Thursday, March 12, 2020

Coronavirus: Delays, shortages predicted by Richmond business leaders

Coronavirus: Delays, shortages predicted by Richmond business leaders

With a large portion of Richmond’s economy reliant on the movement of goods in and out of Canada, the city’s businesses are closely monitoring the impact of COVID-19 on the global supply chain.
Central China has been on lockdown since January, with sweeping state-sanctioned quarantines and travel restrictions in place to stem the spread of the virus, shutting down much of the country’s economy.
While it’s hard to measure the exact impacts the coronavirus will have on Richmond’s economy, its effects will likely be felt much more in the coming months.
Companies were buffeted as suppliers kept excess parts and inventory on hand at the start of the year, in anticipation of the Lunar New Year holiday when factories are closed, said Robert Boscacci, president of north Richmond-based medical equipment supplier HME Mobility and Accessibility, which sources parts from China.
However, that annual holiday was then extended due to the quarantines, and many factories remain closed or are only partially operational, impacting the country’s trucking and port operations. 
“From the time factories get up and running to the time they ship, you’re talking three or four months out — so you’re going to see some real impacts in later spring and summer,” said Boscacci, adding that delays on production timelines will likely continue until factories resume full operations.
“The good news is most of the (factories) we spoke to are half back, so you’re kind of mitigated, but as consumers, you’d definitely have certain products where, quite frankly, you’re just going to have a longer timeline to wait for it,” he said.
Seasonal merchandise could take a hit
That timeline is echoed by Clint Mahlman, president and chief operating officer of Richmond-based London Drugs.
Generally, London Drugs purchases much of its seasonal merchandise ten months to a year in advance of its sale, said Mahlman, in order to accommodate production cycles.
But even if the factories have finished goods — such as summer merchandise — sitting in warehouses, they might not be able to be transported due to the quarantines.
“And because those same ports are affected by labour issues because of the quarantines, they’re slow to move and get the containers on ships,” he said.
“There’s this massive elastic band starting to stretch the supply chain. So I think you’re going to see a number of retailers that have a limited supply of spring and summer goods because they're either caught in the ports in China, or they’re on the water, or not yet unloaded.”
London Drugs has already had to alter some of its advertising plans because the seasonal goods haven’t yet arrived, said Mahlman.
It’s also not as simple as just cancelling the orders, given how far in advance they are placed.
“It’s a real strategic challenge for retailers,” said Mahlman. “Receiving your summer goods at the end of August would not be a good thing, because you’re now effectively stuck having to sell those items at end-of-season clearance. And that would obviously add to a financial loss of those goods.”
According to the Port of Vancouver, import containers from China decreased about 18 to 20 per cent in January compared to the same month last year, while there were about 30 cancelled sailings for container vessels due to reduced workforce and cargo-loading activities at Chinese ports.
Countries will see ‘knock-on effect’ from China disruptions
The quarantines in China are also affecting the production and shipment of goods from other countries, said Mahlman.
Last week, India announced that it would be halting the export of 26 drugs and drug ingredients, known as APIs, due to a shortage in the supply of raw ingredients from China.
“The numbers would suggest that India supplies about 50 per cent of all generic drugs dispensed in Canada,” said Mahlman.
“So this is the knock-on effect. They can’t get enough of their ingredients, if you will, that goes into a finished dose, and therefore (India) is warning of supply shortages in some drugs.”
The company’s pharmacy will work with alternative suppliers to source its drugs and vitamins, said Mahlman, but it’s too early to tell which drugs might be impacted first.
London Drugs is also being warned that goods manufactured in Japan might be impacted. For example, consumer electronics companies that source parts from China might see production slow down because they can’t get those components.
The best parallel to the current disruptions is the 2011 tsunami in Japan, which took out large production capacities in the consumer electronic and healthcare spheres, said Mahlman.
“(It’s) very much what we saw during the Japanese tsunami several years ago, that the effects of knowing exactly what products that were going to be impacted took several weeks to be apparent, and then after that production in some items never returned for about a year,” he said, adding there were camera shortages following that tsunami.
A shortage on electrical components or parts out of China could also hit HME Mobility’s manufacturers in North America, who need them to build their products, said Boscacci, noting the supply chain is highly integrated.  
Currently, said Boscacci, his company is working to source their products from countries that aren’t as impacted by the outbreak.
Trade shows, exports affected
So far, seven trade shows that London Drugs’ buyers were scheduled to attend have been cancelled — in Italy, the US, Hong Kong and China.
It’s something that could impact business a year or two down the line, according to Mahlman, as buyers find new suppliers, or source products not yet on the market, at trade shows.
“So they (the cancellations) can have longer-lasting impacts, and (those are) not apparent right away,” he said.
Businesses shipping goods out of Canada have also been impacted.
The Richmond Chamber of Commerce processes certificates of origin for goods that are shipped around the world, including lumber, agricultural and seafood products, and other goods.
“We’ve definitely seen a decline in exports in January and February,” said Matt Pitcairn, the chamber’s CEO. “Specifically to China.”
The chamber has put together a toolkit to help businesses prepare for impacts from COVID-19, including disruptions to workforces and the import or export of goods. 

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