What will the lasting effects be of Coronavirus on the automotive supply chain?
14 feb

What will the lasting effects be of Coronavirus on the automotive supply chain?

 28.02.2020 UPDATE:

As the Coronavirus spreads further and human cost of the virus worsens, as does the impact on supply chains. Italy has the largest number of cases outside of Asia, with more than 400 confirmed cases, mostly in the north of the country.   The Northwest of Italy is a highly industrial region and local authorities are imposing quarantine measures across 11 towns in which more than 55,000 people are quarantined, domestic and European supply chains will begin to be impacted.  

Evolution is working with customers to move stock from Italy in the event that other areas become quarantined.  Customers that increased stock holding to mitigate the impact of a no deal Brexit will see the benefit by having more time to assess the impact of quarantine,  but those that are working just in time with low stock levels will need to source alternative parts from other parts of the world quickly.

 

 

The full impact of Coronavirus on the international automotive supply chain may not be fully known for months, with ramifications extending beyond simply reduced freight capacity and availability on routes in and out of China. The impact will potentially be twofold; not only is China one of the most important manufacturers and largest exporters of car parts in the world, it is also one of the most important regions for new car sales, and both channels are likely to see substantial impacts.

The initial impact of the virus on supply chains was not immediately felt due to the extended lunar holiday in China. However, as the severity of Coronavirus became clearer – and how quickly it spreads – airlines took the decision to reduce flights to the region, with some of the largest carriers substantially reducing schedules until at least early March.

As a market leader in emergency logistics, we’ve assisted our client base through recessions and severe winters, ash clouds and other natural disasters; delivering creative solutions and contingency plans to help customers deal with unexpected and unplanned-for situations for more than 20 years. In the current landscape, Evolution Time Critical has even been trusted with transporting surgical masks by airfreight from Europe to China for customers wishing to protect their staff while at work.

As the Chinese workforce returns to their jobs, manufacturers in Europe and North America have been able to get more detailed information about availability of parts and have started arranging airfreights to keep plants running; identifying the most critical parts first.  

However, with supply likely to be drip fed over the coming weeks, manufacturers will have to consider supply chain balancing; ensuring each stage of the supply chain works in synergy to avoid over- or under-production. The automotive industry is now more time-contracted than ever before, with more intensive production and a strategic approach to supply chain management placing greater pressure on suppliers and their logistics network.

The ability to work with an emergency logistics specialist such as Evolution Time Critical, which is accustomed to working in demanding logistics environments and has a multimodal capability that can be tailored to time-sensitive situations, provides vehicle manufacturers and OEMs with a vital production failsafe.

Evolution has begun managing urgent shipments by airfreight from China, that would have traditionally been moved by other means. The role of Evolution is to balance urgency and risk and to propose the most appropriate solution, taking into account the current situation on the ground; considering space, cost, criticality of shipment and availability amongst other factors.

Another substantial impact of the Coronavirus outbreak has been the significant slowdown in consumer demand across China for new vehicles. This week, it was reported by LMC Automotive that if the epidemic damaged consumer confidence and delayed purchasing over the first two quarters of 2020, China’s GDP growth rate would fall towards 5% for the year, with the vehicle market falling by between 3% and 5%.

All the evidence we currently have points to this slowdown in growth being the case – meaning those OEMs producing in China have quickly found themselves with finished vehicles stacking up at the factory, rather than being sent out to dealers and sold to new owners.

This, of course, has its own impact on the supply chain. OEMs are likely to cut production further, which will ripple deep into the supply chain. The effect for component manufacturers is therefore similar – a proliferation of components waiting to leave their facility, for which they may have insufficient storage space, and no incentive to manufacture more until the picture becomes clearer and there is some guarantee that these products are needed.

The impact on automotive supply chains will be complex, with a reduced demand for vehicles exported to China, balanced with the need the get the most critical components from China to global manufacturing plants at the right time to ensure seamless production. The effect of one of the largest players in the global automotive market effectively becoming ‘quarantined’ has certainly created a unique situation – and one which will take some time, and clever thinking, to resolve.

 

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