The novel coronavirus (COVID-19) that has so far killed more than 2600 people in China has had limited impact up to now in the vaping industry around the world, but severe movement restrictions have led to fears of disruption.
Dimitris Agrafiotis, executive director of the Tennessee Smoke-Free Association and chief executive of Global eVapor Consulting, has found cause to worry about supply chain disruptions.
“The latest I have is that some factories [in China] are starting to operate with limited staff after meeting the requirements set by their province, such as mandatory random testing, on hand medical staff, mask supply, etc,” Agrafiotis told ECigIntelligence. “The facilities need to be inspected by the government before being granted authorisation to operate.”
Agrafiotis predicts that the virus will disrupt the supply chain for vaping products, including possible travel restrictions on factory staff in the city of Shenzhen – the critical point of production for the global e-cigarette industry, with more than 1000 e-cigarette factories operating.
“Millions of workers have to commute from their home towns,” he explained. “Some might even take up to eight to ten hours of train travel to get there.” Most workers, however, are currently choosing not to travel due to the perceived high risk of contact with the virus.
And that means workers who are able to make it to their plants could face the challenge of having to learn new skills in order to cover for the absentees.
Supply chain confidence
“The staff that make it there have to be retrained for the positions the factories assign them to, which in some cases takes two to three weeks,” Agrafiotis said. “The factories have to make the determination on filling back stock orders and of course catering to larger wholesale distribution clients while leaving small customers waiting longer.”
Despite the severe restrictions in China, distributors in the US are not anticipating any major disruption in the supply chain for vaping products in the near future.
E-Alternative Solutions, a manufacturer based in the US, announced that although the company is concerned about the state of affairs at its overseas facilities, it remains confident that its supply chains and product rollouts will not be hit.
“While we were a bit anxious about the potential for a supply disruption related to the coronavirus outbreak, I am happy to say that our manufacturing partner is back at work and anticipating no issues,” the company’s general counsel and chief regulatory officer Chris Howard said.
The Connecticut-based manufacturer is also concerned that forced containment of Chinese workers could upset the company’s plans for future regulatory compliance in the US.
“We are hopeful that the spread of the coronavirus is contained quickly,” Howard said. “If our manufacturer’s employees are required to stay home for any additional days, then our limited access to key individuals could present issues for our PMTA [premarket tobacco product application] plans.”
Warning in Germany
Gregory Conley, president of the American Vaping Association, echoed these concerns for US-specific supply chain issues.
“We remain hopeful that supply shortages will not occur, but with the combination of Chinese New Year and the virus, it may be unavoidable,” he told ECigIntelligence. “We suspect that there will be less supply chain disruptions in mass-market closed system products, where manufacturers keep huge amounts of inventory.”
He added: “If there is a shortage, we would hope that ex-smokers would temporarily switch to [other vaping] products or low-risk oral tobacco products like snus rather than relapse back to smoking.”
In Europe, there is also a fear within the industry that the virus could heavily affect the vaping sector. The German e-cigarette trade association VdeH has warned that the coronavirus could lead to “further damage” to the vaping industry following last year’s lung illness outbreak in the US.
The US Postal Service has taken action to help mitigate any potential spread of COVID-19 through parcels and other large mail items and has temporarily suspended the guarantee on Priority Mail Express International destined for China and Hong Kong. For the present, mail and parcels from China are not restricted.
“Measures have nevertheless been implemented to ensure the safety of mail processing and postal staff, including disinfection of postal offices, processing centres and transportation vehicles, and monitoring of postal staff’s physical health,” a US Postal Service spokesperson told ECigIntelligence.
Effect on the wider economy
Private parcel services have also responded to the coronavirus outbreak in a similar way. For instance, the world-leading UPS has said packages to and from China are being handled with extra vigilance.
Doug Barry of the US-China Business Council, told ECigIntelligence that fears of supply chain disruptions and potential product shortages are far from unique to the e-cigarette and vapour industry.
“The damage is widespread, from the closing of US-branded stores such as Starbucks and Apple stores to parts for autos to tourism,” Barry said. “Some factories [in China] have reopened but struggle to put a full shift of workers on the shop floor.”
In response to the market fears, the Chinese Ministry of Commerce (MOC) has said there is no reason for epidemic response measures to interfere with international trade.
What This Means: The COVID-19 outbreak adds another layer of challenge for the e-cigarette and vaping industry in China. But the impact is also seen worldwide since the country is the world’s leading producer of vaping devices.
US manufacturers are following developments very closely, watching how the spread of the virus might affect and disrupt the supply chain of e-cigarettes and tobacco-alternative products.
Most technology companies rely heavily on Chinese manufacturing and components – Statista expects a 10.4% drop in the shipment of smartphones from China in the first quarter of 2020 – so it is to be expected that the coronavirus will have an impact throughout the global technology sector, including the production and shipping of e-cigarettes around the world.
– Michael McGrady ECigIntelligence US correspondent
Image: The Digital Artist