How coronavirus is impacting supply chains
Not only is the coronavirus a serious health concern, it is having catastrophic consequences on the world economy.
The coronavirus has been declared a global emergency, with the UK braced for an epidemic of cases. The number of confirmed cases within the UK continues to rise, with health officials warning that the spread of the virus is a serious threat to the British public. Not only is the virus a serious health concern, it is having catastrophic consequences on the world economy. This can be seen in the performance of the stock markets, with levels falling last week to levels not seen since the 2008 financial crash.
Many sectors have been affected by the virus: undoubtedly the travel and tourism industry has been hit hard. Many airlines have announced reduction in bookings, with UK airline Flybe announcing today that they are going into administration. The company was saved from going into administration early this year but the effect of coronavirus has had a significantly negative impact on an already weak company.
Fears are also increasing in relation to the food and drink sector. British supermarkets are already putting contingency plans in place to ensure customers can access the products that they want - this includes moving the sourcing of products from one country to another. Customers are already seen to be ‘panic buying’, and with irregular footfall in stores and in the wake of Brexit, the impact on the economy could be catastrophic. Import demand has also already fallen and in particular China imports £75 million worth of Scottish whisky and £55 million worth of seafood each year - this will be a concern for the Scottish industry because the demand in China has now reduced, therefore Scottish businesses will now be seeking alternative markets. The Scottish Whisky Association have said they are unable at this point to predict what impact this will have upon operating profits.
The virus is already impacting supply chains with the closing of manufacturing facilities: Apple’s supply from China is only operating at 20 percent capacity and automotive manufacturers such as Fiat Chrysler and Hyundai have halted production. Northern Italy and South Korea are also being affected. Ultimately, this will result in shortages across a range of sectors and across many parts of the world.
Small businesses will also be adversely affected by the virus. In the aftermath of the virus, the worry is that they may have to contend with compensation claims or managing the knock-on effect of suppliers being unable to fulfil their obligations due to constraints. In the short term, businesses should contact suppliers to try and understand the effect and evaluate the contractual obligations and, in particular, force majeure clauses should be reviewed. Communicating with suppliers will help to lessen the impact and potentially help businesses engage with alternative suppliers.
To find out more about how your organisation can prepare, contact Rebecca Ellis, Trainee Solicitor at firstname.lastname@example.org or Nicola Gonnella, Partner at email@example.com.
How could the coronavirus impact on your businesses? Read our latest employment update 'Coronavirus – 10 things employers need to know' to read about the plans that are being put in place with a view to minimising the impact of the virus.