COVID-19 Global Trade Impact: Short-term Supply Chain Disruptions will Cause Long-term Business Challenges

After months of economic shutdown amid the COVID-19 pandemic, long-term forecasts on global trade impact are still mounting, and it’s expected that there will be lasting supply chain disruptions for some time to come.

If you sell, ship or transport goods, this will likely impact you to some extent.

So what can businesses do to prepare for this projected disruption?

 

Economies Won’t All Reopen at Once

First, even if the coronavirus lockdown is completely lifted in the United States, it will take some time before we can truly return to normalcy.

It’s important to remember that across the globe the economic shut downs are not in alignment with one another right now, which will have lasting affects when we do “reopen.”

It’s expected that most economies will function somewhere between 70 to 80 percent of their pre-pandemic capacity for at least two to three quarters.

transportation, travel, retail and hospitality industries, which are expected to take an even longer time to return to normal.

As is the case with China, one month after the number of new COVID-19 cases were down to zero, production is at roughly 80 percent of their usual levels. Consumer spending has dropped considerably as well, down 65 percent.

The big takeaway is that it is going to take time for economies and industries to fully recover.

This will lead to a lot of headaches for businesses that are navigating this situation haphazardly—don’t expect to just cruise through these challenges. It’s important to prepare.

Be Prepared for Disruption

Businesses need to take account that this is an incredibly fluid situation. We have never seen this level of disruption on a national or international scale.

A number of measures have been put in place to help reduce the international spread of the coronavirus. This includes short-term efforts such as export and import bans that create trade barriers to reduce the risk of spreading the virus. This will likely lead to more countries focusing more on their own economy and autonomy—rather than relying on international suppliers.

It’s expected that the US could see $3.5 trillion in trade loss, with insolvencies expected to rise 20 percent this year. With that, it’s been predicted that up to one third of the jobs under partial unemployment could be lost.

Ultimately, the economy is not going to return to normal right away.

The Bigger Problem in the Supply Chain

The underlying challenges that will emerge are related to cash flow. Even if we get close to production levels prior to the pandemic, there are a lot of underlying supply chain cracks that will have formed that will create issues.

For instance, if a business sells their product and ships it to a retailer, there are set expectations on delivery and payment.

If, for whatever reason, the retailer can’t make the payment, the cost (loss) ultimately falls back on the supplier if they aren’t properly covered with the right insurance.

This is happening now. As several major retailers announce nationwide closures, there will be a very real trickledown effect on the suppliers they work with. Those who didn’t prepare may fall into similar financial struggles.

How Businesses Can Protect Themselves

A proper credit insurance can help protect accounts receivable from these scenarios and recoup some of the payment.

Some business owners may depend on their customers’ credit reports, however, the challenge in this very fluid environment is that these scores aren’t necessarily reflective of the current financial situation—especially as the economy continues to react to the impact of long-term economic slowdown.

If you have questions about the topics discussed above or if you have a specific question about your own business, please contact me. I’m happy to help.

 

 


Ranya Ku

About Ranya Ku

Ranya Ku helps her clients reach their organizational and financial goals through proactive risk management and insurance coverage solutions. She holds a Master of Business Administration in finance and international business from the University of St. Thomas and a Bachelor of Science in Horticulture with a concentration on landscaping architecture in Taiwan. She is a Certified Risk Manager (CRM), Certified Insurance Counselor (CIC) and Certified Insurance Service Representative (CISR).

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