On March 11th 2020, the World Health Organization (WHO) declared the novel corona virus outbreak a pandemic. The impact of corona virus on businesses have put the world on halt and paralyzed economies across the globe.
Half a week after the declaration, stock markets around the world experienced a free fall, some of which were recorded at their lowest of all time.
The impact has been so strong that the Organization for Economic Co-operation and Development (OECD) has cut half the global GDP growth projection for the financial year of 2020.
However, this is not the actual representation of the market situation and is considered as a sentimental shift amid the corona scare. The primary and the most direct impact was the lock down in Wuhan and other parts of China; a country that stands out as one of the largest manufacturers in the world.
Impact on OEMs & SMEs in the U.S.
Several companies based in the U.S. have stayed put due to the lack of supply. For instance, Apple, Inc. has announced that the company will not meet the revenue target for the quarter due to the supply chain issue.
While big players like Apple are struggling amid the pandemic, small & medium enterprises in the country are fighting for their existence. Small companies that are running toy businesses in the U.S. are waiting for factory re-openings as they are directly dependent on the inventory.
On the other hand, one of the backpack suppliers listed on Amazon is worried about losing it’s rating on the app due to the uncertainty of supply.
In another impact of corona virus on businesses, the port of Los Angeles, considered the largest port in the U.S. and comprises around 40% of the total shipped imports in the country, is deserted amid the Corona outbreak. This is due to the factories shut down in China, which has led to a drastic fall in the product shipment.
Owing to this, the supply of several products including toys, consumer electronics, and apparels have been affected in the country. While, the announcement from President Trump on European restrictions has led to huge sell offs from the financial markets in the U.S., with airlines shares taking a major hit.
Nosedive of the Aviation Industry
Owing to the virality of COVID-19 and the current scenario in Italy and other parts of Europe, several countries have restricted traveling to most of the corona affected regions, boosting the fall of the aviation industry worldwide. China aviation market is the second largest in the global aviation industry and contributes a major share to the market.
The pandemic has resulted in an 80% drop in traffic in the major airports of China. Reduction in capacity, which is measured by how many seats remain unreserved, is far greater than the time of SARS (considered as the benchmark fall in the capacity). Grounded aircrafts are adding to the maintenance cost with a widebody aircraft costing around USD 50,000 a day.
While airlines including Cathay Pacific and Asiana Airlines have asked their employees to take unpaid leaves, Hongkong Airlines has been reported to lay off around 400 employees to ensure its survival. The International Air Transport Association (IATA) has estimated USD 29.3 billion loss in revenue for the financial year of 2020.
Service Sector to Stay Neutral
The service sector comprises numerous industries which is why the impact of the pandemic is going to be somewhat neutral. While the chain effect created from the aviation sector will take a toll on the travel & tourism and hospitality businesses, healthcare, sanitation, and on-demand industries will have a positive impact from the outbreak.
Tourism on the Line of Fire
India and China are potential customers for South Africa in terms of tourism. The uncertainty in numbers is bad news for the tourism industry, resulting in failure to meet the target growth from the previous year.
Several countries in the Middle Eastern region including UAE and Qatar have invested hugely in infrastructures to promote tourism, aspiring to shift their revenue model on the industry. Sudden drop in the arrivals is likely to put the process on hold, resulting in a huge loss.
The sentiment of the overall travel & tourism industry, can be sufficed from a statement of one of the tour operators that quotes “The only thing that’s traveling is the virus.”
The global hospitality sector has also been shaken up after the increase in the number of cancellations of business meetings, trips, seminars, social gatherings, and, of course, holiday reservations amid the scare.
The Other Picture!
Amidst the negative impact of corona virus on businesses, the sanitation industry is showing positive trends. According to WHO, the cost of protective gear including mask & gloves has increased by 20 times. The demand for sanitation products along with respirators has grown 100 times more than usual. The organization believes that it is quite vital at the moment to tackle the upcoming demand.
The media & entertainment industry is also showing mixed emotions. While OTT platforms are leveraging the quarantine, by increasing subscriptions, the production of major projects in film and television industries including “Peaky Blinders” and “Batman” are being delayed.
Free-falling Crude Oil Prices
Crude oil is one of the most impacted areas due to this outbreak. All the aforementioned industries have affected the crude oil industry, resulting in a 21% fall in the WTI crude in the last month itself.
China is one of the largest consumers of crude oil, constituting around 13.2 % of the world’s total consumption. Nationwide lockdown and an uncertain halt in transportation is going to decrease the demand growth drastically in the coming months.
Besides, the crude oil industry is a process-based industry and requires numerous raw materials, such as industrial metals, to operate. This is only going to slow down the business. The Organization of Petroleum Exporting Countries (OPEC) is planning to cut production owing to the lower demand. The current scenario suggests that the prices are going to drop for months as the virus keeps spreading.
The Aftermath of Quarantine
Meanwhile, the quarantine can have adverse effects on local government and private organizations as people are avoiding crowded spots. Retail stores are observing sudden growth in sales which will result in a greater than forecasted demand for products. The obvious lack of supply can hence be a problem in the future. Construction and real estate industries along with other sectors that demand manpower are likely to be affected as well.
One of the major concerns specific to the COVID-19 pandemic is that it has impacted more developed regions than any other in the past. With Europe being the epicenter of the outbreak after the month-long shutdown in China.
The consequences of this may potentially lead to a global recession. And, while businesses across the world are prepared for the worse and are hoping for the best, there’s one factor that all of them are concerned about, it’s not clear whether the slowdown is a temporary sentiment or is going to last long enough to choke the global economy!
