Coronavirus: preparing for the economic impact

I had an interesting discussion yesterday with a friend who’s a senior buyer for a national hardware store chain (a big one).  He told me frankly he doesn’t know whether he’ll have a job in six months’ time, because the impact of the coronavirus epidemic in China may scupper his company.  It sources a very large proportion of its products from that country, but its suppliers there – factories and exporters – are closed, and have been for weeks.  No-one knows when they’ll be open again.  The company is finding it very difficult to line up alternative suppliers fast enough to ensure that their products can get here in time to replace Chinese ones on their shelves as they run out.  If they can’t . . . they’ll have to close their doors.  It’s that simple.

GCaptain illustrates the scale of the problem.

Dozens of export sailings to ship China-made goods to consumers from the U.S. to Europe … have been canned since the coronavirus crisis escalated last month. Those non-shipments are part of a much bigger picture in which every aspect of global shipping — from oil and gas through to dry-bulk commodities — has been upended.

The unprecedented gyrations caused by the virus matter because 90% of all trade moves by sea and China has grown into the maritime industry’s main source of cargoes … Vessels are idling. And exporters to China face diversions as clients there use force majeure clauses in their contracts to walk away from commitments to buy cargoes.

“All the signs are that there has been a major dislocation in global supply chains and commodity trade as well,” said Caroline Bain, chief commodities economist at Capital Economics. For some products “it’s only going to get worse in February data.”

Even at a most-basic level, shippers are struggling to sort out the necessary paperwork required for shipments involving China, snarling some trades in an industry where many transactions need physical documentation to accompany consignments.

All this has come about because the virus has led to hundreds of millions of people being told to stay away from work or education in China, squeezing output in the world’s fastest-growing major economy.

Container vessels that routinely move goods worth hundreds of millions of dollars in single shipments are at the sharp end of the turmoil. The number of blank sailings — where ships don’t load at a planned location — has jumped since the outbreak began … Almost 600,000 20-foot boxes are currently out of action as a result of the virus … up from about half that amount just under a week earlier.

There’s more at the link.

This is, of course, impacting many countries;  but it’s also going to impact us as consumers.  I don’t think this is a major TEOTWAWKI moment, but it’s certainly looking like we’re going to have difficulty finding some of our basic needs for some time.

  • Many products made here rely on raw materials (ingredients) and/or packaging that comes from overseas.  If those supplies are disrupted, the plants will have to find alternate suppliers in a hurry, or suspend production until they can.  Expect disruption to the supply chains of various products.
  • Maintaining your car depends on a supply of basic products like air and oil filters, belts and hoses, windshield wipers, etc.  Many of those simple parts are sourced from the Far East.  It’s a good idea to put away one or two spare oil filter(s), wipers and any other parts you routinely replace.  Basic items like cleaning wipes, shop towels, etc. may also be in short supply.
  • China is the source for many of the raw materials used to make medications.  (In India, for example, paracetamol [acetominophen] prices have already risen by 40%, because the factories there that make those tablets can’t get Chinese raw materials any more.)  Now would be a very good time to stock up on over-the-counter remedies, particularly related to pain.  The same applies to prescription medications.  I have a 90-day reserve of all our regular prescriptions, and I think I may have to use it if things go on as they are.  If you take any diet supplements (e.g. vitamins, minerals, etc.), you might want to stock up on them, too.
  • Hygiene products are also vulnerable.  Sanitary pads and tampons are often imported from the Far East, as are men’s razor blades, etc.  Some cleaning and cosmetic products (e.g. hand sanitizers, shampoos, etc.) rely on Chinese-sourced raw materials.  Even basic first aid products like bandages and antiseptics may be affected.  I suggest you increase your supply on hand, and put up more in reserve.
  • I don’t think our food supply will be endangered by coronavirus;  but what about packaging for it?  Many food producers buy containers by the tens of thousands – even by the millions – from outside suppliers (even such basic needs as polystyrene food trays and cling wrap).  How many of them come in by ship from China?  I don’t know, but my friend informed me it’s more than I think.  Without containers, food can’t be sold.  He suggested stocking up on any favorites or necessities, to avoid potential complications.
  • A very large proportion of the cheap clothing available in the USA (*cough*Walmart!*cough*comes from China.  Expect that supply to be disrupted for some time.  I have enough of my day-to-day needs, but if you have to buy clothes regularly (for kids growing up, for example), you might want to invest a little in an increased supply of them, including larger sizes for your children to grow into.  I’m sure clothes and shoes will still be available, but I’m not sure about the lower end of the price chain.  We may all end up paying more.
  • A couple of weeks ago, Aesop did a quick survey of the medical supplies used in the hospital emergency room where he works.  He reports:  “Of 54 major items, 43% (23 items) are sourced from, assembled in, or produced in China. That’s nearly half of everything we use, 24/7/365, forever.”  I’m sure other hospitals will be just as dependent on Chinese medical supplies.  What does this imply for health care in this country?  What if nurses and emergency medical personnel can’t get the masks, gloves and gowns they need for basic medical hygiene?  Do you regularly need health care at such facilities?  If so, plan for disruptions, and consider alternatives.  Surgical masks for dentist’s practices in England are already being rationed.  Expect doctor’s offices to follow soon – and expect the same here, too.

Those are just a few thoughts on basic preparedness measures.  If you can think of more, please share them with us in Comments.

Peter

5 comments

  1. You left out the existing doubts over quality control in certain Chinese factories. If other firms in that country step in to make up export shortfalls, what is the likelihood of them taking ‘short cuts’ and selling even more defective products? Personally I wouldn’t trust my life to anything made there withous rigid quality control imposed by a non-Chinese owner, not a bribeable state official, from raw material purchasing to manufacturing, packaging and secure export transport.

  2. This could be bad in the short term, no doubt. If it serves to encourage America to get away from Chinese imports and return to making our own stuff then it could be a long term benefit.
    I have yet to be impressed with any product coming out of China.
    I can remember, many years back, when “Made in Japan” was a running joke, and a synonym for cheap poorly made goods. Now “Made in Japan” has the same status that Swiss, or German made goods once had.

    Perhaps it reflective of a cultural mindset. The Japanese focused on quality, assuming that if quality was there, the quantity would look after itself. China seems to just want to crank out as much as possible with quality as an afterthought. I would say the same for Korea. Maybe their electronics are OK, but many who have purchased a Samsung appliance regret the purchase. As Aesop would say, ask me how I know. Or read the reviews on Amazon.

    JWM

  3. Stanley etal has already started re-production of many of their tools in the USA, after shifting most of the production overseas to Communist China.

    It’s not like economists and production specialists haven’t been telling the world that relying on Communist China for anything is a bad thing.

    Especially in the ‘maker’ world. Sumdood gets a great idea for a machine or tool or neat thing, gets it quoted out by Communist China, a contract is written, and before Sumdood gets a firm delivery date a copy shows up in Alibaba or some other Chinamart website. At half to a quarter the price Sumdood can sell it.

    Who owns the means of production in Commie China? That’s the question. The People’s Liberation Army owns or oversees a vast amount of production in that ‘communist’ society.

    This will be short-term bad, but long-term good as people divest themselves of Communist China. Taiwan, South Korea, all the other asian countries, back here in the USA, all will benefit in the long term.

    Short term? Gonna be a year of suck, unless the numbers Commie China are more realistic than the numbers posted by people in Red China.

  4. ‘Taint just ChinaMart; that famous French retailer, Le Boutique Targét, sources an outrageous quantity of their products from ChiComia as well, and so do the lesser lights, as well as drug stores that have turned into mini-department stores.

    IANASB, but I’d short both their stocks until they get alternate supply chains in order. I’m already seeing a drop in restocking at my local chain stores’ shelves, and it’s only going to get worse.

    This is going to get a lot worse before it gets better.

    If you don’t visit, check out John Wilder’s post yesterday as well.

    https://wilderwealthywise.com/corona-virus-with-a-slice-of-recession/

    GMTA.

  5. With all due respect, Fuck China.
    It’s time we made our own, and stopped relying on commies to do it for us. Maybe this will be a good thing.

Leave a Reply

Your email address will not be published. Required fields are marked *