Manufacturers are increasingly questioning whether their supply chain is likely to be exposed to disruption from the coronavirus outbreak ravaging China.
Even if your company does not source product directly from China, many companies are still predicting supply chain disruption as the raw materials used by their manufacturing plants — which can be located anywhere in the world — probably originates in China.
So what should you do if you are unsure?
Well, first and foremost, engage with your supplier and, if they will cooperate, with their sub-suppliers. Establish whether product further back up the supply chain originates or passes through China. If there is a China connection, find out what inventory levels your supplier carries to mitigate any disruption, quantify it if you can and don’t accept unquantified assurances “it will be all right” — it always is until it isn’t.
As an aside, check if your insurance covers you for business interruption; the virus won’t be covered by the insurance but the interruption to your business may be.
If you are sourcing directly from China and your supplier is 100% back to work (in our experience most are saying they are, even when they are not), you may assume all will now be well, but road and rail transport remains problematic in many areas. Not all freight forwarders or shipping line offices are back to work or fully staffed and many shipping services have been cut.
Most hauliers returned to work after the holidays but many are not operating at 100% capacity and this is resulting in delays of two to three days on normal inland transit times.
Officially, all port and customs operations have resumed full operation, but the shipping lines themselves all have different return-to-work policies, which are governed mainly by the location of their head office and number of people employed there. Many are operating a 50% office, 50% home working regime, which allows them to operate but is suboptimal (particularly in coordination and information flow).
This is creating delays in processing cargoes and paperwork, which, when combined with reduced services, is manifesting itself in delays and variable levels of service.
There are space issues with ocean freight due to a number of canceled sailings by all shipping lines on the back of zero levels of factory output last month. As the factories in China slowly return to full manufacturing capacity, it is expected that ocean freight space issues will arise. Well established freight forwarders will be more likely to hold reserved capacity with the lines; this is not a time for cost reduction on freight services. Stick to reliable operators with whom you have an existing relationship — they may cost a few dollars more but are less likely to let you down.
Problems are more severe with air freight due to the number of air carriers that have suspended passenger flights in and out of China. For example, American, Delta and United have suspended flights to China through the end March or into April, as have most European airlines. Most passenger services carry an element of freight, so freight capacity is drastically reduced as a result of passenger services being cut.
Even if certain carriers have not suspended passenger flights in and out of China, they are not readily accepting cargo to their full capacity due to restricted staffing levels in their receiving warehouses. The situation for flight operations out of the carriers who are still operating is unreliable and the best current advice is for use of cargo-only aircraft where possible, but note space is limited and rate levels are high due to the backlog.
Early engagement with suppliers and logistics partners creates better visibility, time to seek solutions to bottlenecks or agree on alternative options and, ultimately, reduces costs and disruption.
Suppliers often seek to reassure customers it’s business as usual while frantically trying to manage a chaotic supply-side position.
Better to know about and seek to resolve such chaos before it stops your production line.