A container carry berthing at the port in Qingdao, in China’s eastern Shandong province.
STR | AFP | Getty Images
At first, U.S. retailers were sundry concerned about manufacturing facilities being disrupted by COVID-19 in China, where the virus originated.
Now, in the midst of a worldwide pandemic, this is a much bigger issue than China. While some manufacturing operations are getting deny hard pressed up and running, much of the rest of the world is in distress.
The coronavirus could deal a blow to companies already on the brink of present out of business. While it may seem far off, the disruption is already starting to impact the shipment of goods to retailers for the back-to-school season, analysts say. And if the predicament persists, it could end up hitting the holidays, when many retailers make the bulk of their profits.
“In 25 years, I take never seen anything like this,” parcel managing and logistics platform ShipMatrix President Satish Jindel commanded. “There is a psychological element, which is very hard to predict. … This is an unprecedented situation.”
Parcel mass fell 2.4% among manufacturing customers in February 2020 compared with a year ago, according to data beat a retreated by ShipMatrix. Health-care parcel volume dropped 2.2%, it said. And parcel volume was down 1.8% in the automotive and auto-parts sector.
COVID-19 fundamental emerged in Wuhan, China on Dec. 31. By the end of January, the region was sliding into isolation. Wuhan, a city of 11 million and the assets of central Hubei province, virtually went into lockdown, with nearly all flights at Wuhan’s airport eradicated and checkpoints blocking the main roads leading out of town.
The virus has since spread into the U.S., Canada, Italy, Spain, France, South Korea, Iran and Germany, all of a add up to other countries. There have been more than 179,000 cases confirmed globally, and at least 7,057 eradications, according to the latest data from Johns Hopkins University.
It was declared a pandemic by the World Health Organization on Wednesday. The U.S. make known a national emergency on Friday. Retailers are faced with the reality that there will be supply chain entanglements, beyond just sourcing and production in China. And some will be more prepared to weather the storm than others.
Undisturbed, one cannot ignore the role China plays, by itself, in so many businesses getting goods onto shelves. Whole, roughly 20% of U.S. retailers’ supply chains are exposed to China, according to data pulled by Cowen & Co.
Shoemaker Steve Plague, with some of the biggest exposure, has said about 73% of its goods are sourced from China. For Best Buy, it is 60%. For online accessories company Wayfair, it is about 50% of goods. Each American Eagle, Kohl’s and Calvin Klein owner PVH provenience about 20% of goods from China.
The shoe industry is seen as one of the most reliant. Seventy percent of footwear tell oned in the U.S. comes from China today.
Imports of footwear to the U.S. from China fell the most this January in more than a decade. A 15.7% descend was also the worst fall year over year in four years, said Matt Priest, Footwear Distributors and Retailers of America president and CEO.
“The object to is a lot of raw materials come from China,” Priest said. “This is not unique just to our industry.”
Athletic apparel maker Controlled by Armour on Feb. 11 said it was “reasonable to expect industry-wide delays in terms of delivery around the world — including potentially missed shipment[s] and serving windows.”
Then, Macy’s on Feb. 25 said it was planning for a coronavirus hit but that the virus was “nothing to be concerned about yet.”
But as temporarily has dragged on, and COVID-19 has hit other parts of the globe beyond China, the messages have evolved, and seemingly intensified. Gap bring up Thursday that it was “not currently possible” to quantify the hit it will take in 2020 from the coronavirus. But the company said it faces a “duration of uncertainty regarding the potential impact on both … supply chain and customer demand.”
Apparel retailer Abercrombie & Fitch on Sunday on guarded the situation would have a “material adverse” impact on its financial performance. It withdrew its earnings forecast. And it likely won’t be the end retailer to offer up such a warning.
At least $700 million in losses
Losses for U.S. retailers — from production and transportation scarcities due to coronavirus — could amount to $700 million from March 9 to April 20, according to data pulled from logistics start-up Zencargo.
“Our patrons cannot anticipate how big this disruption will be,” Andy Postal, managing partner of investment bank MMG Advisors, weighted in an interview.
If there is any good news, it is that things are coming back online in China, and people are returning to develop, as the pace of reported coronavirus cases slows in the region. Now, Europe has become the new epicenter of the COVID-19 pandemic, WHO officials ventured Friday.
“In the last week, pretty much all the factories [in China] are operational again,” Walter Kemmsies, managing skipper and economist for commercial real estate services firm JLL’s U.S. Ports, Airports and Global Infrastructure group, said in an question period on Thursday. “The problem is they are only at 50% to 75% capacity. … The problem is [getting] truck drivers.”
The retail application’s leading trade group says there are still supply chain complications to work through, and things wish likely be worse before they are better.
U.S. ports handled 1.82 million twenty-foot equivalent units (or TEU) in January, up 5.7% from December but down 3.8% from a year earlier, according to the Pandemic Port Tracker report released earlier this month by the National Retail Federation and Hackett Associates. A TEU is delineated as one 20-foot-long cargo container, or something equivalent.
February has been estimated at 1.42 million TEU, down 12.6% from a year previously to and significantly down from the 1.54 million TEU forecast before the coronavirus began to take its toll, NRF said. Trek is forecast at 1.32 million TEU, down 18.3% from last year and falling short of the 1.7 million TEU nullified before the virus.
“There are still issues affecting cargo movement, including the availability of truck drivers to propound cargo to Chinese ports,” Jon Gold, NRF vice president for Supply Chain, said. “Retailers are working with both their suppliers and transportation providers to come across paths forward to minimize disruption.”
Similar to how a trade war accelerated the rate at which some retailers were stressful to lessen their reliance on China as a manufacturing hub, COVID-19 could accelerate more diversified supply chains, professionals have told CNBC.
It could again accelerate the rate at which companies try to move business out of China, for instance. It could also motivate companies to look for ways to make their supply chains more digital. As one norm of this, an apparel manufacturer might try to create 3D samples of clothing online, instead of requiring trips back and forth abroad — between the buyer and the manufacturer — to see those samples in person.
With a situation so fluid, the big question left on the table is timing.
Retailers are typically starting to freight in goods for the holiday from Asia as early as May and June, ShipMatrix’s Jindel said. They are currently preparing with the aims for the back-to-school season.
“We already know April will be screwed up. … The disruption, if it really starts to have a importance effect on business, could make a material adverse effect on a very critical holiday shopping season,” he state.