The Supply Chain Shock Is Going Global

(Bloomberg) --

A “rolling natural disaster.”

That’s how Ethan Harris, head of global economic research at Bank of America, describes the industrial closures sweeping from Germany to Peru, sparing neither the richest countries nor the poorest, as businesses and consumers hunker down to ride out the Covid-19 pandemic.

Harris, the chief U.S. economist of Lehman Brothers from 2003 to 2008, reckons the shock to supply chains is deeper and more sprawling than the trade wars of the past two years and likely to be more prolonged than the storms, earthquakes or floods that have strained major industries for spells in the past. He expects these factory shutdowns will last into May and possibly longer.

Compounding the supply jolt to companies is a demand plunge in Europe, the U.S. and other major economies. Millions of workers  are losing their jobs and the consumers who remain employed have to stay indoors. For the full story by Bloomberg News’s Shawn Donnan, Christoph Rauwald, Joe Deaux and Ian King, click here.

Apple is confronting the impact on component makers in Italy, Germany, Malaysia and South Korea after having weathered the February slowdown in Chinese factories that do the final assembly of products like iPhones and AirPods.

In Malaysia, key suppliers like Murata Manufacturing, Renesas Electronics and Ibiden have halted production as a result of restrictions on movements imposed by the government. Micron Technology is affected, too, but said an exemption allows “limited semiconductor operations to continue.” Texas Instruments and On Semiconductor also have facilities there.

In Peru, a state of emergency and nationwide lockdown have led major mining companies like Freeport-McMoRan and Newmont to curb copper production there. The same is happening in other mining centers like Chile, Canada and Mongolia, with economists at Scotiabank saying the initial result from the hit in Chile and Peru alone leading to the loss of some 325,000 metric tons of copper production, or about 1.7% of global annual output.

In Europe, industrial giants like Volkswagen and Airbus have shut down assembly lines in an effort both to reduce the spread of the virus and to deal with parts shortages and bottlenecks due to restrictions on travel within Europe.

The situation is also dire for Liqui Moly GmbH, a maker of engine oil and lubricants based in the southern German city of Ulm. “If the situation demands it, I will forgo my salary,” Chairman Ernst Prost said.

Charting the Trade Turmoil

Countries around the world are taking drastic measures to stop the spread of COVID-19 on their homefront, after many reported cases were imported from elsewhere. Australia and New Zealand announced on March 19 that they would block all foreigners from entering, regardless of where they’ve been, while citizens and residents returning from abroad would have to undergo a 14-day quarantine.

Today’s Must Reads

• Food supply | Global warehouses are stuffed with frozen cuts of pork, wheels of cheese and bags of rice. But as the coronavirus snarls logistics, the question becomes: How will all that food get to people?
• Dead flowers | Kenya’s flower industry, the largest exporter of blooms to Europe, is staring at a “disaster” if disruptions caused by the pandemic continue for just two months.
• Chip ahoy | Intel, the world’s biggest chipmaker, said it’s managing to maintain an above 90% on-time delivery of its products from factories worldwide.
• Post-Brexit talks | The coronavirus has struck at the heart of the post-Brexit trade talks between Britain and the European Union, with both sides’ top negotiators now in isolation.
• Uncool beans | Some of the world’s largest coffee traders are bracing for supply disruptions as the virus threatens to cause delays to ports and other transport operations.

Economic Analysis

• Asia’s week ahead | Expect to see more virus drags on China profits, Asian export figures next week. 
• More support | The Bank of England goes for more shock-and-awe but a U.K. recession still looms.

Coming Up

• March 23: South Korea imports, exports
• March 26: U.S. advance goods trade balance

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