Published in El Pais, February 29 2020.
Since the first cases of the coronavirus appeard in December 2019 in Wuhan-China, the virus has spread globally and, so far, it has not been under control. Although thousands of people have died, there is still no cure available. But, for national and international companies, the health problem may not be the only concern.
Coolblue is one of the largest e-commerce retailers in the Netherlands. On February 25, an internal email leaked to the press which mentioned that, due to the coronavirus and problems with suppliers in China, their prices would increase, and they had to stop selling some products until they filled their stocks. To stop the unpleasant rumors, Coolblue had to make sure to keep the same prices as before. However, this memo did show that Coolblue was trying to develop a contingency strategy for the outbreak of the coronavirus.
The facts are clear so far. The virus outbreak is not yet under control and the number of new cases increases every day, including the number of countries with cases. To control the outbreak, the Chinese government issued measures that stopped movement in some regions. This meant that many Chinese workers who went to their family for the Chinese New Year could not return to their homes. As a result, many factories did not start production and could not supply customers in different parts of the world.
The standstill not only affected the factories. Due to the lower transport, the consumption of crude oil fell. According to Bloomberg, it has slumped by 20% and as a result, Brent oil prices fell from USD 65 to USD 52 in less than a month. In addition to this, many airlines have reduced the number of flights to the Asian region, and to or within China, which will also reduce the demand for oil.
According to some analysts, the impact of the outbreak will not seriously affect large retailers, as they have many products, including substitutes, and have several global suppliers. But some retailers rely heavily on China as a country of production. For small sellers with only few products and few suppliers from China, the risk is serious.
A Chinese product that is considered important is plastic. If a seller relies heavily on this, it can seriously affect the business. For example, production and shipping times are already with three weeks delay and this could deteriorate further. Also it is likely to affect large manufacturers, since plastic is a key part of many devices such as home electronics, cars and commercial equipment.
For many producers and wholesalers such as Coolblue, it is difficult to predict which of its suppliers will reduce production, will have delays in shipping, production recovery time, the impact of the oil price drop on the economy and will there be inflation due to panic? If the virus spreads more intensely, its effects on the economy will be more difficult to predict.