Western small and medium-sized enterprises (SMEs) use the highly lucrative drop shipping model to deliver products manufactured in China straight to American and European consumers. Consequently, they rely on Chinese manufacturers to handle their orders in a hasty manner and with a greater attention to product quality. But with the Wuhan coronavirus outbreak in China, Western stores are now finding themselves in a tricky situation: as well as the expected delays due to the Lunar New Year, extended backlogs are anticipated because of the virus.
Western buyers are already debating the severity of the issue on Reddit, where various users highlight that their orders haven’t been shipped out. According to a user called LordDamionDevil, China Post’s Express Mail Service (EMS) announced that to ensure the public’s safety, the parcels and vehicles that go through Wuhan will be double-disinfected. Other netizens denounced the lack of transparency in communication with the Chinese manufacturers since most are left wondering about the status of their orders who haven’t been revisioned for days. This approach is nothing out of the ordinary though considering manufacturers are confronted with an unsettling lack of information and are trying to understand new developments in the outbreak.
What does the Wuhan coronavirus mean for dropshipping?
First, it means significant delays. Since the priority of the government is public safety, the authorities set prevention and control measures in place that disrupt the free movement of goods and people. These policies left logistics companies in limbo, incapable to navigate the new restrictions, and without the government’s guidance, many are forced to retreat as they can’t provide a concrete answer. Moreover, Western sellers are confused about their action plan because most of them don’t know how to mitigate possible financial risks. The forecast is not too encouraging if we consider the roadblocks and temporary closing of airports, highways, railways stations, and ports.
Second, this uncertainty will disrupt the business of smaller vendors who very often depend on the products they sell; smaller retail traffic could push them into bankruptcy. Their ability to survive depends not only on the quality of goods but also on a speedy delivery process since customers want to have access to products as fast as possible.
Third, in the age of social media, netizens spread misinformation and can create a general state of hysteria. This is counterproductive to business because buyers are afraid to order products from China. Despite calls for calm, buyers don’t trust the established institutions (eg: W.H.O.) or infectious disease experts who insist that packages from China don’t pose risks to the end consumers. In fact, The Sun titles quite spectacularly one of its editorials, “POST APOCALYPSE Brits shun Amazon and eBay products from China over coronavirus fears and consider BLEACHING parcels.” This attitude is spreading fast, even though citizens were informed that the virus cannot live under external conditions for more than a few hours.
In the US, the Denver Post attempted to explain the concept to its American readers in a more nuanced piece, while Dr. Nancy Messonnier, director of the Center for Disease Control’s Center for Immunization and Respiratory Diseases, said in a press briefing, “In general, because of poor survivability of these coronaviruses on surfaces, there is likely very very low risk of spread from products or packaging that are shipped over a period of days or weeks at ambient temperatures.”
Until the situation de-escalates and the world returns to a state of normality, orders for “Made in China” products will drop significantly. This again will hurt Western SMEs (the sellers), Chinese factories and production facilities, and logistics companies. Basically, the coronavirus has compromised the entire supply chain.
Forth, sellers should expect increased freight costs. Given that routes are closed, those who find a way around the preventive measures will have to pay a premium for their products.
Finally, the closure of factories in China’s Hubei province is disrupting the production circle; hence, when production facilities will finally start operating, they will have to make up for backlogs. This may lead to a drop in quality since manufacturers work around the clock. In the short run, Chinese companies will implement changes in the manufacturing processes that will favor the quantity mindset — instead of quality management.
China is the world’s largest manufacturing economy and a titan in the global exporting industry. Therefore, we expect that the Wuhan Coronavirus episode will have a ripple effect, posing a serious risk to the global economy. We foresee a substantial slowdown in global trade and investments, and substantial policy uncertainties in the world’s largest economies. Unfortunately, in times of financial crisis, the SME sector is the first one to feel the pain; sadly the end result is some sellers and dropshippers will go out of business.