Although the epidemic is compared to the SARS epidemic of 2003, China is now much more developed and integrated into the global economy. Moreover, Covid-19 now affects both Supply and Demand, since China is both the world’s largest supplier and a huge consumer market.
Restrictions and delays in shipping to and from China have local, but above all international repercussions. To limit the spread of the epidemic, the closure of Chinese companies and ports and the cancellation of many flights and rail convoys are significantly harming the global economy.
One of the first sectors to be affected is the electronics sector, where China is a central player, holding nearly 70% of the world’s smartphone production and 50% of television sets. The arrival of the Coronavirus has paralyzed several local factories that have been quarantined, leading to major disruptions in production and supply.
First example: at the end of 2019, Apple was counting on sales of 63 to 67 billion dollars in the first quarter of 2020. A rather wide and unusual range of forecasts, which CEO Tim Cook justified by the uncertainties related to the coronavirus. The Californian giant knew it was particularly exposed, and with good reason: almost 90% of its production is in China (Foxconn and Pegatron Technology) and China represents its third largest market (after North America and Europe) with more than 20% of its total revenue. The consequences: a 10% drop in Iphone sales, a delay in the launch of the next Ipad Pro, and the inability to increase production of the coveted Airpods.
Second example: the Mobile World Congress, a giant conference on telecommunications which was to take place on 12 February in Barcelona, was cancelled after Vodafone, Facebook and Amazon withdrew.
But the victims of the epidemic are not just in the electronics sector. Third example: 400,000 Chinese tourists are expected to cancel their trips to Japan by the end of March. A large cruise ship in Asia has been banned by five countries out of fear that the people on board are infected.
Internationally, South Korea, Japan and the United States are the countries most exposed to danger: they import from China $205 billion, $180 billion and $156 billion a year respectively (World Bank). Similarly, the United States, Hong Kong and Japan are the 3 largest exporters to China, with $480, $301 and $147 billion per year respectively (World Bank).
At the time of SARS in 2003, China’s consumption of luxury goods was 8%. Today it accounts for 40% of sales in the Swiss watch industry and 30% of the global luxury goods industry, according to Vontobel Bank.
We have just seen that the economic impact of the epidemic is undeniable. At the logistical level, it takes various forms: overstocking, breakdowns, inability to produce or deliver, event cancellations, and so on.
Thus, the repercussions of this epidemic have led organizations to become aware of the vulnerability of their Supply Chain, particularly in terms of their over-reliance on a quasi-exclusive source (or region) of supply, which can represent a considerable risk.
Taking such external factors into account is therefore essential when designing a logistics strategy.