Inventories cushion coronavirus blow for North American companies, but future uncertain

In the past 24 hours officials in China have announced an additional 14,000 infections in Hubei Province alone from the virus, which has been officially named Covid-19. This is a marked jump in the infection rate, which had been showing signs of leveling off. 

Rate of reported infections accelerates

According to The New York Times​, part of the jump is attributable to the use of a quicker and easier diagnostic method using lung scans rather than the time consuming and complicated genetic tests that have been employed this far.  This means sick people can get appropriate care faster, but also means the number of reported cases will likely continue to climb steeply​​ for some time.

The death toll in Hubei Province has risen to 1,310, including 242 deaths reported in the past 24 hours. The province’s leader has been sacked by the central government.

The viral outbreak coincided with the Chinese New Year’s holiday season, when many workers and professionals travel home to visit their families. As such, it is a slow business period that companies doing business in the country have always had to take into account.

The question this year, with quarantines and travel disruptions, is how quickly facilities would resume full functioning.   Apple contractor Foxconn has reportedly received approval to reopen its factories, but the most recent reports from several days ago seem to indicate that across the economy the restart will be significantly slower this year than normal.

Near term future uncertain

Wilson Lau is vice president of sales and marketing for NuHerbs, a San Leandro, CA-based company that is a large scale importer of Chinese botanical ingredients into the United States. Lau said that while this annual interruption is part of the natural business cycle, this year will be a huge challenge.

“Many companies that do business with China are prepared for this annual holiday, and plan in advance. However, this year it’s a lot more complicated. Wuhan and 15 other cities are strictly quarantined. Most major cities such as Shanghai and Beijing are virtually shut down, although not quarantined,”​ he said.

“Will vendors and suppliers be fully staffed, and if not how long will that take? Will shipments from factories be able to get to the ports? Will the ports be open? The list of concerns is long,”​ Lau told NutraIngredients-USA .

Inventories cushion disruptions

Jim Emme, CEO of NOW, a supplement manufacturer based in Bloomingdale, IL, said travel restrictions are likely to bite into his company’s business in the near future.  NOW makes hundreds of dietary supplement SKUs and sources a broad array of dietary ingredients from China.

“We are anticipating a disruption in the supply chain of ingredients that are sourced from Asia. These could be shortages of raw materials, and possibly the interruption of different freight modes between North America and China,”​ Emme said.

Emme said NOW, along with other importers and users of Chinese ingredients, such as Ethical Naturals and Herbalist & Alchemist, has found that inventories of major Chinese ingredients already in warehouses in North America have been sufficient to cushion the short-term supply blow from the crisis.

Beth Lambert, CEO of Herbalist & Alchemist, which is based in Washington, NJ, said when the news broke the first thing she did was get on the phone. Her company uses a variety of Chinese ingredients for its line of tinctures and capsules, which are formulated partly along TCM lines.

“​When the coronavirus first emerged, I thought it might cause disruption in availability of quality herbs, so we put in our orders for everything we would need from China for the year. Since we source these herbs from importers, we wanted to get product already in their warehouses in the US.  Everything we needed was available,”​ she said.

New requirements, quarantines likely to complicate restart

Cal Bewicke, CEO of Ethical Naturals, based in Novato, CA, said the crisis is sure to complicate the restart of full business in China.  Unlike other years companies will be required to certify that they have disease control measures in place before they can resume full functioning.  And many facilities will experience short term labor shortages, as workers returning from other provinces will have to go through a quarantine period to make sure they are not spreading the virus.  Infected persons not showing symptoms can still be carriers.

“As we see it, the best thing for any US company to do right now is to asses the needs for their key ingredients over the next three to four months, and where practical, stock-up from inventory that’s already in the US. None of us can tell for sure where this situation is headed, and this action will at least help to avoid problems for the foreseeable future. Even when full production restarts, it will take time to ship products into the US, and put them through required testing,”​ he said.

Emme and Lau said their first priority, along with other companies, was the safety of their employees.  There will likely be acute shortages of personal protective equipment such as masks, gowns and gloves which will have to be planned for.

Timing of outbreak means effect on business not as severe as it might have been

Lau said one key ameliorating factor is the time of year the virus hit. While many dietary ingredients from China, such as vitamins, chondroitin, glucosamine and others are produced on a more or less continuous basis, his company deals in agricultural commodities, and the growing season is long over.

“​We had material landed right before the New Year so we have enough stock on hand. We made commitments to farmers last fall to acquire herbs that meet our standards, and this material was processed to our specs immediately after harvest. ​It’s ready and waiting ​to be shipped, once this situation passes,” ​he said. 

Lambert said another way in which is the crisis is not doing as much damage as it might is that North American consumers have not yet negatively associated TCM products with a risk of infection. Nor has the crisis caused any detectable spike in panic buying of certain products.

“​We have not yet seen any impact of the coronavirus on our regular business in terms of sales. Perhaps there has been a small bump in immune support products but nobody’s buying any excess stock different from what is normal this time of year,”​ she said.

“From what I have seen, people in the US are not thinking about the impact of the coronavirus personally. Some people have tuned out the news, so just are not fully aware of its rapid progress. If they have heard about it, they are assuming people exposed are quarantined and everything is OK in the US,”​ she said.