Coronavirus disruption spurred North American manufacturers to rethink supply chains in Asia, Thomas Industrial survey finds

A snapshot of the manufacturing sector about a month ago gives a view of how much disruption the coronavirus outbreak has caused and how much more is to come, according to the March 2020 report from the Thomas Industrial Survey. And in any other time, dire news about the price of oil would be driving more economic concern.

The spread of the coronavirus in China and other Asian markets has led to 47% of surveyed North American manufacturers seeking domestic supply sources, rising from 43% reported in February, the survey found.

The trend is characterized by a sharp drop in North American manufacturers excluding reshoring from their considerations compared to February, the survey found. The proportion of surveyed businesses responding they were “not at all likely” to move production or sourcing back to North America fell from 30% to just 18% between February and March, and 54% were between “likely” and “extremely likely” to consider adding more domestic production.

Thomas and many survey respondents are watching closely for larger impacts in the April report that will account for the increasing strain on North American economies from viral spread in March.

Improving circumstances in Asian markets had started to alleviate supply side concerns for many manufacturers, but focus will soon shift to managing the anticipated demand reduction as COVID-19 continues to shutter many businesses and put more people out of work.

The March 2020 Thomas Industrial Survey was conducted between March 10 and 16 and received a total of 1,073 responses.

Of those, 27% of manufacturers told Thomas they were highly reliant on China for parts and components and 20 percent for raw materials. About the same proportion, 19% and 22%, respectively, said they were “not at all reliant” on China, where the initial COVID-19 outbreak occurred.

The survey found that 55% of businesses also now anticipate a decline in revenue for the year, compared to more than half that expected revenues to stay the same year-on-year when surveyed in February.

More than half of survey respondents told the Thomas survey felt the decline in oil prices stemming from the Russia-OPEC price war and slowdown from the virus outbreak had impacted industrial business, leading to lower transportation and feed-in costs for petroleum-based plastics and polymers. On the other hand, suppliers to North American oil and gas companies, particularly those dealing heavily with the shale subsector, lamented a significant drop in equipment sales as producers struggle to break even at prices below $50 to $60 per barrel. (As of Monday, oil prices were about half of that.) Some also anticipate recycling programs for plastic products to have a lower priority as the balance swings toward virgin production from lower cost inputs.