The global pandemic has added an extra layer of complexity and disruption to the manufacturing supply chain. In response, manufacturers and shipping companies worldwide are shifting gears, re-evaluating their strategies and risk profiles, and scrambling to keep up production.
Despite these efforts, the outbreak has already had a significant impact on production, and it’s likely it will negatively impact the global economy throughout 2020, with even manufacturers that have no direct connection to China feeling the ripple effects.
Already, the manufacturing industry is forecasting major shortfalls for the year. For many businesses, the inability to get raw materials and intermediate goods out of China has hindered their ability to manufacture finished products. Even if they’re able to source the raw materials, the shortage of shipping capacity in both sea and air has made shipping logistics nearly impossible or prohibitively expensive in some circumstances. According to the Wall Street Journal, numerous ocean cargo vessel sailings have been cancelled and the normal turnover of containers stalled, creating an imbalance, pushing up transportation costs and causing significant delays. These ocean vessel disruptions, and the consequent disruption in truck freight, will only prolong the slump we were already seeing in the freight industry.
Multiple industry sectors are feeling the impact, including metal fabrication and electronics components, as well as the oil and gas markets and the transportation industry. A strong secondary effect will hit the retail and CPG industries sharply.
Manufacturers can still build resilience into their supply chains, manage present risk and mitigate future risk with increased visibility of the end-to-end supply chain, and a total value optimization (TVO)-driven focus on optimizing value creation, improving transparency and visibility, and transforming operations.
The most immediate transportation impact is sea and air freight, but there will be a secondary impact on the domestic trucking industry. Over-the-road and intermodal freight was already seeing major weaknesses before the outbreak, due to the combined impact of the trade war and a nationwide labor shortage. Ocean cargo and air freight felt the pinch of the coronavirus outbreak immediately, and trucking will get a later hit as ocean and air freight hits the ports in lower volumes.
Even when Chinese factories are able to resume full production and ports are fully operational, there will continue to be delays for the foreseeable future.
Currently, most manufacturers have enough inventory to last out the first quarter, but will feel the pinch in the second quarter as ship availability comes into short supply. Some may turn to air freight, but that is a temporary solution at best that will result in significantly higher transportation costs. The bigger question manufacturers need to ask now is, “How do we prevent this disruption from happening again?” Building resilience into the supply chain will go a long way toward helping to absorb the shock from future storms.
It’s not too late to act. The best-case scenario, of course, would be to have already prepared for this unexpected outbreak long before it happened, and those companies which already had contingency plans in place will weather the storm better than those who did not. The TVO approach to supply chain visibility and risk prevention can help address the current disruption while preparing for the next one.
The next step is to balance immediate response with a risk strategy to prepare for the next disaster. Companies need a strategy that builds in a new level of end-to-end visibility, represents the strong foundation needed to transform the supply chain into a competitive weapon, continues to drive out cost, and achieves growth during even the worst disasters.
Collin Ziemerink is executive vice president of industrial manufacturing and services at Maine Pointe, a global supply chain and operations consultancy.