NZ companies hit as virus shuts China’s factories

The deadly coronavirus has closed factories in China causing supply shortages all over the world, and New Zealand companies are not immune

Les Kendall, owner and chief executive of New Zealand’s biggest air conditioning company, is really worried about the coronavirus.

But it’s not about his health. It’s about his business. 

“Everything coming from China is up in the air,” says Kendall. “There has been significant disruption in our supply chain in China.” 

His company, Temperzone, has two factories in Auckland and Sydney building air conditioning units for residential and big commercial projects. But they rely heavily on Chinese-made components - anything from aluminium foil and copper tubing to circuit boards and other electronics. 

And with many Chinese factories closed, or operating at very reduced volumes, and with massive disruptions in land, sea and air freight systems, it’s not at all clear when Temperzone will start getting shipments again.

“Our supply chain partners are not able to confirm deliveries and orders. The longer if goes on, the worse it could be. We have been advised that our suppliers expect to be back in production in the near future, but dates have slipped already, and it will really depend on how the virus unfolds.”

Temperzone is far from the only New Zealand manufacturer impacted by the new coronavirus, which has killed more than 1300 people, mostly in China, and has infected around 60,000. 

Our country’s burgeoning high-tech sector is hugely reliant on China for raw materials and components. Rakon, Gallaghers, Fisher & Paykel Healthcare and Appliances, Scott Technology, Buckley, Compac Industries to name just a few.

Then there is the fashion industry, which uses Chinese companies for their fabric and garment-making. There’s the pharmaceutical industry, our retailers, the construction sector. All reliant on Chinese suppliers.

Overseas, massive multinationals like BMW and Apple and many others in the auto, computer, electronics, and textiles industries are cutting back production because they can’t get the parts they need. 

On Monday carmaker Nissan said it was closing its factory in Kyushu, Japan, for four days beginning later this week “due to supply shortages of parts from China”.

Fiona Acheson's China-based team are still all working from home. Photo: Supplied

Fiona Acheson is New Zealand Trade and Enterprise’s regional director for Greater China. She’s normally based in Shanghai, but happened to be back in New Zealand when the coronavirus outbreak escalated. Now she’s remotely managing a team of people in Shanghai, Guangzhou, Chengdu and Beijing, who have themselves been working remotely.

“Most are now into day 15 of needing to stay at home,” Acheson says. “ They are at home with their children, in some cases with their in-laws, their parents, in small apartments. They are trying to keep boredom at bay. A lot of schools are providing online learning, so some are homeschooling their children.”

In theory, Acheson says, 160 million Chinese people are returning to work this week, with the forced extension of the Chinese New Year holiday coming to an end on February 9 in most cities. 

But before Chinese factories and businesses can reopen their owners have to jump through a bunch of hoops. That has delayed the restart process for many companies, and means reduced production for many more. 

“Premises have to apply to reopen,” Acheson says. “They have to list every employee, have to say what they have in place [to reduce the possibility of infection]. They have to make sure staff don’t sit too close, they have to wear masks, they have to clean surfaces every two hours.”

Kendall says even for office workers the situation is difficult. 

“We have our own staff member in Shanghai who is having difficulty getting into the office due to permitting requirements.”

Then there’s the problem faced by many companies whose workers are stuck on the other side of the country because of the government’s travel restrictions. Employees who travelled to their home towns for the Lunar New Year holidays now can’t get back. 

So even companies that are opening aren’t operating at full capacity,” Acheson says. “For some factories it’s more like 60 percent.”

It isn’t just a lack of goods from China that’s hampering New Zealand businesses - it’s the a shortage of wrappers to put them in. China is a huge supplier of packaging for companies all round the world, and the Chinese packaging industry “is almost shut down, so everything from plastic packing to steel drums is running out”, according to a recent article in the New York Times.

“It will take at least a couple of weeks” before factories making components and packaging start anything like full production again, Acheson says, and even then it’s going to be about “people getting used to a new normal.”

The situation is compounded because the travel restrictions mean it’s difficult to move goods around the country and to get them out.

“The ports have restarted, but there are delays. They are operating slowly. And transport in and out of port is slow.”

Acheson says that in one way at least, the timing of the coronavirus around the Chinese New Year holiday is fortuitous. New Zealand companies would have been expecting Chinese factories to be shut for a while, and would have got extra supplies in. 

But the longer the problem lasts, the more difficult the situation will be.

Les Kendall says for the time being Temperzone has plenty of stock to keep producing and installing its air conditioning units. 

“But looking forward, we have long supply chains and it can take up to six months to get the products we need. So when a supplier can't confirm an order that might be due in 2 to 3 months time we get concerned.

“We are monitoring the situation very carefully and hopefully full production will be resumed, because the longer it goes on, the more dramatic effect will be on supply chain.

“We can see potential danger and we have to plan accordingly.”

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