The Coronavirus and Its Impact on Industry
Shipping Delays, Disruptions in Manufacturing and Logistics Already Being Felt
As China and now several other countries continue to experience devastating health effects of the coronavirus, impact is also being felt among American businesses, including automotive, manufacturing and oil.
As industries across the board experience shipment delays and disruptions in supply chains, businesses are being forced to make due with current inventory, solicit new sources for products, or even consider different options that don’t include parts or material from China.
According to The Washington Post, the coronavirus has “brought China’s powerful manufacturing industry to a standstill as travel restrictions freeze the country’s workforce and major companies such as Boeing, Apple and Nike have been forced to close factories.”
Although many were expected to reopen on Feb. 17, factories will be playing catch-up for awhile.
Disrupting Supply Chains for DEF, New Equipment
Specific to our industry, delays in shipping and the mangling of supply chains has meant a stall in the delivery of DEF to our partners as well as new equipment made or partially made in China, including construction vehicles.
According to The Washington Post, “Some of the United States’ best-known manufacturers such as General Electric, Caterpillar and the Big Three automakers, along with many smaller American businesses, depend on what is made in Chinese factories.”
The availability and price of DEF could also be affected, most notably on the West Coast. Because much of the West Coast urea is manufactured in and shipped from China, the ripple effect is felt more here than on the East Coast of the United States.
Gridlocking the Automotive Industry
According to CNN, global carmakers who have invested heavily in China like General Motors, Toyota and Volkswagen are also feeling the heat. The outbreak has kept potential buyers at home and it has gridlocked the production and shipment of parts critical to moving U.S. assembly lines.
“One car part can stall the production of a vehicle. In this case not only are supply chains for our automotive customers greatly disrupted, but our marine and trucking customers are also taking a hit because they would typically be responsible for handling shipments that arrive at our ports,” said SCL General Manager Travis Becktel. “This isn’t the type of situation that just affects one industry. Our goal is to help our customers understand that if they haven’t already, they need to explore strategies and procedures that will help carry them through until factories reopen and shipments resume.”
Traditionally, businesses plan on operations in China to halt from mid-January to mid-February due to observance of the Lunar New Year. For nearly a month each year, factories close and workers travel to rural areas to be with their families. To account for the gap, U.S. businesses typically stock up on products and materials, but the coronavirus has extended that break even further.
Affect on Already Dropping Oil Prices
As far as the oil industry goes, the outbreak is just another hit manufacturers have been forced to absorb as best they can in the past year.
Already low commodity prices have left U.S. oil producers with lower profits – which has in turn led to a drop in exploration and production. Economists predict the coronavirus will lead to another sharp downturn, which could mean lower prices for drivers but also less profit for American companies.
China only buys about 200,000 barrels a day of oil and refined transportation fuels from the United States out of 8.5 million barrels of total daily American exports. But oil is a global commodity – not a domestic one. Small shifts in the market, regardless of where they occur, can and do lead to worldwide impact.
According to The New York Times, “Just a few weeks after the outbreak of the virus, daily Chinese oil demand is already down 20 percent because of dwindling air travel, road transportation and manufacturing. Since China consumes 13 of every 100 barrels of oil the world produces, every oil company is being hit to some extent.”
The Bottom Line
There are many areas of our industry that are already feeling a negative impact from the coronavirus, but long-term effects are largely unknown.
Although Chinese markets and the U.S. economy rebounded fairly quickly after the severe acute respiratory syndrome (SARS) outbreak of 2003, “there is no guarantee the coronavirus will take a similar path,” according to The Washington Post.
“Above all else, we want our customers to be prepared this may cause a long-term impact to their businesses,” Becktel said. “If that is the case, we can help them find solutions in terms of product sourcing and finding new ways to meet their profit goals.”
Contact an SCL Consultant today
In a wide range of automotive, industrial and commercial sectors, SCL remains steadfast on its commitment to product and industry knowledge, performance satisfaction and superior logistics. We protect and optimize the machines that keep our country moving. For more information on how we help can help with services including bulk purchasing or managing inventory, contact an SCL expert today.