The coronavirus outbreak has injected a high level of uncertainty for many businesses that depend on products from China but are clueless as to when they will arrive.
“You can’t get a straight answer,” said John Mack, president of Frontier Illumination. “We talked to somebody recently for a pretty big order, and they told us mid-May is the best they can do. Other guys are saying ‘we just don’t know,’ so there’s a lot of variables. … The level of certainty is rather low.”
Mack’s company provides LED lighting for commercial, industrial, and institutional markets and is located in Carson, California. More than 90% of the components for LED lighting are produced in China, according to Mack. And with the virus shutting down plants there, lead times for those products have increased from four to six weeks to waits that stretch to 15 weeks.
“We’re finding significantly increasing lead times and a great deal of uncertainty around them,” Mack said, adding that “my biggest concern is sitting around with no product.”
Mack said his company is flush enough to handle lagging lead times in the short term, but it could eat into his bottom line if the problem persists.
“There will be projects in April that won’t get done until May, at the very least. I think it’s going to hurt us, yes,” he said. Mack, 50, started his business in 2014 after losing his job trading stocks. Not wanting to move to New York City to find another job on Wall Street, he decided to change careers and start his own business.
U.S.-based companies produce some of the components that Mack needs, but they are more expensive than their Chinese counterparts, which drives up costs for Mack’s company. So, he still relies on Chinese products and hopes that lead times do not extend beyond what they already are.
“Right now, we’re just hoping that it is not a horrible situation and that in a couple of weeks, China will be 90% back to work … and by the summer, we’re back to normal. That’s my hope,” he said.
The outbreak and the damage it could wreak on businesses such as Mack’s presents a threat to President Trump’s reelection. The president on Wednesday put Vice President Mike Pence in charge of how the United States responds to the virus. Trump has tried to reassure voters that they are at low risk of getting the virus and investors that the economic fallout will be contained.
Companies larger than Mack’s are also contending with product disruptions.
Microsoft announced on Wednesday that delays in receiving products from China could hurt personal computer sales, and factories in that country are reopening at a pace slower than expected.
Apple is also experiencing delays and is not expected to meet second-quarter financial goals.
Nintendo recently said that supply delays would hurt the production of its gaming console.
Analysts have warned that the coronavirus could inflict damage to the world economy that equals what occurred in 2008. Back then, a subprime mortgage crisis ballooned into an international banking crisis that cratered stock markets around the world. When added together, the loss of homes and stock value during that period totaled more than $10 trillion.
Currently, fears that the coronavirus may spread across the U.S. and to other countries have already wreaked havoc on the markets. They are in correction territory, and, as of Thursday, investors have already lost $2 trillion. Earnings growth for U.S. companies this year is now expected to be stagnant, according to Goldman Sachs. Trade between countries is likely to remain weak until the virus is contained. The Geneva-based Goods Trade Barometer recently stood at 95.5, when readings of 100 indicate growth.
