The Coronavirus is unfolding before our eyes and represents a scary period across the world, especially in China. It is an unfolding human tragedy and there is suffering on a large-scale, and unfortunately for now there is little comfort that it will be contained very soon. We don’t know how long it will last or how extensively it will spread throughout the world – but we do know that it is now producing measurable impacts to a range of industries. Those impacts are now impacting the global logistics system as well.
The CNBC article from today ‘Crisis mode’: Coronavirus disrupts the heart of electronics manufacturing in China reviews its impact on the electronics industry and the now expected impacts to production and supply chains throughout the year. There is a very real worry about manufacturing ramp-up after the Chinese New Year period which ends today. International travel has been restricted and the cascading impacts on production and logistics are just going to become more evident this week. Localized travel restrictions or individual decisions to not report to work are further wildcard elements to the pace of how the virus will impact the global economy. These are huge issues. While this challenging period will subside at some point, the issue that needs to be understood is how these challenges will create long lasting changes to the economy and the supply chain system.
With that said, we are now beginning to see feverish activity across a range of electronics and electronics-dependent supply chains, shifting production and stockpile inventory where possible. No company had any sort of adequate warning to prepare, and now this is a matter of making-do in the very short-term, but beyond a few weeks is now becoming a matter of forcing systemic adjustments in supply chains. Crisis is creating preparation for the next set of unknown today challenges. Resiliency-oriented supply chain planning strategy again becomes important – and in this case it might create some drastic adjustments.
We foresee some rather consequential facility network reevaluations for the key backbone industries in the electronics production space, but also in some related customer sectors such as the computer machinery and automotive sector. Some Asian intra-company or partner company production shifts will occur in the short-run, but companies are right now beginning significant assessments of global supply chain networks with new levels of diversification and resiliency built-in as core elements. While there are some similarities, this crisis is different than a strike-related labor problem at a seaport, or a tsunami in Japan or a flood in Thailand that causes dramatic but time-constrained impacts. At this point, the coronavirus tragedy represents an unknown in terms of duration or wider impact. While there are some experts reporting that the spread of the virus may be peaking in the next few weeks, it remains frightening on a human scale.
We believe that we will witness some further supply chain diversification within China, but with a new level of increased interest in key Southeast Asian markets and indeed, even some further supply chain relocation to the North America and Europe. Along with this, we also see increased interest for supply chain investment to be made at and around key logistics hubs – both seaport and airport hubs, depending on the nature of the velocity requirements of the supply chain. Corporate managers are looking for ways to reduce risk, increase reliability and lower costs – and colocation at or in the vicinity of a well-connected logistics hub is extraordinarily valuable. Those airports and seaports that have the ability and the business strategy to accommodate this kind of investment will see a new level of success. GLDPartners has been deeply involved in a series of seaport and airport investment district projects over the past several years and we’re working on several right now. We have witnessed supply chain executives focus increasingly on diversification – in unequal parts due to geopolitical problems and trade agreement spats, labor shortages, cost rises and raw feedstock challenges – but all of that tends to pale next to the kind of fundamental or core worries that are presented by the kind of tragic health crisis that is unfolding now.
About Global Logistics Development Partners: GLDPartners is a recognized global authority around a range of supply chain, transportation. competitiveness, infrastructure finance and delivery & technology solutions. The company is based in the US and its work is global, with projects in North America, Europe and Asia.