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CTA Update: The Effect of the Coronavirus on Tech Businesses

As the labor return rate rises, factories will return to full production capacity more quickly

Editor’s Note: The following is an update released by the CTA regarding the state of the industry.

The coronavirus has upended daily life across the globe. As government agencies and health systems are focused on slowing the spread of COVID-19, another major concern facing the world right now is its influence on the economy. But recent data and reports suggest overseas supply chains may be regaining their footing.

The Consumer Technology Association (CTA) research team is monitoring worldwide supply chain developments to understand implications for the consumer technology industry. China has been the center of attention, not only because it has dealt with a large number of coronavirus cases, but also because of its status as the second largest economy in the world and its role as a manufacturing powerhouse.

Labor shortages, production delays and logistics bottlenecks highlight just how troublesome the pandemic has been. But now, like light at the end of a dark tunnel, we’re seeing positive signals that point to a supply chain recovery. What are the signs?

The Labor Return Rate for Factories in China Is Gaining Momentum

Since February, Chinese manufacturers have faced a shortage of employees due to travel restrictions and quarantines to control the spread of the disease.

The Baidu Migration Index, which measures the return rate of workers to their employers after the Lunar New Year, shows that only about one-third of workers had returned to work at the end of February 2020, compared to the number of workers that had already returned at the same point in 2019. By mid-March, the return rate improved to about 75%, suggesting China’s factory workforce could be fully restored by early April.

As the labor return rate rises, factories will return to full production capacity more quickly.

Manufacturing Capacity Is Returning to Normal

Widespread factory shutdowns in China led to concerns about component shortages across the manufacturing ecosystem. But signs point to most factories up and running by the end of March, with Bloomberg reporting that China’s economic output reached 85% of normal capacity the week of March 20.

Major manufacturers are reporting that they are near capacity, and lead times for other manufacturers are decreasing. Wuhan is ending its lockdown in early April, which should further alleviate strains on China’s manufacturing operations.

Shipping and Logistics in China Are Getting Back on Schedule

Chinese lockdowns kept large amounts of finished products from reaching export cargo ships in the month of February, which has caused domino effects at U.S. ports.

According to the Wall Street Journal, container volumes arriving at California’s largest ports were down 35% in February from a year prior. An executive at the Port of Los Angeles told the Hellenic Shipping News that he expects container volumes to pick up again in late April or early May.

In the meantime, some companies have resorted to air cargo as a stopgap measure to obtain the products they need.

The good news is that Chinese industry appears to be regaining momentum. However, other countries are just beginning to deal with the virus, and there may be more labor and manufacturing disruptions ahead.

CTA will be keeping a close eye on supply chain developments over the coming months to understand how the industry will be affected.

See also: CES Asia 2020 Postponed Amid COVID-19 Concerns