With mounting supply chain pressure, global industries are anxiously awaiting the reopening of China’s factories. With China still struggling to contain the coronavirus, recently named Covid-19 by the World Health Organization (WHO), factories have been slow to reopen. Chinese factory managers and workers face many obstacles, including local quarantines and regional travel restrictions. Supply chain disruption is becoming a real worry for many industry leaders and business owners.
Automotive Industry Starting To Feel Pressure
Hyundai Motor shut down seven factories in South Korea because its suppliers in China are unable to supply the necessary parts. Nissan is also facing production impacting shortages. Nissan Kyushu, located in Japan, will halt production of its Serena and X-Trail models for two days, February 14 and February 17. Fiat-Chrysler is feeling the pressure as well. A company spokesperson said the company may have to stop production at one of its European sites in two to four weeks due to parts shortages.
There are a few automotive factories in China that have received government permission to open. However, resuming operations can be a process involving a number of steps. Depending on the locality’s specific requirements, that process can include devising a health plan, monitoring worker temperatures, obtaining detailed travel information about workers and, in some places, 14-day quarantines for workers returning to the factory from elsewhere in the country.
Some automotive factories, such as Tesla in Shanghai, are starting to resume operations. Shipments of the Model 3 made there are going to be running late. Ford has opened its six factories in Hangzhou and Chongqing. It likely will be weeks before full production levels are reached at the Ford factories. Honda Motor, located near Wuhan, has a reopen goal of February 17. Nissan plans to open factories in Dalian and Huadu, outside of the epicenter of the outbreak, after February 17. Toyota and BMW are also hoping to open next week.
Mobile Phones, Electronics, Assorted Consumer Goods Impacted
Apple is worried about product delays, as are lesser known mobile phone makers. Smaller factories that feed the world’s cheap consumer goods market are wondering how they’ll survive if factory shutdowns continue. Regional and local reopening regulations aren’t the only barrier. Labor is a major issue. During the holiday season, many people traveled home and are now caught up in quarantines and travel restrictions. Foxconn, a major iPhone maker, located in Zhengzhou, was able to partially resume operations. However, just 10 percent of its workforce has come back.
Logistics Problems Abound
In addition to labor and manufacturing issues, transporting materials and finished product is also currently a problem. Cargo shipping is taking a financial hit, about $350 million per week, and contending with labor shortage related delays. Travel restrictions are impeding the movement of goods. Working factories and businesses are dealing with shortages of basic goods.
Output and Demand Expected to Stabilize
The economic fallout resulting from the China shutdowns and supply chain disruptions is expected to be short-term, impacting primarily the first quarter. Output and demand are expected to stabilize after a surge once Covid-19 is under control and full production is back, easing the pressure on US industry leaders reliant on Chinese manufacturing. That must be a great relief to all those Americans who’ve watched lower-paying service industry job expansion over the past few decades as US industry leaders shifted manufacturing jobs out of the country in a never ending cheap labor chase.