In an article published on the Harvard Business Review, Fintech start-up Causality Link CEO Pierre Haren and MIT engineering professor David Simchi-Levi warn that the peak of the impact of the Covid-19 outbreak on global supply chains could occur within two weeks.
The two authors base their analysis on a simple fact: shipping products from China to Europe or the US takes around 30 days on average. The shutdown of Chinese factories started around January 25, prior to the Chinese New Year. This means that the last shipments are arriving or have already arrived.
“We 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 US and Europe.”
They believe the companies which will be most affected are the ones dependent on China for parts and materials. And since China alone accounts for a third of world growth and has become the world’s factory, these companies are numerous.
Several companies have already been hit in the high-tech sector, as we mentioned in one of our previous articles. Apple, Nintendo and Facebook have already experienced delays due to the shutdown in China. Apple even announced it expected lower growth in 2020.
In the automotive industry, as supply lead times are shorter than 30 days, disruptions have already begun outside of China. Fiat Chrysler halted its production in Europe (Serbia) because they could not get car parts from China anymore. Hyundai did the same in Korea.
Ports have also started being affected by the epidemic, said Allard Castelein, the CEO of Rotterdam harbor.
“The effect of the coronavirus is already visible. The number of departures from Chinese ports has decreased by 20% these days.”
At the port of Le Havre in France, the activity could drop by 30% within two months while in ports in the US the impact is already being anticipated and measured by financial experts, according to the HBR.
Our economies have become overly dependent on manufacturing chains scattered across the planet. The distance between where an object is made and where it is sold has never been greater.
“Businesses are now learning how fragile the global production system really is.”
“The vast majority of global companies have no idea what their risk exposure to what is going on in Asia actually is; that’s because few, if any, have complete knowledge of the locations of all the companies that provide parts to their direct suppliers.”
The impact on the whole supply chain seems imminent. And according to the two authors, the effects on manufacturing worldwide could last for months.