Coronavirus impact on supply chain

While China was at the epicentre of the COVID-19 pandemic, the effects of this viral outbreak and its impacts on the economy is being felt across the globe. A worst-case scenario is that the world economy grew by only 0.5% in 2020 and would involve a US$2 trillion hit to the global GDP. Commodity rich least developed economies will take a hit against the strong US dollar as export returns weaken. Another looming danger is that Europe may recede into a recession as the COVID-19 pandemic squeezes its economies. If European countries can’t cope, the knock-on effects will be felt in parts of Latin America as well.

Impacts on New Zealand Supply Chain

China is usually a hub in any global supply chain. The supply chain impact can be seen in two distinct ways. Firstly, China is a massive source of raw materials, components and finished goods. Therefore without an intact supply chain, manufacturing units will be starved of input materials. Secondly, China is the largest market for goods and services. Global players rely on China as a customer. A reduced demand from China would affect supply and disrupt businesses which rely on China. Continue reading for more information on how you can reduce disruptions within your supply chain.
The following charts show the latest data as released by Stats NZ on March 10. The analysis is based on New Zealand’s daily export trade data with China and the world for the month of February 2020. It compares the values of Feb 2020 to Feb 2019, to show the potential impacts of COVID-19 on New Zealand exports since its outbreak in late 2019.

New Zealand's commodity exports to the world and China

Compared between February 2019 and February 2020.
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Meat, seafood and forestry exports to China - Comparative Analysis 1

Compared between February 2019 and February 2020.
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Meat, seafood and forestry exports to China - Comparative Analysis 2

Compared between February 2019 and February 2020.

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Responding to COVID19 risks

The WHO has declared COVID-19 as a pandemic. This means that both markets and policy makers will gravitate towards rapid response. Businesses have to be agile and proactive in dealing with uncertainties to reduce the overall impact on their supply chain, customers and other stakeholders. Below, we outline some of the key decision pathways that companies should consider as they navigate this uncertain economic crisis. Many of these considerations are industry-agnostic, but companies must also address challenges specific to their industry and regulatory environment in which they operate.

Advice for employers and businesses

Handling employees effectively

• Inform employees about COVID-19 symptoms

• Emphasise the importance of respiratory etiquette and hand hygiene to all employees

• If possible, provide hand sanitiser and anti-bacterial handwash at work

• Proactively separate employees who show symptoms

Managing business risk

• Create a business continuity plan to minimise risk and sustain your business from adverse effects of COVID-19.

• Your COVID-19 business continuity plan should consider:

a. All business stakeholders

b. Best case and worst-case scenarios

c. Short term, medium-term and long-term considerations

d. Consider financial implications and effects on value chain

e. Develop contingencies across business areas to mitigate risks

f. Effectively communicate with all business partners and other stakeholders


Advice for New Zealand exporters to China

There are increased pressures on businesses with operations in China. While there are fluctuations in demand, supply and speed, there are no additional barriers to exporting to China.

• Regulatory settings for trade between New Zealand and China remains unchanged

• The sanitary or phytosanitary requirements for primary industry exporters remain the same

• No change to customs and clearance procedures of primary industry products in China

• There are no additional restrictions on importing goods from China

• Personal protective equipment (gloves, gowns, eye protection or face shields) is not required when unpacking containers or packages that came from China

Insurance considerations

Some insurance companies are not insuring any loss, damage or delay to some cargo going to China under the current circumstances.

• Proactively communicate with your insurance provider

• Review the policies that apply around exports to China

• Understand the impacts of 'Force Majeure' and what it means for your business

• Prepare for potential claims

Supply Chain considerations

Proactively managing your supply chain means that your company will be better prepared to manage and mitigate any risks. Considering the speed at which COVID-19 is spreading, rapid deployment of measures is critical to business continuity and resilience.

• Develop visibility and evaluate the entire supply chain from end to end. Consider primary, secondary and tertiary players

• For every player in your supply chain, assess alternative partners. Prioritise nearshore options to shorten your supply chain

• Understand the inventory status of all your suppliers and increase inventory buffers accordingly

• Dual-source critical parts of your value chain

• Advise your suppliers to implement their own COVID-19 business continuity plans.

China Update

China has faced wide-ranging criticism for its initial handling of the COVID-19 outbreak. While significant damage has already been caused to the Chinese economy, China seems to be keeping the COVID-19 under control. President Xi has said that China is committed to its yearly social and economic goals and disease control and development will go hand in hand. See below on how Chinese industries are bouncing back.

Current macro-economic view of China

China's real GDP growth is expected to fall between 0.5 and 1.5 per cent for 2020 against the earlier forecast of 5.9%.

Highly impacted sectors in China's economy are:

• Trade sector: because of reductions and cancellations of flights and increased restrictions and procedures for sea routes and borders

• Manufacturing sector: primarily cars, mobile phones and electronics

• Services sector: industries such as tourism, catering, entertainment and logistics are most affected

Chinese industries are bouncing back

A report released by the Shanghai city government shows that, as of February 29, 94.5% of industry operations of Shanghai have resumed, but output level remains well below pre-covid19 levels. Also, approximately 64% of employees are not returning to work.

% of the industry sector resuming operations:

• Food Processing – 97%

• Supermarkets – 95%

• Wholesale agricultural products – 80%

• Express logistics – 67%

• Port logistics – 65%

• Large scale industry enterprises – 70%

• SME enterprises – 30%

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