Coronavirus effects on global trade

02.03.2020 Dianne Tipping
The global trade environment is in the media glare more than ever before. In terms of the practicalities of trade in general, the coronavirus has meant a reduction in buyers, sales, planned face-time, due to meetings being cancelled, conferences and events being rescheduled, lack of logistic services to move goods and production and manufacturing plants lying idle as no workers to work them.

The coronavirus is seriously affecting Education and Tourism providers in Australia. However, in terms of the practicalities of trade, the virus will very likely, at least temporarily, and most certainly materially, impact global growth rates as well as the viability of deeply integrated and typically well-oiled regional and global supply chains.

As we enter into what could become a very difficult time for these normally seamless, ‘just in time’, and deeply connected chains it is important that we take stock of what is happening, why, and what can be done about it. Coronavirus may be more serious for Australian companies than individuals with several China exposed businesses warning of the impact during the latest half-yearly profits.

Hearing device maker Cochlear downgraded its full-year net profit guidance by five per cent due to hospitals in greater China (including Hong Kong and Taiwan) deferring surgery to avoid the virus. Vitamins maker Blackmores axed its first-half dividend, warned its second half would be worse and has outlined a new strategy for China. Treasury Wine Estates has been forced to issue two profit warnings since it announced its results as the virus spread. Bluescope Steel says its China division won’t make any profit in the June half even though its four main production sites are still operating.

Shelf stock will continue to diminish - commentary from importers indicates a shelf stock of 3 – 4 weeks of products from car parts to household goods. Alternative supplies will become exhausted and more expensive – local importers have advised they have for some weeks now been looking to source stock from other sources/countries, however, the issue is so are businesses in other parts of the world and there are simply not enough sources to fully supply the orders.

Lack of container movements will create surpluses and shortages – if full containers are not moving into countries then those countries have no empty containers to export their goods back to their offshore clients. This has the potential to increase costs due to the expense of relocating empties and higher prices due to minimal stocks.

There is already concern amongst many in the industry as to what they can do if they have minimal work for their employees due to these lower volumes. Increased prices for transport, be it air or sea, will be something that we will all have to address in the months after normality returns to the China economy.

However with every bad story, luckily there is usually a good story - surgical gloves and protective clothing group Ansell says demand has jumped for its products and it has been given special status to fast-track imports into China until it can increase production at its Chinese factory. We have heard from some of our members that the sales of health supplements are rising especially into other Asian countries. It would seem everyone wishes to ensure they are strong and healthy to combat the virus. In the world of trade, we must think like that also.

There can be opportunities for those who act fast and maintain their confidence in China. From a people to people perspective we must try to restore business confidence when this crisis passes. The economic impact of the virus will be profound, but the strength of the Australia China relationship and our strong ties will ensure that we can return to business as usual.

Above all we must re-think our strategies going forward and put into place risk mitigation plans so that these problems caused by whatever issue in the future will not impede global trade - these plans must be considered for the benefit of all.

ECA is here to help, contact us if your business is affected by the coronavirus.

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