By Jeff Berman, Group News Editor · March 12, 2020
Given the fluid nature of the ongoing impact of the coronavirus pandemic on global supply chains, it stands to reason that things are changing—and will continue to change—on a daily basis, if not more frequently, which, now that I step back and think about it, seems to be the case.
A survey issued this week by the Tempe, Ariz.-based Institute for Supply Management (ISM) took a deep dive into how supply chains dealing with coronavirus, as it continues to wreak havoc on their supply chain operations.
The findings are staggering on multiple levels and, while unintentional to be sure, they ought to put supply chains on high alert, in the very unlikely circumstance they are not already, at this point.
One of the key findings in the ISM survey, which was conducted in late February and early March and based on feedback from 600 ISM members and the professional community, was that almost 75% of companies are reporting supply chain disruptions in some capacity, due to coronavirus-related transportation restrictions, and more than 80% believe that their organization will experience some impact because of COVID-19 disruptions. And among that 80%, ISM said one in six (16%) companies report adjusting revenue targets downward an average of 5.6%, due to the coronavirus, with some companies saying it could be as high as 15%.
The ISM survey was replete with supply chain-related data points relating to the coronavirus, including:
Primary reported supply chain impacts include the following:
57% noted longer lead times for tier-1 China-sourced components, with average lead times more than doubling compared to the end of 2019;
Manufacturers in China report operating at 50% capacity with 56% of normal staff;
More than 44% of respondents do not have a plan in place to address supply disruption from China. Of those, a majority (23% of respondents) report current disruptions;
Of the companies expecting supply chain impacts, the severity anticipated increases after the first quarter of 2020;
Six in 10 (62%) respondents are experiencing delays in receiving orders from China;
More than half (53%) are having difficulty getting supply chain information from China;
Nearly one-half are experiencing delays moving goods within China (48%); and
Almost one-half (46%) report delays loading goods at Chinese ports
“The story the data tells is that companies are faced with a lengthy recovery to normal operations in the wake of the virus outbreak,” said Thomas W. Derry, Chief Executive Officer of ISM, in a statement. “For a majority of U.S. businesses, lead times have doubled, and that shortage is compounded by the shortage of air and ocean freight options to move product to the United States — even if they can get orders filled.”
In a video message accompanying the survey, the ISM’s top executive was direct in laying out the myriad supply chain challenges and issues resultant from coronavirus.
One thing Derry pointed to is how there has been an imbalance in modes of transport across the Pacific Ocean, with airlines cancelling flights to China and reduced traffic coming back to the U.S.
“A lot of freight moves in those cargo holds of those passenger planes…so that capacity has been significantly reduced and as a consequence airfreight costs have gone up,” he noted. “What most people don’t appreciate is that as a result of the virus there is a significant drop in exports from China to the U.S., especially in February. In fact, about half of all container ship traffic that would normally cross the Pacific in February from China to the U.S. was cancelled. As a result, we have this big imbalance, where we have containerships in china but none here in the U.S., especially refrigerated containers [reefers], and companies that are looking to export back to Asia are competing in a very cutthroat environment to win space on the few ships they can find in the U.S.”
Derry finished that thought by saying that it can take several months for the imbalance in transport modes to be sorted out and for airlines to restore airfreight capacity and the imbalance in container ships gets corrected.
“It is a time like this when we are facing a real crisis in the global supply chain,” he said.
It is pretty fair to say that truer words were never spoken than that, as they relate to these stressful, chaotic, worrisome, and concerning times for the global supply chain.
March 12, 2020