The outbreak of the coronavirus (COVID-19) in China is causing longer lead times and will reduce revenue for companies, according to respondents in a special Institute for Supply Management survey.
More than half, 57 percent, said lead times have worsened since late 2019 after the coronavirus caused factories to shut down in China. Manufacturing over the past two decades has increased its reliance on Chinese-made parts and goods.
Of the 57 percent, respondents said lead times are doubling on average. The figure “is rather a startling statistic,” Tom Derry, CEO of ISM, said in a video.
Respondents also said they have cut their revenue targets by an average of 5.6 percent. “It could be pretty significant on a full-year basis,” Derry said.
ISM surveyed 600 members from Feb. 22 through March 5. The Tempe, Ariz.-based group produces a closely watched manufacturing index, known as the PMI. It also comes out with a non-manufacturing business index. Both are based on surveys across different industries.
Respondents in the new survey said their suppliers in China are operating at about 50 percent of capacity and the staffing levels of those suppliers was at less than 60 percent, Derry said.
Some companies during the U.S.-China trade war of 2018 and 2019 established alternate supply sources outside of China. However, of those surveyed, 44 percent said they had no plans for dealing with a China-based supply interruption. “They’re really in a tough place,” Derry said.
The ISM chief also said business is being affected by an imbalance of cargo ships. Exports from China tailed off and ships haven’t traveled to the U.S. As a result, there are cargo ships in China but few in the U.S.
Companies “looking to export back to Asia are competing in a very cutthroat environment to win space on the few container ships they can find in the United States,” he said.