10 business impacts of the coronavirus
In an age where news has become entertainment, few stories pass the acid test of sustaining a week-long news cycle. The coronavirus, considered less lethal than the bird flu or SARS, has captured our attention in part because of the speed by which it has infected thousands of people.
While no pandemic should be taken lightly, the panic associated with COVID-19 may be more a function of its timing—it is the most contagious outbreak since the advent of social media.
Coronavirus could also prove to have these 10 impacts on global business.
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1. Restrict global shipping routes
According to the United Nations Conference on Trade and Development, seven of the world’s largest ports are in China. Eighty percent of shipping volume is carried by sea vessels. Seaborne vessels are in a “floating quarantine” as countries such as Singapore and Australia are not permitting those which have docked in China to enter their ports until their crews have been cleared as virus-free.
2. Reset the securities and commodities markets
U.S. equities already experienced a tradeoff that is rattling world markets. Some commodities such as oil have slumped (now trading below $60 a barrel). China is both a large producer and consumer of raw ingredients and commodities like oil, steel, copper, corn, wheat and soybeans—markets which could rise or fall with Chinese demand.
3. Impact supply chains of U.S. companies
The U.S. procures everything from heavy equipment to footwear from China. Some industries such as auto manufacturing source critical parts from China, and further disruption could cause companies to double down on their efforts to source from other regions. For example, General Motors has a factory in Wuhan which has been closed for over a month.
As U.S. tariffs on Chinese goods unfolded, buyers at Walmart and Best Buy were telling several of our clients (their vendors) that they would “pay more”—words never uttered before in professional procurement offices. Coronavirus could pick up where tariffs left off in terms of alternative sourcing.
4. Alter the election
One could perceive President Trump’s announcement of a Phase 2 Trade Deal with China as convenient in the throes of a contentious election year. Some experts believe Coronavirus will have a significant impact on China’s GDP in Q1, and the global economy. UBS predicts the Chinese growth to be cut by more than a third. Goldman Sachs predicts that the outbreak could reduce U.S. GDP by 0.4 percent in Q2—not enough to cause a U.S. recession, but perhaps enough to take some wind out of the president’s sails.
5. Reduce attendance at events
The cancellation of the Mobile World Congress in Barcelona sent shockwaves through the trade conference industry. Facebook cancelled its Global Marketing Summit. The Game Development Conference in San Francisco will go on as planned, albeit without its large contingent of Chinese exhibitors. U.S. conference destinations such as Orlando and Las Vegas will take a big hit both in tax revenue and in their local service economies.
6. Reduce travel
Global airline revenue is expected to plummet by more than $4 billion in Q1. 50 airlines have scaled back, most having canceled all travel to and from mainland China. Japan alone will lose over $1 billion in travel tourism. Royal Caribbean, the second largest global cruise operator, has cancelled 18 trips, some of which originate or stop in Asia but may visit other ports of call. In an investor call last week, Hilton CEO Chris Nassetta expected the virus to cost the company up to $50 million in EBITDA this year.
7. Slow down the adoption of technology
From cell phone production to fiber optics, technology companies are bracing for the worst. At a time when much of the industry is converting to 5G infrastructure, the inability to access key parts, raw earth minerals and the like could cause major disruptions to various networks. Trendforce predicts a 16 percent reduction in smartwatch shipments this quarter.
8. Shrink retail sales
In particular, the import-heavy fashion industry will be hit hard. VF Corporation, owner of brands such as Northface and Timberland, has closed more than 60 percent of its Chinese stores. Apple and others have announced plans to restrict hours and conduct temperature checks for customers.
9. Overwhelm the healthcare system
In Japan, quarantined passengers from the Diamond Princess were taken by ambulance to hospitals four hours away, in part because local hospitals did not have the capacity or wherewithal to handle such cases. Should an outbreak occur in a major U.S. city, local healthcare systems could be under strain.
10. Forces change of workplace policies
Companies are having to make difficult choices about their employees’ welfare, especially those who travel abroad. The CDC released guidance to employers to keep their employees safe, calling on them to encourage any employee with a fever to stay home. The memorandum specifically calls on employers to adopt non-punitive leave policies, providing employees with cover should they feel ill.
While many of these impacts focus on commerce in China, how long before U.S. cruise operators, hotels, restaurants and retail stores begin to feel the impact of U.S. consumers staying home? Let’s hope a vaccine is soon developed to eradicate this costly virus. We should also be reminded of how quickly a virus or an economic shock can spread.