Businesses Struggle to Fix Supply Chains Disrupted by Virus


By The Associated Press

via The New York Times - Feb. 11, 2020


WASHINGTON — Chinese authorities are struggling to strike a delicate balance between containing a viral outbreak and restarting the world’s second-biggest economy after weeks of paralysis.


As the death toll from the newly named COVID-19 illness topped 1,000, global supply chains remain widely disrupted for businesses across the world that have built deep connections to China.


Mail service has been delayed after airlines suspended flights between China and the rest of the world. U.S. chip maker Intel and Chinese smartphone maker Vivo joined other tech giants in withdrawing from a major European technology fair over virus concerns.


Prices for oil, copper and other basic building-block commodities have tumbled on dwindling demand from China, often called the world’s factory. China alone accounted for half the growth in the world’s oil demand last year, according to IHS Markit. It buys more than 40% of the world’s iron ore, coal, nickel, aluminum, copper and finished steel, UBS says.


Shuttered factories and travel restrictions in China have contributed to a 20% drop in oil prices since Jan. 7, when Chinese authorities identified the new virus. Prices for copper, soybeans and even lean hogs have all fallen more than 6% over the same time.


Much of China remains on lockdown...


... The consequences are severe in part because so many companies depend on “just-in-time’’ deliveries to limit the cost of stockpiling supplies. David Closs, an auto industry expert at Michigan State University, noted that many auto parts coming out of China – especially electronics — are flown to the United States. And American plants don’t have inventory on hand.


“It’s much cheaper to air freight them than it is to have two months of inventory sitting in a container (on a cargo ship) on the water, so there’s not much in the pipeline,” Closs said. “Once they shut the factories (in China) down, the U.S. industry starts feeling it pretty quickly.”


Still, some shut-down companies with operations in China are showing tentative signs that they are beginning to stir back to life...


... China's economy, hobbled by a 19-month trade war with the United States and a deliberate government campaign to rein in runaway debts, was decelerating well before the viral outbreak.


The health crisis is giving multinational companies another reason to rethink their dependence on China, which has been at the center of repeated outbreaks — bird flu in 1997, SARS in 2003 and now the coronavirus...