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News February 18, 2020

Coronavirus Hobbles Chinese Factories

That’s having an impact on the North American promotional products industry. Plus, updates on health concerns, such as how the virus spreads.

By  Christopher Ruvo

UPDATE: February 18, 2020. 11:20 A.M.

The number of confirmed Novel Coronavirus cases stands at more than 73,000. The vast majority of those cases are in mainland China.

Fears that the 2019 Novel Coronavirus would prevent factories in China from quickly resuming operations following the extended Chinese New Year are becoming an unfortunate reality, promotional products executives say.

Last week, Counselor reported that increased product prices, rising shipping costs, inventory shortages, prolonged supply chain disruption, health concerns and business travel/trade show upheaval are some of the issues the North American promotional products industry is facing or could soon face as a result of the viral outbreak.

China Fears of Coronavirus Outbreak

People in China wear masks to protect themselves from being infected with 2019 Novel Coronavirus, also known as Wuhan Coronavirus and COVID-19.

A week later, the picture on what the supply chain disruption will look like has become clearer. The image that’s emerging is troubling: Industry executives say that many factories in China remain shuttered. The majority of promo products sold in North America are made in China. “Some factories have opened, but with few workers at this point,” Jeff Lederer, president of Prime Line (asi/79530), Top 40 supplier alphabroder’s (asi/34063) hard goods division, told Counselor.

Reasons for the slow re-opening are manifold. For starters, nearly half of China’s population – some 780 million people – are living under some form of travel restrictions, which the government has enacted to control the spread of Novel Coronavirus (also referred to as Wuhan Coronavirus and COVID-19). The clampdown on traveling is making it difficult for workers to return to factory floors following the Chinese New Year, which authorities had extended by a week to Feb. 10 in an effort to limit the virus’ reach. That holiday extension also ground factory production to a standstill.

Even if workers can get back on the job, some are opting to stay at home, rather than risk venturing out and potentially contracting the virus, which had killed 1,873 people as of late Monday. Five people outside of China had perished; the rest of the fatalities occurred in mainland China.

Chinese factories are also being delayed from getting back into production mode by governmental requirements related to containing the virus. “Each factory has to apply to their local government in order to reopen,” Lederer told Counselor. “In order to do this, they have to provide records and a prevention plan that outlines how they will keep the virus from spreading.”

The factory downtime could trigger disruption that lasts for months, some promo pros said. “We anticipate that many (factories) might resume their regular operations in early March. Others may not reopen until April,” Paul Lage, president of Top 40 supplier IMAGEN Brands, the parent company of Crown (asi/47700) and Vitronic (asi/93990), said in a letter to distributors. “In the meantime, orders for their products are still coming in and they are starting to accumulate some significant backlogs. Therefore, this potential disruption may last until early summer.”

If prolonged, factories’ inability to produce products could lead to inventory shortages for North American promo suppliers. Lage emphasized that IMAGEN beefed up its inventory prior to the Chinese New Year beginning in late January. As such, the supplier doesn’t anticipate inventory issues in the short term. Still, if disruption drags on, product categories IMAGEN carries that could be impacted include drinkware, umbrellas, tech products and some bags.

“We are also looking to sourcing alternatives of these products outside of China,” said Lage. “We do have alternatives for our cotton products and do not see them being impacted at this time. This is an industry issue and all suppliers that source product in China and surrounding countries will be experiencing the same issues.”

Meanwhile, Lederer told Counselor that Prime is in a strong position from an inventory and supply chain position, for the time being. “We have a significant amount of inventory in our four warehouses and decoration centers across the U.S., so there has been no interruption to our supply chain up to this point,” he said. “Also, Prime has moved a meaningful amount of production outside of mainland China. While it is not a majority yet, it does mitigate some potential interruption.”

Even so, issues could lie ahead for Prime and others if Chinese factories remain hobbled headed into the spring, Lederer said. “Should there be delays of more than 30 days, it will begin to have an impact on our product supply starting in the second half of the year,” he told Counselor. “We remain optimistic, but the situation is quite fluid right now.”

Even if production revs back into top gear soon, there could, at least initially, be shipping issues that cause delays in getting products stateside. That could exacerbate potential inventory shortages and compel more suppliers to utilize pricey air freight to get their products to North America. “The cost for suppliers might increase for certain items, should they decide to airship any delayed shipments,” said Lederer. “However, that is not sustainable, as it’s extremely costly. Therefore, we might see price increases in the latter half of the year.”

Jonathan Isaacson, CEO of Top 40 supplier Gemline (asi/56070), said in a letter to distributors that shipping companies in China appear to be gradually reopening, but the potential for backlogs is real. “Although we are expecting them to gear up in the coming days and weeks, this remains the biggest unknown in terms of planning,” Isaacson said. “The potentially large backlog in the global transportation system will likely mean some delays, but we will not have a more complete picture for some time.”

For more on potential shipping issues and possible price increases, check out this article and video from Counselor.

Beyond shipping and pricing issues, the promo industry is also contending with postponements of important trade shows. The Hong Kong Trade Development Council, for example, has postponed eight of its April trade shows until the end of July. Those include the Hong Kong Gift Show, which many North American promo products leaders attend.

Meanwhile, Canton Fair, China’s oldest and biggest trade fair, which is also attended by promo industry pros, has suspended exhibition activities due to the outbreak of the virus. Canton Fair was originally scheduled to hold its spring season exhibition at the Canton Fair Complex on April 15.

As of this writing, 2019 Novel Coronavirus had infected more than 71,000 people. Cases have appeared around the world, though the overwhelming majority of infections – 70,622, according to The Wall Street Journal – are in mainland China. Authorities have confirmed 15 cases in the U.S. and eight in Canada.

How Does The Virus Spread?
Naturally, there’s concern in the promo industry – and society at large – about how Novel Coronavirus spreads. Most often, the virus goes from one person to another through respiratory droplets, such as those emitted in a cough or a sneeze, according to the Centers for Disease Control and Prevention, the United States’ leading national public health institute.

The CDC notes that the virus has “poor survivability” on surfaces. Still, the organization also says that “it may be possible that a person can get COVID-19 by touching a surface or object that has the virus on it and then touching their own mouth, nose, or possibly their eyes, but this is not thought to be the main way the virus spreads.”

Given the newness of the virus, scientists can’t say definitively how long COVID-19 might last on surfaces that have not been disinfected. Still, studying other coronavirus strains might give some idea.

"Based on the current available data, I would primarily rely on the data from SARS coronavirus, which is the closest relative to the Novel Coronavirus -- with 80% sequence similarity -- among the coronaviruses tested. For SARS coronavirus, the range of persistence on surfaces was less than five minutes to nine days," Dr. Charles Chiu, an infectious diseases professor at the University of California, San Francisco, told CNN.

"However,” Chiu continued, “it is very difficult to extrapolate these findings to the Novel Coronavirus due to the different strains, viral titers and environmental conditions that were tested in the various studies and the lack of data on the Novel Coronavirus itself. More research using cultures of the Novel Coronavirus are needed to establish the duration that it can survive on surfaces."

The CDC has continued to maintain that there’s no evidence to suggest the virus can spread by imported products or shipments coming in from overseas.

“There is likely very low risk of spread from products or packaging that are shipped over a period of days or weeks at ambient temperatures,” the CDC says. “Currently there is no evidence to support transmission of COVID-19 associated with imported goods and there have not been any cases of COVID-19 in the United States associated with imported goods.”

Isaacson, who has spoken with health experts about the virus, said the transmission risk on imports/shipments is described as “‘extremely low’ - especially given the shipping time for most products from China. Based on this, I would personally have no problem giving an imported product to my children to use.”