionable from a public health standpoint and I can absolutely say with certainty it’s going to have an impact on supplies of very critical products around the world.”
In addition, foreign customers of Chinese factories will not feel comfortable traveling to China until the virus is fully under control. This is likely to impact supply chains and global teams that are used to working together. One thing we should watch is whether China will cancel the Canton fair which is scheduled to begin on April 14, 2020 and typically attracts almost 200,000 visitors from around world.
Warren Shoulberg, a senior contributor to Forbes.com, suggests that the outbreak “coming as it does on the eve of the Lunar New Year, … could be particularly devastating.” This is because “In China, the new year is … the most important holiday of the year,” and “can stretch to as long as two to three weeks by the time it’s finished.” Companies familiar with Chinese supply chains know they must plan around the Lunar New Year, since “For as long as two or three weeks, factories close down, ports stop shipping, trains and trucks sit idle, and the tens and tens of millions of Chinese workers who make the country’s economy function basically stop working.” Ramping up production after the work stoppage is sometimes difficult as well, and will no doubt be complicated if an epidemic ensues.
Looking back at SARs, we can also observe that supply chains were not greatly impacted even though the virus caused panic throughout the region.
Unfortunately, it’s still too early to project how quickly the disease might spread and how severe the effects might be on affected people. On a positive note, China’s response to the outbreak has been very strong and decisive using its enormous resources to help contain the problem. On behalf of Genimex, we are constantly thinking of the families that have been directly impacted and hope that human cost doesn’t continue to increase.