The COVID-19 coronavirus may have slowed down throughout the world, but it’s still a very real pandemic that is having major disruptions on business – and on supply chains in particular. If you’re interested in learning more about how COVID-19 has already affected global supply chains, and what the future may look like for supply chains, this blog from A-1 Auto Transport is sure to be educational. Read on, and learn everything you need to know.
What Is A Supply Chain? Understanding The Basics
A supply chain is the system of organizations, industries, raw materials, resources, activities, individuals, and information involved in supplying a particular product or service to a consumer. Put more simply, it’s the system that turns raw materials into products, goods, and services – which can be sold.
Even supply chains for extremely simple products can be surprisingly complex. For example, the supply chain for a bar of raw iron involves a mining company and its individual employees, a refinery where the iron is made, a company that sells the product, and many other smaller intermediate steps.
A global supply chain is a supply chain that spreads throughout multiple countries and governments, and involves importing and exporting raw materials and goods throughout the process of creating products and services that can be sold to customers. Thanks to increased globalization, most of today’s supply chains are global in nature, and involve powerhouse manufacturing countries like China and Japan.
How Has COVID-19 Disrupted Supply Chains Worldwide?
COVID-19 has dramatically impacted global value chains, led to drops in industrial production, and resulted in lower exports from countries like China, as well as reduced imports and exports in the United States and many other industrialized countries. While the long-term effects are yet to be seen, these impacts have already seriously affected global supply chains in the US and worldwide.
- Impacts on Global Value Chains (GVCs) – A Global Value Chain is essentially the same thing as a global supply chain, where raw materials and intermediate goods are shipped throughout the world as they are turned into goods for final consumers.
China, as the single largest manufacturing country, is intimately involved with most of today’s GVCs particularly for high-value components used in end-user products like electronics. Along with Japan, the EU, and the United States, China is at the heart of today’s GVCs.
Since COVID-19 began in China, it began suffering the effects of the coronavirus much earlier than the rest of the world – immediately shutting down factories in an attempt to prevent the spread of this highly-contagious virus. These effects were felt in global value chains almost immediately, particularly in the steel industry, electronics industry, and auto industry.
- Drops in industrial production – Overall drops in industrial production have already occurred due to COVID-19 coronavirus. In China alone, production fell 13.5% in January and February compared to the previous year, which was more severe than the effects of the 2002/2003 SARS outbreak and the financial crisis of 2007/08.
China isn’t alone in this, either. European industrial production dropped by 10.9% in March 2020 and by 17.3% in April 2020 in comparison with the previous months – with a stark decline of 33.5% and 68.5% in the motor vehicle industry.
- Reduced exports and imports – Thanks to shuttered factories, disruption in the transportation of raw materials, and overall drops in industrial production, exports and imports have declined in many countries throughout the COVID-19 coronavirus crisis.
Compared to the March numbers, U.S. imports fell dramatically by 13.7%, and imports fell 20.5% in April of 2020 as lockdown orders hit the country.
In Europe, the story is similar. It’s estimated that 2020 EU exports will decline by 9.2% and imports will decline by 8.8%, compared to the previous year.
What Will The Results Of COVID-19 Be For Supply Chains?
So, it’s obvious that COVID-19 has had seriously disruptive effects on global supply chains – but what does this mean for the future? We think that there will be a lower emphasis on global supply chains and an enhanced emphasis on national and domestic supply chains – which could lead to some damaging effects for developing countries.
- Reduced emphasis on global supply chains – Though there are many benefits of globalized supply chains and value chains, such as lower overall cost of production and the ability to source raw materials from numerous countries, the COVID-19 coronavirus has shown that these benefits are not without risk.
It’s entirely possible for an unforeseen issue – like a global pandemic – to completely shut down the global supply chain, leading to cascading problems like lack of supplies and raw materials, which leads to lower overall demand for products. This lower demand, in turn, can result in a “second shock,” where global manufacturers reopen their facilities, but are unable to sell the expected volume of goods or materials due to lack of demand.
- Focus on national/regional supply chains to improve resilience – Along with a reduced emphasis on global supply chains, it seems likely that many individual countries will reduce the export of raw materials, and attempt to focus on national and regional supply chains that can help with resilience during unforeseen situations like the COVID-19 coronavirus pandemic.
For example, the EU may reduce exports to other countries, and prefer to manufacture products within its own borders, or the US, Canada, and Mexico may begin to work more closely together to create a more resilient supply chain.
- Disruption for developing countries – A reduced focus on global supply chains and enhanced emphasis on national and regional supply chains could prove to be quite disruptive for developing countries that export raw materials, or are home to factories that process raw materials into intermediate goods or end-user products, such as Vietnam, Indonesia, and other major links in the global supply chain.
When Will The Effects Of COVID-19 On Supply Chains End?
Unfortunately, it’s impossible to say when the effects of the COVID-19 coronavirus on supply chains will end. Many countries – including China – have reopened factories, but COVID-19 has been shown to be very resilient. Countries including the United States are currently experiencing a spike in cases, and it’s entirely possible that other countries may also experience a second wave of this virus. It’s likely that the impact of COVID-19 will persist for months to come, and could even continue to affect global supply chains for years.
COVID-19 Coronavirus May Change Everything About Supply Chains
Since we’re still in the midst of a widespread pandemic, it’s hard to say with certainty what the effects of COVID-19 coronavirus will be on global supply chains and manufacturing.
But it’s safe to say that this virus outbreak has shown the flaws in our current globalized system – and that many countries may try to bring production back into their own borders or local region in order to avoid similar effects in the future.
Thanks for reading, and from the team at A-1 Auto Transport, we hope that you can stay safe during this unprecedented time.
Written By:Joe Webster
Joe Webster began his journey in the auto transport field by attending the University of Southern California (USC), where he graduated with a Bachelor of Business Marketing.
After college, he started his career in the auto transport industry from the bottom up and has done virtually every job there is to do at A-1 Auto Transport, including but not limited to: Truck Driver, Dispatch, Sales, PR, Bookkeeping, Transport Planner, Transport Manager, International Transport Manager, Brokering, Customer Service, and Marketing. Working with his mentor Tony Taylor, Joe Webster has learned the ins and outs of this industry which is largely misunderstood.
With over 30 years experience in the industry, we've been helping people ship their vehicles, motorcycles, RV's, heavy equipment, household goods and more across the country or overseas without a hitch. Ask us anything.