Wilson Lau, Vice President, brings us up to speed about the current challenges facing the nutraceutical industry
As you know, we have been focused upon the COVID-19 corona virus for several months because of our close ties with China, and have been sharing information when appropriate. Things change quickly, but here are a few things we’re paying attention to and thinking about.
In China, some factories are back online and production is ramping up ... but output is at roughly 50–70%. Some workers are still returning, some haven’t returned and others are still in quarantine. Things will slowly return to normal and output will continue to increase as time passes. But, if there is another outbreak, which some experts say may well happen in the autumn, things are likely to slow down again or even shut down.
Cargo ships and air freight are nowhere near usual levels. Because of the delay in people returning to work and producing goods, container ships were leaving China nearly empty, so they cancelled trips.
Air freight shipment is faster than cargo but a short-term solution because of the expense: approximately 10-15 cents a kilo for container sea freight compared with $4-9 per kilo air shipment. The situation for supplement manufacturers is made more daunting by the tariffs, which are still 25% on dried herbs, and not a lot easier for items that were being tariffed at 15% and are now rolled back to 7.5%.
For Nuherbs specifically, we had quite a bit of material landed before the Chinese New Year because we always plan ahead for that long break when businesses shut down. Additional material that we had processed and ready to go will ship to the US in the next week or so. We’re seeing people think longer-term with ingredient orders.
Most of the industry in the US wasn’t very concerned about coronavirus disruption until recently. In the week leading up to ExpoWest’s scheduled start date, discussion about whether or not the show should be cancelled brought this issue to the forefront.
After the announcement essentially canceling ExpoWest, we began getting more enquiries about access to material. People are beginning to pay attention as more cases are diagnosed in the US and other parts of the world. The quarantine in Italy may have been a wake-up call as well, and makes it clear that this is global.
China's experience provides a good case study on how COVID-19 could affect our own economy. Travel, tourism and trade will be significantly disrupted, if not shut down.
The airlines and hotel chains are already grappling with cancellations. People are beginning to stock up on non-perishable foods such as fruit snacks, canned goods, frozen produce and beans, as well as antibacterial products.
They are also buying more pet medications and supplements. For some reason people are apparently hording toilet paper and bottled water, which indicates this is panic buying driven more by fear and less by what circumstances are likely to be. The grocery industry and trade associations are working to anticipate and respond to these shifts.
The financial markets are already reacting. The global economy was already hit hard by the Trump Administration’s trade wars, with the Fed cutting interest rates three times last year. It just cut them again. If the virus strikes as the CDC has predicted, it’s possible the Administration will attempt to work with Congress to provide fiscal stimulus similar to what the Obama Administration did in 2009.
Workers won't be able to get to their jobs if they are sick or quarantined, and if schools and daycare centres close, parents will have to stay home with their children and work fewer hours. The service industry will be hit hard. This is a good time to donate to food banks.
The best advice is to be prepared for major disruptions for few months and make contingency plans. The major trade show owners are already planning ahead, with SupplySide East postponed from April to June, and Vitafoods Europe moved from May to September.
Some things to think about now:
With things changing every day, people are naturally worried. We like to bring certainty into uncertain situations whenever possible, so we think thing through and make decisions, rather than waiting to see what happens. We encourage you to make plans and be prepared. And take your herbs!