Dive Brief:
- Shippers are seeking alternative suppliers outside of China to make up for delays resulting from the continued production standstill in China's Hubei province caused by the COVID-19 outbreak, according to Freightos.
- "The share of searches for countries other than China has climbed to more than 17% so far this month, up from less than 8% a year ago," Freightos wrote in a research note.
- Experts expect factories to experience a backlog of orders after they reopen, so Freightos suggests companies wait to place new orders. When production resumes it could push up rates for ocean shipping between China and the U.S., but demand is low for now and carriers continue to blank sailings.
Dive Insight:
Officials in Hubei’s provincial government said Thursday companies cannot restart operations before Feb. 21. There are some exceptions for companies producing medical supplies and food, The Wall Street Journal reported.
Hubei is home to manufacturing operations that many U.S. companies rely on. In fact, 92% of the companies with tier one suppliers in the impacted region are based in the U.S., according to an analysis by Dun & Bradstreet. It is also the epicenter for COVID-19, an illness caused by a member of the coronavirus family. The number of confirmed cases in the province continues to climb with 14,840 new cases reported Thursday.
Where companies end up with sourcing will depend on what product they need. Dun & Bradstreet broke down some of the alternatives in its report — furniture companies could turn to Mexico for suppliers, while electrical machinery could be sourced from Brazil.
Top products imported from China and possible alternative supplier countries
| Product | Possible alternative supplier country |
|---|---|
| Electrical machinery, equipment and parts | Brazil |
| Nuclear reactors, boilers and parts | Chile, Singapore |
| Furniture and parts | Mexico |
| Toys, games, and sports requisites | Mexico, Brazil |
| Plastics and article made of plastics | Mexico, Brazil |
| Motor vehicles and parts | Chile, Colombia, India |
| Apparel and clothing accessories | Brazil, Canada |
| Optical, medical and surgical instruments | Colombia, Brazil, India |
SOURCE: Dun & Bradstreet, which cites UN Comtrade
Even as companies look to minimize disruption, economists and business leaders expect the outbreak to have an effect on the overall economy in the first quarter. The Wall Street Journal's monthly survey of economists found 83% expect COVID-19 will have a small impact on the U.S. gross domestic product, which was defined as less than 0.5%.
Still, there remains a significant amount of uncertainty for businesses operating in the region as factories remain closed and COVID-19 continues to spread.
"Due to the evolving nature of this situation, it is impossible at this time to fully evaluate its impact on our businesses and how fast they will recover," Kering (Gucci's parent company) CEO François-Henri Pinault said Wednesday "We are hearing lots of different theories on the speed and shape of the rebound, but the reality is that it is too early to predict."
