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News January 31, 2020

Coronavirus’ Impact on the Promo Products Industry

Will the disease disrupt supply chains? Can it be spread through imported products? Read on to find out.

By  Christopher Ruvo

UPDATE 7 a.m. Jan. 31

As of Friday (Jan. 31) morning, the number of confirmed cases of 2019 Novel Coronavirus in mainland China had risen to more than 9,700. There have been at least 213 deaths in China as a result of the virus. Approximately 140 other cases have been confirmed in countries around the world, including six cases in the United States.

The 2019 Novel Coronavirus, which has infected thousands and claimed the lives of more than 100 people, is causing disruption in the North American promotional products industry.

Coronavirus Fears In China

People in Shanghai wear masks to protect themselves as concerns about the 2019 Novel Coronavirus spread.

Also identified by public health officials as 2019-nCoV, the disease is a new respiratory virus that originated in Wuhan, a city of 11 million people in Hubei province, China. As of this writing, more than 4,500 people in China had been infected. Of those, 106 had died. Additional cases have been identified in the U.S., Australia, France, Germany, Canada, Vietnam, France, South Korea, Thailand, Singapore and elsewhere, as this map from The Washington Post details. In the U.S., confirmed cases involved people who had been to China.

Officials in China and Hong Kong were taking drastic steps to check the spread of the virus. Beijing, for instance, has announced plans to suspend outbound transportation from Wuhan, which The Washington Post described as a transportation hub for moving goods from China’s interior to the coast for shipping abroad. Meanwhile, Hong Kong was trying to squeeze off the flow of mainland Chinese people into the territory by suspending high-speed cross-border rail service and all cross-border ferry services.

Supply Chain Disruption & Shipment Delays
The vast majority of products the North American promo industry sells come from China. As such, the virus-driven disruption overseas is poised to impact the domestic promo market. Ripple effects are already being felt in industry supply chains, with product shipment delays occurring and some fearing the issue could be exacerbated in the months ahead.

“There have been a few shipments that have been delayed because of quarantines. Couple that with the Chinese New Year, and we are advising sales partners and clients of potentially longer production periods,” Jo-an Lantz, CEO and president of Top 40 distributor Geiger (asi/202900), told Counselor. “This will affect our North American and European clients.”

Trevor Gnesin, CEO of Logomark (asi/67866), told Counselor that management at Chinese factories from which the Top 40 supplier sources is concerned about getting their staff back on time following Chinese New Year, as a result of the virus outbreak. Some factories expect staff to take an extra few weeks to return, Gnesin said. “I expect supply chain disruption, depending on how long it will take to get workers back into the factories,” he told Counselor. “This will not affect immediate shipments, as many suppliers shipped goods before the Chinese New Year (which began Jan. 25). However, it will affect shipments starting next month and may impact April and May potentially.”

Similarly, David Nicholson told Counselor that Top 40 supplier Polyconcept North America (PCNA, asi/78897) has started receiving word about potential delays in factory openings following Chinese New Year. “This would obviously have a significant impact if the delays go beyond a week or two,” said Nicholson, president of PCNA. “The period following Chinese New Year is critical for domestic suppliers in terms of inventory for the busy spring season.” Nicholson noted that, as of this writing, PCNA had not yet experienced any “major impacts in terms of our factories or scheduled orders.”

Meanwhile, Top 40 supplier Hit Promotional Products (asi/61125) has been told by its main sourcing agent that the fallout from the virus situation in China is “fairly severe,” CJ Schmidt, president/chief operating officer, told Counselor. The full extent of the impact to promo might not become clear until after Chinese New Year concludes, he said. China has reportedly extended the new year until Feb. 2 (originally slated to end Jan 30), while Singapore has extended the holiday to Feb. 9. “This will impact every sector of their economy and will delay factories from getting running again quickly and smoothly. It is possible the government could extend this longer,” said Yuhling Lu, CEO of Top 40 supplier Ariel Premium Supply (asi/36730).

Schmidt said Hit is communicating with its top 20 vendors to determine what they anticipate their workload will be. “There will be greater delays than just the standard Chinese New Year delays associated with workers not returning and having to retrain new labor,” Schmidt told Counselor.

Lu anticipates such supply chain disruption and shipment delays, too. “Factories are expressing concern about their businesses and their ability to reopen and catch up with orders," Lu told Counselor. “They are worried about production deadlines, a backlog in shipping logistics, their employees health and what kind of health precautions the government will make them do.”

Lu added: “Factories are advising us of possible delays with employees too. They are worried that even when travel restrictions are lifted, some may still not come back to work for fear of the virus. This will leave (factories) very short-handed.”

Can Imported Products Spread the Coronavirus?
Beyond business concerns, promo professionals have aired fears that products they import from China could spread the 2019 Novel Coronavirus, if those shipments were touched or breathed upon by infected people. The Centers for Disease Control and Prevention (CDC), the U.S.’s leading national public health institute, says it’s unlikely the virus could spread by such means.

“Because of poor survivability of these coronaviruses on surfaces, 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 said in a statement. “Coronaviruses are generally thought to be spread most often by respiratory droplets. Currently there is no evidence to support transmission of 2019-nCoV associated with imported goods and there have not been any cases of 2019-nCoV in the United States associated with imported goods.”

Impacts to Overseas Offices & Business Travel
While the low likelihood of spreading the virus via imported products is good news, the health risk amplifies exponentially for those working in or traveling to China. That reality is affecting promo. “The Shanghai government has sent out orders to keep our offices closed for another two weeks after Chinese New Year,” Gnesin told Counselor. “Fortunately, we have a backup plan that all 35 employees in China are able to work remotely and continue to do what they need to.”

Nicholson said that PCNA is postponing the reopening of its China-based offices following the New Year period. “We’re scheduling staff to work from home until the situation is under control,” Nicholson told Counselor.

Notably, Nicholson said that PCNA has also indefinitely suspended its U.S.-based team members from traveling to China or Southeast Asia. The situation is similar at Logomark. “We decided to cancel all travel to China or Asia for the time being. Any of our staff that are currently out of China will stay out, until at least the middle of February,” Gnesin told Counselor.

Come April, a number of important trade shows occur in Hong Kong and China. Concerned about the coronavirus, industry executives say they’re closely evaluating whether they will still attend those events, which include the Canton Fair and Hong Kong Gifts & Premium Fair. “We are currently booked to attend, but we’ll have to evaluate whether we’ll go once we get closer to the show dates,” Dan Jellinek, senior vice president of sales at Top 40 supplier The Magnet Group (asi/68507), told Counselor. “Our people come first, and we would not do anything to put them in harm’s way.”

For Lantz and her team, the decision on whether to travel to Asia for April shows remained an open question. “This year we have three people slated to go, including myself,” Lantz told Counselor. “Right now, our plans are still on to attend, but we are monitoring closely.”

Nicholson noted PCNA will make a determination on show travel once April nears, but for now, the company is sticking to its ban on going to Asia.

“The situation is evolving quickly, and changes every day,” said Lantz. “We have to see keep monitoring things to see what type of disruptions it could bring.”