Covid-19: Delay, dust and debt

The impact of the coronavirus has yet to be fully felt as the supply chain struggles to find stock and customers.

 

Doors are closing across the world, sanitised keys turning in sanitised locks as manufacturers shut doors and customers cut budgets in the face of Covid-19. The economic and financial impact of the virus is already being felt by organisations and individuals. Many economists believe that the worst is yet to come. The FTSE, Dow Jones Industrial Average and Nikkei have seen dramatic drops since the start of the year, with the first two seeing the biggest single day declines since 1987. Investors and governments are scrambling for solutions, and the supply chain is staring at dust-covered docks empty of supplies and a dwindling pool of customers. And this is just the beginning of what many believe to be an 18-month crawl back to normalcy, whatever that may be.

The first country hit by the virus is the one that most manufacturers, vendors and suppliers rely on for stock – China. While the country claims it’s on the road to recovery, the supply of components has slowed to a crawl. Some factories have restarted since the outbreak in the Hubei province, but, as Craig Freer, head of cloud at Vox, points out, South Africa is at the bottom of a long list of countries that are waiting for stock.

“I don’t believe this is a 30-day problem, it’s likely one that’s going to last for at least three months,” he says. “One of the biggest challenges is that we’re a small market so a lot of the production from China is going to Europe and the United States. We’re not a priority market.”

Resellers are bracing for supply chain delays on goods moved in and out of China as a growing number of carriers freeze operations across the country’s borders. Factories are struggling to get up to full speed and transportation networks are limited due to travel bans and closures.

The new disruption

 

“Existing shipments should take 23 days on the sea to get here from Shanghai, but these are being delayed by slower customs clearance as new regulations, fewer open ports and limited resources take effect,” says Doug Hunter, manager of professional services, Syspro Africa. “Imports to South Africa are now difficult to plan or even get with thousands of containers and hundreds of shops being delayed.”

 

Some supplier factories have been closed. Raw materials are in limited supply. Stocks are in high demand, but scarce. Supply chains are losing sales. Customer and consumer demand is flagging in some industries while spiking in others in the face of economic uncertainty. Markets and economies are volatile and unstable. If anyone was looking for a definition for the word ‘disruption’, this is it.

“We don’t know what the impact is going to be in South Africa,” says Victor Nemukula, executive director at Shumani Industrial. “There’s going to be a decline in getting products on time and this is going to add to the recession. The longer it takes for products to come out of China, the less cash flow there will be and even lower margins.”

For the channel, the hard times coming down the line are going to be definitive.

Reseller revenues are already rapidly declining alongside a rising struggle to generate sales and access products. The entire value chain is rippling with the aftershocks of the viral quake. In February, Apple revealed that it wouldn’t hit its prior revenue forecast of $63 billion thanks to coronavirus, and it was not alone. Since then, AMD, HP, Lenovo, Logitech, Microsoft, Nintendo, Nutanix, Nvidia, and Qualcomm have released revised earnings estimates and these will likely be revised yet again as stock markets and economies battle to get off their knees.

“We’re seeing a crisis in the supply chain,” says Jo-Anne Mitchell, Deloitte Africa’s restructuring services leader. “South Africa hasn’t had a booming economy to date so if it’s now survival of the fittest, then this is going to make things even worse. Those companies that don’t have quick and easy access to finance are going to struggle, especially because we don’t know how long this is going to last.”

It’s a race against time between how long the business can hold out without resupplies of intermediate goods and how long it takes for logistics and manufacturing to resume operations.

“This most likely doesn’t end well for the South African side of the equation given the time it’s going to take for the Chinese manufacturing and shipping sectors to get back on the job again. It’s going to take months and not many small to medium-sized businesses have the necessary capital cushion to wait that long,” says Eric Olander, founder of the China Africa Project.

The smell of burning rubber hangs over the globe as the economies of the US, Europe, China, and Japan come to a screeching halt. The damage that Covid-19 will have on Africa’s economies will be potentially catastrophic. It’s the same story in every country that’s lost its largest export market and, for some, its largest source of imports. It seems that the upward momentum granted to Africa at the start of the year has come to an unexpected and unwelcome halt.

Nobody knows

Arnold Ponela, research analyst, IDC, Sub-Saharan Africa, adds: “The stock market has experienced steep declines over the past month and a possible recession is in sight. If this happens, many IT markets will suffer and economies will be impacted by the loss of revenue with no alternative spending in its place.”

 

The situation is bleak, and it is largely unknown. The factors that influence economies and markets are being pummelled by the decisions made by governments and organisations in the wake of the coronavirus. Every decision made will pivot on the markets and the changes in buying, the availability of stock and the accessibility of products. It’s definitely bleak, but it’s also not necessarily impossible to navigate.

 

“Nobody knows what the knock-on will be for customer, reseller and market, but the best thing to do right now is to stay close to your clients to see how you can support their business needs,” says Nick Bell, CEO at Decision Inc. “You need to be adaptable and find pricing and payment strategies that clients can consume and you need to take a longer-term view on supporting customers through this.”

This is one strategy. Another is to be as innovative as possible, to find new ways of disrupting the disruption and leveraging the opportunities that are emerging from the disaster. As Nemukula points out, there’s still a need for services and a demand for products, it’s just going to be more difficult to deliver.

“It has forced us to think differently about our business, to question our supply chain and to move more into online business than into retail spaces,” says Carike Greffrath of the Wanderland Collective. “We're facing a massive challenge to try to stay in business, but we believe that something good can come out of this.”

Marc Ashton, from consulting firm Decusatio, agrees: “With global supply chains being constrained, it provides an opportunity for local manufacturers to build capacity. If incentives are made to industrial companies, we could see a boom in local manufacturers.”