30-40 days before shipping knock-on will be felt
submitted by D1T1A
(This is just my take on something as someone that works
in the Containership sector with many friends in the
industry)
Other than the jitters in the stock markets, the economic
impact in the West hasn’t really been felt that much.
Chinese factories that were closed for the lunar new year
between the 25th January and the 8th February. Due to the
Covid-19 outbreak, many factories were shuttered for
another two weeks with some still yet to open, and others
operating at much reduced capacity.
This would seem to be something that would have an almost
immediate knock on effect to the ‘Just-in-time’ global
supply system. However, two factors will have delayed
this ‘bubble’ of undelivered goods.
First, the lunar new year itself. As with all planned
outages, suppliers and buyers will have factored in the
initial factory closures by creating a surplus to cover
demand in that time. That gives a small window of
resilience, give or take a few days after the factories
were due to reopen, to companies that rely on regular
supplies of Chinese goods. All well and good.
Secondly, and much more importantly, shipping timeframes.
For example, the time for goods to travel from China to
the UK is between 30-40 days. So, the small supply glut
that was to cover the lunar new year closures will be
delivered to UK ports around 5-6 weeks after the
factories first closed.
25th January —> between the 28th Feb to 8th March
So those products, with a margin of error up to a week or
so, will be delivered this week and the next, and should
be enough to cover that original 15 day closure in China.
(Other parts of the world take less time for goods to
travel, so Australasia would be a good bellwether to
gauge impact before the US and Europe are affected.)
After that, the continued factory closures in China will
start to filter through like an embolism in the world
economy. Delayed or cancelled sailings, container
congestion in Chinese ports and continued closures will
start to ripple through the system.
These aren’t just car parts, but raw materials,
chemicals, foodstuffs, everything you can think of. The
whole system relies on everything working at the
established pace, and it isn’t resilient to major shocks
because everything has been streamlined to maximise
profit and turnaround.
It frightens me that governments and businesses, at least
publicly, weren’t extremely concerned when China kept its
factories closed.
The disease is terrible, but economic fallout will be catastrophic.
D1T1A:
The global economy has supplies and demands. Profit is
generated where goods are sold or traded. In order to
maximise those profits, you can streamline the transport
process and thus you can remove the need for excess storage
at both ends of the equation. This is a simplification of
the just-in-time principle.
Now, reduce or remove the goods in that transport process.
Now you have an absence of goods and no stored reserves in
order to continue manufacturing or selling. In an ideal
world, an alternative supply can be found quickly and
locally, but that isn’t where we are as a society. We sent
a lot of manufacturing to the other side of the world
because labour and fuel was cheap. The issue is, we don’t
have a local manufacturer that can take up the slack for a
premium, there just aren’t any. Sure we can switch to India
or Vietnam, but how long will that take? Have they got the
specs of the product right? Will they get the virus and
shut the factories too?
Think of it like this. A diver needs air on demand and it
doesn’t matter that you can get them another bottle in 30
minutes if they run out of air in 5.
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h/t dr0id