At a death rate of just under 1.5% outside China it is not much more deadly than the flu, though the impact of China’s business shut down is enormous.

Last week the case fatality rate of COVID-19 (coronavirus) appeared to be just over 3.4% in China and just under 1.5% outside China (WHO 2020). That’s about what it was at the beginning of the outbreak up to 28 January 2020. By comparison, the case fatality rate for the seasonal flu in the United States ranges between 0.10-0.18%. For SARS, it’s about 10% and for MERS, about 35% (WHO 2020). For Ebola, it has varied between 25-90%, depending on outbreaks, averaging approximately 50% (WHO 2020). So, unless you are one of the 1.5% out of China, not that big a deal for coronavirus.

The business shut down has been extraordinary. Some of our client’s customers in manufacturing have been asked how the shut down in China will affect the supply of their product.

The real question is how will this now affect manufacturing around the globe? What other shocks will come through China now that China is the world’s manufacturing base? How many more outbreaks of disease? Geopolitical concerns in Hong Kong? Let’s not mention a little island being built in the South China Sea in international waters which is causing some concern. Is China now becoming like the Middle East (Saudi Arabia) of the new millennium. Once China stops, so does the world.

As many Australian based manufacturers have been able to always provide continuity of supply and indeed timeliness of supply. Add to this the increased quality and we think these are compelling reasons to buy Australian. More to the point is how much will this shut down cost current Australian companies (indeed world companies) and will this make them reconsider their supply chain? My guess is that once the cost of this supply chain breakdown is measured you will see many more companies reverting to local suppliers, because “we just can’t afford to go through that again!”

So, as a result CEO’s manufacturing managers and supply managers will start to consider the risk of supply interruption as one of their key decision-making criteria. Either that, or an increase in stock to cover a possibly supply-side risk. But how much will that cost? How will you finance that, if that is the decision you have to make?

I can tell you obtaining finance specifically to buy stock and fill your warehouse is very difficult. Finance based on your customers invoices though is a reasonable choice as it is stock you have already sold. Customer Invoice Finance is likely to see a resurgence simply because of the current conditions and the potential shocks of the future. If you need to talk through your current finance needs, please contact us.

References

World Health Organization (2020) Coronavirus disease 2019 (COVID-19) Situation.37th ed. World Health Organization, p.2. Available at: https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200226-sitrep-37-covid-19.pdf?sfvrsn=6126c0a4_2. Accessed 27 Feb. 2020

World Health Organization (2020). Frequently asked questions on Middle East respiratory syndrome coronavirus (MERS‐CoV). Available at: https://www.who.int/csr/disease/coronavirus_infections/faq/en/ Accessed 27 February 2020

World Health Organization (2020). Ebola virus disease. Available at: https://www.who.int/news-room/fact-sheets/detail/ebola-virus-disease Accessed 27 Feb. 2020