Covid-19 and the Risks for Importers of China Goods

August 07, 2023
Table of Contents

The Institute of Supply Chain Management released the first-round results of a survey focused on the impacts of COVID-19 on businesses and supply chains on March 11th, 2020.

Nearly 75 percent of companies reported supply chain disruptions in some capacity due to coronavirus-related transportation restrictions. More than 80 percent predict that their organization will be impacted by COVID-19 disruptions.

However, the situation is evolving—and worsening—so rapidly that we can expect those numbers to rise when the second-round results are released.

Despite a downward trend in new cases reported in Hubei Province and China as a whole, travel restrictions and bans imposed the world over will continue to hinder the movement of goods and people in the foreseeable future.

Beijing remains optimistic. At the time of writing, the spring Canton Fair is set to go ahead as planned from 15th April – 5th May.

As an importer, even if you share Beijing’s optimism, there are many risks that you need to look out for. Here are three of the biggest ones.

Longer Lead Times

There’s a misconception that the grounding of passenger planes will not affect the movement of goods. This could not be further from the truth as a lot of passenger planes carry cargo. Air shipment capacity is lower and you may struggle to book space in the coming weeks or months.

Seaports are also operating below their usual capacity and even if you have a long-standing relationship with your freight forwarder, costly delays are inevitable.

Covid-19 has also affected upstream supply chains, especially those that rely on multiple suppliers. Let’s say that one of your manufacturers in Ningbo buys raw materials from five other suppliers and that those five suppliers buy components from another five other suppliers. Your supply chain relies on all eleven suppliers. If any of those suppliers are shut or short on inventory or even short on specialized labor, it could lead to excessively long lead times.

This scenario has become increasingly, and worryingly, prevalent in the last few months as travel and transport between Chinese provinces has been limited.

Human Resource Shortages

Covid-19 has also reduced the supply of skilled workers and specialized workers, especially foreign expats.

This is particularly harmful to importers doing business with small and mediumsized suppliers. Smaller suppliers will often have only one or two people, who know how to set up, maintain, or even troubleshoot high-tech pieces of equipment.

Even if your supplier’s factory reopens, they may not be able to perform anywhere near their full capacity unless they replace their skilled workers. This, unfortunately, isn’t cheap and the costs could trickle down to your company.

Deceptive Supplier Practices

Times are tough and money is tight. Reports have trickled through in recent weeks of suppliers who have misled importers on what their true capacity is. In some cases, the factory wasn’t even open!

This is where a third-party inspection company (TPI) can prove especially useful. An experienced TPI has decades of experience in auditing both potential and existing suppliers. They also have access to a wide network of vendors: something that could prove critical, especially if your brand is forced to switch vendors.

It’s not ideal, but you may have to pay a premium to the few suppliers that are still operational in order for them to prioritize your imports over other businesses.

*****

Covid-19 is unlike any biological crisis we have seen in recent times, and it is bound to hurt importers of China goods. All three factors above will inflate your cost structure, shrink your bottom line, and they could even affect product quality. To make matters worse, the real estate bubble and stock market bubble in the U.S. is bound to burst at some point, which would plunge the global economy into a recession.

You can’t control this. In fact, you can’t control things like transportation disruptions either. However, partnering with a TPI agency can greatly help lower your risk profile in controllable areas, such as supplier selection. Certain suppliers are better equipped to deal with crises such as Covid-19. It can be hard to cut through the noise and select the ones that are right for you.

With over 12,000 TIC specialists, including auditors and inspectors, located in all major sourcing and selling regions, InSpec by BV is perfectly positioned to help you adopt best practices, and choose the best suppliers so you can weather the storm that is Covid-19.

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