The Novel Coronavirus (COVID-19) epidemic is, rightly, resulting in practical, health and security measures not only in China but around the world. Depending on how management of the outbreak progresses, there are practical implications for demand, supply chains and those travelling for business.
When might the business impacts of Novel Coronavirus (COVID-19) be felt?
- Some impacts are already being felt as production and demand in affected areas will be reduced and restrictions on travel and business operation are imposed
- Impacts may continue to be felt during 2020 depending upon measures currently being taken for containment. In particular medium- and longer-term orders for goods or services are likely to be disrupted for later in 2020/2021.
What kind of businesses might be affected by Novel Coronavirus (COVID-19)?
- Importers and exporters dealing with businesses in affected areas which are not operating to full capacity
- Businesses utilising integrated international supply chains involving potentially affected jurisdictions
- Anyone seeking access to or through affected areas
- Anyone with staff travelling through airports or into potentially affected areas, or with staff who are worried about contacts and family in relevant areas
- Those dealing with or selling to consumers in affected areas.
What steps can businesses take to protect staff and operations during the Novel Coronavirus (COVID-19) risk period?
- Review staff security, safety and briefings including potential exposure or quarantine risk. Ensure staff with specific interests or family relationships are adequately supported.
- Consider relocating staff and working by e-communication rather than personal travel. Where travel is necessary, consider risks of flight destination accessibility and alternative options (including airports).
- Assess supply chain risk. Without undermining ongoing relationships, consider other purchasing options, minimum purchase levels, suspending or reducing supply as a result of Force Majeure, cancellation or termination of orders. Legal options to protect your position may exist in your contracts, if required.
- Assess risk of onward supply obligations including risks associated with breaching client supply contracts due to delay or failure of supply chain, or availability of key staff. Engage early with clients to mitigate the impacts of potential supply problems and look to source other delivery or alternative component solutions.
- Review insurance arrangements. Trade finance insurance or other insurance products might apply and maybe subject to exclusions relating to epidemic and the like. Seek advice from brokers on whether protection exists for challenges to supply. Visit the government's UK Export Finance website to find out how they are helping UK companies to win export contracts by providing attractive financing terms to their buyers, fulfill contracts by supporting working capital loans and maintain cash flow by insuring against buyer default.
- Cash flow needs to be kept under constant analysis with a horizon gazing exercise over the next twelve months to assess potential low points with a view to 'mending the roof while the sun is still shining'. It may be easier and cheaper to put in place or increase credit facilities such as overdrafts and/or revolving credit facilities now rather than wait for liquidity pinch points.
- Consider economic, trade and macroeconomic effects. According to jurisdiction, assess economic effects of possible economic slowdown, currency fluctuations and potential insolvencies on business and trading environment including own business robustness to fluctuations.
- Assess emergency business continuity and staff remote working areas. According to location, key productivity may require staff to work remotely.
- Medium to longer term, undertake risk analyses of world trade impacts of supply options, including energy and commodity resource and costs, and outsourcing decision making.
- Undertake a fresh risk analysis of your business appropriate to the potential impacts of the continuing effects of the virus on a short-, medium- and longer-term basis.
What should I say to my clients and suppliers about Novel Coronavirus (COVID-19)?
- Reassure that contracts will be honoured. Suggesting that contracts will not be fulfilled could result in customers terminating and seeking compensation.
- Discuss with suppliers realistic delivery schedules, keep in constant contact with your logistics suppliers and consider agreeing variations to supply contracts by consent.
- Inform suppliers of expectations and where necessary be clear on legal remedies where supplies are not prioritised.
- Discuss remote communication and options for avoiding the need for staff to travel through risk areas.
We recognise that business must continue and that Novel Coronavirus (COVID-19) must not destroy relationships. However, businesses must protect their staff and themselves (including from claims by individuals on insurance or business support) and consequently will want to take pragmatic and effective measures to minimise risk and ensure supply chain and delivery of customer contracts. Our International Trade Team and sector experts are happy to assist you with practical solutions.