The impact of the coronavirus on supply chain and logistics

By Michael Briody and Todd Sibilla, with assistance from Emma Restrick and Demetri Papacostas.

The global focus on Covid-19 has shifted the priorities for all businesses and individuals globally. While the impact of and the reaction to the virus on supply chains and logistics appear to be spreading across the globe, organizations may be able to anticipate the impact on their business by using a combined set of tools. For example, U.S. companies that rely on foreign demand for their products also rely on foreign manufacturers, which supply the goods and services they need to conduct business.

The global nature of the economy requires all organizations to understand their direct supply chains, and also the inherent risks that they may be exposed to at the secondary or tertiary supplier and customer levels. Being aware of these risks will help with formulating corporate strategies and business planning.

At the core of any supply chain lies commodity costs. Oil is always in the headlines, but further analysis of this relationship can give deeper insights into how this energy is being used. As the virus began spreading in China, it is worth noting that steel production remained high in the region. However, as the global economy and demand have recently decreased, the country’s steel inventories have reached record levels

The chart above shows rising inventories and what that may mean for prices. The lack of demand resulted in China’s steel exports being down significantly. This is just a small piece of the supply chain puzzle and the data sets available.

As Covid-19 continues to impact not just steel, but all commodities, production of parts and delivery logistics, companies need to be able to pivot and make adjustments to their own production and business strategies.

Being aware of the risks of and to your supply chain will be critical for all businesses moving forward.

Viewing companies as a “pass through,” starting with materials and components from their suppliers and then moving new product through to customers, shows how this balanced process works. Any disruption to supply or demand will require a shift in a company’s strategy, production volume or procedures. Being able to identify any potential risks can help a company prepare for sudden changes in this balance. This level of data is used not just to understand direct exposures, but also those possibly found among second- and third-tier suppliers and customers — even further the potential strengths or weaknesses among the relationships with and of their competitors.

Industries and the economy in general are in a new territory, finding themselves more vulnerable to the risks of globalization and supply chain disruption. Accordingly, using correct data sets and forecasting tools will be crucial to companies as they navigate the current market environment and continue to make strategic decisions. Sign up to speak to a Bloomberg industry or commodity specialist about supply chains and logistics.