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Responding To COVID-19: Primer and Implications For Supply Chain and Banking
Responding To COVID-19: Primer and Implications For Supply Chain and Banking
01 Epidemiologic perspectives
04 FS impacts: US perspectives
© Oliver Wyman 3
01
EPIDEMIOLOGIC PERSPECTIVES
Information as of 3/10/20
SUMMARY
Number of
confirmed cases as
of March 10th for
select countries
~80
15k1
~700
(incl. Italy: 11k)
80k
80k
• First reported in Wuhan, China, on December 31, 2019 As of March 11th, 2020:
• Declared a public health emergency of international concern • >125k cases reported in 110 countries and territories
by the World Heath Organization on January 30, 2020 • >4,500 reported deaths
1. Countries included: All Countries in “European Region” Sub-region in WHO Situation Report-50
Source: Map from CDC (link), Numbers from WHO National Health Commission of the People’s and Situation Report – 50 (link)
© Oliver Wyman 6
Information as of 3/10/20
90,000 4,500
China China Rest of World
80,000 4,000
70,000 3,500
Updates to
60,000 Measurement 3,000
Definitions*
50,000 2,500
40,000 2,000
Rest of World
30,000 1,500
20,000 1,000
10,000 500
0 0
11-Feb
18-Feb
25-Feb
3-Mar
11-Feb
18-Feb
25-Feb
3-Mar
21-Jan
28-Jan
21-Jan
28-Jan
4-Feb
10-Mar
4-Feb
10-Mar
Source: WHO Situation Reports (link), the first report release date was Jan 21, 2020
Notes: Until February 17, the WHO situation reports included only laboratory confirmed cases causing a spike in total cases. Some sources include this update as of February 13. The jump due to inclusion of non
lab confirmed cases is not included in the new cases data in WHO situation reports. From January 21 through January 31, the WHO did not directly report new cases and values shown are extrapolated from totals.
© Oliver Wyman 7
Information as of 3/10/20
~50M deaths
• The case fatality rate for confirmed
1% COVID-19 Fatality and Transmission Range COVID-19 cases is currently 3.53%5
Estimates: >113k infected, >4k deaths according to the WHO versus 0.1% for
the seasonal flu
H1N1 Swine Flu
700M–1.4B infected Measles • We expect case fatality rate to
284 deaths2
0.1% fluctuate as testing expands and more
Seasonal Flu cases are identified
1 5 10 15
Average number of people infected by each sick person (R0)
More contagious
1. New York Times (link) for fatality and R-naught comparisons, CDC timelines for case numbers (selected link: CDC SARS timeline), 2. Updated CDC estimates (link), 3. The R0 for the coronavirus was estimated by
the WHO to be between 1.5 -2.5 (end of January estimate) (link), other organizations have estimated an R0 ranging between 2-3 or higher (link), 4. CDC Paper (link), 5. WHO 3/10/20 statement
© Oliver Wyman 8
Information as of 3/10/20
16% 16%
14% 14%
12% 12%
10% 10%
8% 8%
6% 6%
4% 4%
2% 2%
0% 0%
≥80 70–79 60–69 50–59 40–49 30–39 20–29 10–19 0–9 Cardio- Diabetes Chronic Hyper- Cancer None
vascular respiratory tension
disease disease
Source: China CDC Weekly. Vital Surveillances: The Epidemiological Characteristics of an Outbreak of 2019 Novel Coronavirus Diseases (COVID-19) — China, 2020.
Notes: Data includes 44,672 confirmed cases reported through February 11, 2020.
© Oliver Wyman 9
Preliminary and evolving
Uncontrolled
transmission1
# of cases
0 1 2 3 4 5 6 7 8 9 10
Months since first transmission
1. Assuming case-based isolation only
Source: Adapted from “How will country-based mitigation measures influence the course of the COVID-19 epidemic”. Lancet. Mar 6 2020. https://doi.org/10.1016/S0140-6736(20)30567-5
© Oliver Wyman 10
Information as of 3/10/20
SARS1
6 months critical, 8,096 infected, 774 deaths
Toronto, >5,000 cases, WHO declares end
Patient A Singapore, super spreader, New cases drop of epidemic (though
First emerges brings SARS Thailand SARS clinically dramatically, WHO there are spot cases
in China to HK outbreaks identified lifts travel bans for next year)
NOV 2002 FEB 2003 MAR 2003 APR 2003 MAY 2003 JUN 2003
COVID-192
3 months & counting, >125,000 infected, >4,500 deaths
COVID-19 Public health response in China seems
to contain, but threat spreads to new geographies
Italy moves to national lockdown
WHO declares >80,000 cases and China’s factories back as death toll reaches; US Norway announces national shuts
First emerges state of community spread at 60–70% capacity as announces restrictions on flights down (schools) and quarantines
in China emergency outside of China quarantines lifted from Europe for next 30 days for asymptomatic travelers
DEC 2019 JAN 2020 FEB 2020 MAR 2020 MAR 11, 2020 MAR 12, 2020
© Oliver Wyman 11
HOW LONG COULD THIS LAST? HOW MIGHT THIS PLAY OUT?
Two key questions, and a number of items to monitor, help define three potential scenarios
YES NO
SCENARIO 1 Q2: Will a mitigating factor emerge to help dampen the effects of the virus?
Serial outbreaks If public health measures are insufficient in some or all countries, will we catch a break from a mutation
lasting 3–4 months that renders the virus less virulent, seasonality, or improvements in CFR?
Key items to watch
• Signs of seasonality: We will not know definitively if the virus is seasonal for 9-12 months, but
diminishing outbreaks in the Northern Hemisphere as temperatures rise, and limited outbreaks in
the Southern Hemisphere could be indicative
• Data on mutations and their impact: Very limited data is available on the impact of identified
mutations of the virus on prevalence, transmission, or severity of disease
YES NO
SCENARIO 2 SCENARIO 3
6–12 months to rein 12+ months;
in pandemic ongoing epidemic
© Oliver Wyman 12
Preliminary and evolving
HOW LONG COULD THIS LAST? HOW MIGHT THIS PLAY OUT?
Scenario 1: Serial outbreaks lasting 3–4 months
What you’d have to believe What we know so far Anticipated business impacts
• New case rates spike with initial outbreak • Aggressive containment measures in • Supply chain shocks reverberate into Q2
in a region and increased testing, but level China (100M under quarantine in in some sectors; Chinese manufacturing
off within ~8 weeks February 2020, 59M remain so as of early shutdown in part tempered by inventories
March) contained spread within 8 weeks stockpiled in advance of Lunar New Year
• Public health officials enact aggressive
of identification
containment measures to contain • Corporate and government-mandated
localized outbreaks (e.g., Italy, Seattle • New case rates in China have declined; (e.g., US restriction on European travel
(USA), New Rochelle (USA)), learning from similar compliance would be necessary in announced 3/11) travel restrictions in
the “playbook” set by China, Singapore rest of world to contain affected regions lead to drop-off in
and refined by the next regions to demand in airlines, hotels and impact
• China has not yet returned to “normal”
experience outbreak retail supply and demand
(e.g., schools are still closed with
• Population largely complies with public staggered re-opening planned for • Earnings dented post outbreak in a
health directives, slowing human-to- Mar–May) particular region, but swift recovery and
human transmission; health systems are rebounding consumer confidence allows
not overwhelmed, CFR does not rise companies to return to normal one to
two quarters later
• New case rates in China do not increase
after quarantines and travel restrictions • Complete global recovery takes until
are relaxed and schools reopen Q4 or longer, given serial pattern of
outbreaks and containment;
recovery more rapid if virus proves
to be seasonal
© Oliver Wyman 13
Preliminary and evolving
HOW LONG COULD THIS LAST? HOW MIGHT THIS PLAY OUT?
Scenario 2: 6–12 months to rein in pandemic
What you’d have to believe What we know so far Anticipated business impacts
• While some countries move rapidly to • Other countries may be unable (e.g., lack • Employers reluctant to relax travel and
replicate aggressive containment of resources to rapidly erect hospitals, lack WFH mandates without guidance from
measures, others either do not or are of infrastructure and surveillance public health officials
unable to drive compliance capabilities to track and isolate cases) or
• Vulnerable industries experience a
unwilling to mount the same public health
• Countries with slower, less aggressive continued drop in demand as consumer
response as China
response and/or poor compliance are not confidence wavers into Q2 and Q3 and
able to contain the virus with case rates • Compliance with public health take measures to stabilize balance sheets
continuing to increase beyond expected recommendations is more difficult to enforce and ensure liquidity
6–8 week window in many countries (e.g., broken quarantine of
• Supply chain shocks play out over a six
patient in New Hampshire, USA)
• Some countries with initial containment month period, after which momentum
see spike of cases after lifting • Virulence-lowering viral mutations have could begin to stabilize and recover
containment measures been observed previously (e.g., SARS) and
• Pace of growth slows in impacted
there is emerging evidence of at least two
• Despite continued rise of cases, case countries; larger, more diversified
strains of COVID-19, one less virulent than
fatality rate decreases because mitigating economies with less dependence on
the other
factor emerges (e.g., viral mutation international trade and/or foreign income
affecting virulence, seasonality, early • While ~50% of coronavirus family have than other economies prove better able
identification and improved treatment) proved to be seasonal, no direct evidence to weather slowing growth
yet indicates COVID-19 is seasonal
• As case fatality rate decreases, public
begins to calm down despite ongoing • Aggressive testing and documentation of
outbreaks of disease effective treatment protocols has
contributed to a dramatically reduced CFR
in South Korea (0.8% as of 3/12) compared
to that of other regions
© Oliver Wyman 14
Preliminary and evolving
HOW LONG COULD THIS LAST? HOW MIGHT THIS PLAY OUT?
Scenario 3: 12+ months; ongoing pandemic
What you’d have to believe What we know so far Anticipated business impacts
• Virus proves to either not be seasonal, • Insufficient data to support scenario • Drops in demand (consumer
or seasonal and endemic (rising, as of yet confidence, access to supply,
falling and returning seasonally • Multiple vaccines under development part-time/gig economy workers with
by Hemisphere) but at least 1 year out less discretionary income) cause
• Regions are unable to contain growth to slow into Q4
• Unless “spike” of cases in a region
outbreaks; virus spreads widely, can be smoothed over a longer • Companies in particularly vulnerable
affecting ~20–60%1 of adult industries (travel, energy, hospitality)
period of time, health systems
population in next 2 years require additional liquidity, and
become overtaxed and cannot
may trigger complications for
• Mortality rates do not decline, adequately meet all patients’ needs
related industries
placing significant strain on or (e.g., Wuhan, Italy)
overwhelming health systems and • Government stimulus injected to
• As health systems become
further increasing fatalities protect vulnerable workers and, for
overwhelmed, transmission and case
instance, directly support SMEs (e.g.
• Vaccine is required to halt progress fatality increases
credit provision), perhaps on a scale of
of disease
TARP or larger
© Oliver Wyman 15
Information as of 3/10/20
Confirm All companies should be implementing business continuity plans to reassure employees and ensure readiness
Business for supply chain constraints, demand shocks, and impacts to business partners, prioritizing critical business
Resiliency activities and creating contingency plans for disruption
Model Companies should be evaluating their financial outlook, modelling supply and demand across a number of
Financial scenarios, identifying potential interventions and contingency plans for subsequent impacts and/or sustained
scenarios challenges (e.g. strategies for managing variable costs, cash flow, liquidity)
Reassure Consumer concerns need to be understood, mapped, and incorporated into the business continuity plan such
Customers that consumer needs are addressed and trust is maintained
Move to Some industries are likely to see a massive acceleration in the use of digital channels. Retail, Financial
Digitization Services, and Healthcare companies have experienced 100–900% growth in key digital channels in China during
Rapidly the outbreak. Customers with positive digital experiences are unlikely to return to analog channels
Pandemic business continuity plans will get companies through the next 2–4 weeks, but strategies may be
Prepare for
required to get through 6–12 months (or more) of disruption if subsequent demand shocks exist. Companies
Long Haul
should consider the nature and required timing associated with more structural changes to their operations
Convene Companies should consider which industry and government collaborations are necessary to address safety
Industry concerns, share best practices, stimulate demand, and rebuild consumer trust
© Oliver Wyman 16
02
SUPPLY CHAIN IMPACT
AIRLINE INDUSTRY: COMPARISON OF EVENT IMPACT
9/11 and the global economic crisis/H1N1 had similar recovery periods whereas the more regionally focused SARS
outbreak had a more compact cycle
120%
100%
80%
60%
40%
20%
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
1. As of March 5, 2020 9/11/01 SARS Global economic crisis/H1N1
© Oliver Wyman 18
AIRLINE INDUSTRY: CASH CONSERVATION HAS BECOME PARAMOUNT
With significant fixed costs, airlines are already considering temporary reductions in pay, staff furloughs, and
suspension of discretionary projects and initiatives
• Latest forecasts suggest that global passenger airlines will lose $63 BN to $113 BN in 2020; ~$100 BN swing from earlier forecasts of
$29.3 BN in profits1
• Recent reduction in fuel costs may be a mitigating factor, but prices may quickly rebound if OPEC+ reaches an agreement on supply
30% Asked all its staff to take three weeks of unpaid leave
© Oliver Wyman 19
MANUFACTURING INDUSTRY: OBSERVED IMPACT
Auto and Industrial companies have been buffeted in two waves: global supply chain disruption (in-process) and
internal operational regional disruptions (potential)
© Oliver Wyman 20
MANUFACTURING INDUSTRY: OBSERVED RESPONSE
Firms are developing a Response framework and associated measures in real-time
Operational
• Organized COVID-19 Response Management: formalize PMO activities, secure
Outside/inside inventory, monitor internal facility status, proactive response planning, etc.
the four walls • Supply chain/vendor diversification
(at the regional concentration level)
• Social distancing for virtualizable activities
• Non-virtualizable asset intensive activities
Virtual/non-virtualizable – Call centers: non-essential visitors bans, worker monitoring
activities
– Warehouse/Manufacturing sites: non-essential visitors bans, worker monitoring,
increased work-in-process and finished goods buffer inventory
– ...
Financial
Near term vs. mid-term • Furloughs and shutdowns
demand impact
• OEMs providing supplier liquidity assistance via expedited payments, advances, etc.
• Customer incentives (rebates, financing, etc.) to bolster demand
© Oliver Wyman 21
03
FS IMPACTS: CHINA CASE STUDY
SUMMARY OF WHERE WE ARE IN CHINA
© Oliver Wyman 23
IMPACT ON FINANCIAL SERVICES: RISKS
Failures in SMEs and a slower income growth may pose a deeper impact on the economy; at the same time, it is often
difficult to target precisely with stimulus – defaults from those 2 sectors may pose significant further risks
SMEs facing survival crisis in the outbreak China commercial bank NPL Ratio (%)
© Oliver Wyman 24
IMPACT ON FINANCIAL SERVICES: OPPORTUNITIES AND CHALLENGES
While offline economy is hit hard by the outbreak, an opportunity window has opened for online businesses; it is also a
key takeaway for financial institutions
• Ping’An Doctor daily consultation is Online financial service to fulfil daily demand
9 times the average number before
the outbreak: total visitors reach 1.1BN • Online banking & wealth management
Online
– Alipay daily mutual fund purchase increased by 400% in
healthcare • 30% of consultation on DingXiangYuan is first 2 weeks in Feb
about COVID-19, and visitors reading
– China Merchants Bank online wealth management
COVID-19 info reaches 28MM
customer interactions reached 240K in Feb
• Customers will be better educated for • Online insurance brokerage
online fresh purchase after the outbreak
– Ant Financial insurance premium income in Feb is
O2O • For major players (incl. Miss Fresh, JDDJ, expected to grow by 30%
E-commerce Hema, Dingdong, Yonghui), transactions – Zhong’An has realized up to 100% daily premium income
during Spring Festival increased by 200%– growth since Jan 2th
350% compared to Spring Festival last year
• Daily active uesrs increased by 20%-100%
Online for major online education applications Payment/instalment service support for increasing
education after launching online courses during online service transaction
the outbreak
1. New user increase growth rate = (new user increase during 2020 Spring Festival – new user increase in 2019 Spring Festival)/new user increase during 2020 Spring Festival
Source: Questmobile, expert interview, internet data, Oliver Wyman analysis
© Oliver Wyman 25
KEY AGENDAS FOR CHINESE FINANCIAL INSTITUTIONS GOING FORWARDS
We observe 7 key agendas to capture new growth opportunities and defend positions
1
Offensive
The outbreak future boosts online usage of financial services; traditional FS players should
Digital acceleration
consider where to compete in the value chain as tech players further flourishing
2 Health insurance
growth strategy
With the promotion of insurance awareness by the outbreak, opportunities for health insurers
are unprecedented and can be captured with well developed growth strategy
3 Healthcare sector
holistic solution
Develop sector specific solutions to ride with the potential healthcare boom after the outbreak
will help banks generate substantial growth
4
Supply chain
Agenda
As the outbreak accelerates global supply chain to diversify production and sourcing lines out of
migration
China, Chinese banks’ role along the shift should be redefined for new business opportunities
opportunities
5 NPL Management
NPL management will be essential for Chinese banks to deal with increasing bad loans after the
outbreak and retain long-term creditworthiness
6 Business continuity
management
The outbreak put extensive pressure on business continuity management (BCM), which should
have been developed and tested periodically during normal time
7
Defensive
As the global pandemic spreads, financial institutions and regulators should be prepared for a
Recession readiness
potential global recession
© Oliver Wyman 26
04
FS IMPACTS: US PERSPECTIVES
CCAR STRESS TESTING GDP DECLINE COMPARED TO 1918-20 GLOBAL
PANDEMIC ESTIMATE
100
99
98
97
96
“Spanish Flu” 1918-20
95
(4.25% - 5.5%)2
94
93
92
91
90
P0 P1 P2 P3 P4 P5 P6 P7 P8 P9
(4Q07) (1Q08) (2Q08) (3Q08) (4Q08) (1Q09) (2Q09) (3Q09) (4Q09) (1Q10)
PX CCAR projected quarter
CCAR 2020 Financial Crisis
(XXXX) Actual historical quarter
© Oliver Wyman 28
Actuals as of 03/12/2020
Actual (Feb 19 peak = 100) Global Market Shock (1 day) and Severely Adverse scenario (90 days) (CCAR-2020) Financial crisis (worst 30 days)
Sources: FRB CCAR 2020 scenario disclosures (https://www.federalreserve.gov/supervisionreg/ccar-2020.htm); Thomson Reuters Datastream
© Oliver Wyman 29
Actuals as of 03/12/2020
60
50
40
30
20
10
0
12-Jan 19-Jan 26-Jan 2-Feb 9-Feb 16-Feb 23-Feb 1-Mar 8-Mar 15-Mar
Sources: FRB CCAR 2020 scenario disclosures (https://www.federalreserve.gov/supervisionreg/ccar-2020.htm); Thomson Reuters Datastream
© Oliver Wyman 30
Actuals as of 03/12/2020
Historical 10-year Treasury yield Most recent 10-year Treasury yield (Jan 15-March 12)
6 6
5.2
5 5
4 4
3 3
2.2
2 2
1.8
Historical actuals 0.9
1 1
CCAR-2020
1.0
0 0
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 12-Jan 19-Jan 26-Jan 2-Feb 9-Feb 16-Feb 23-Feb 1-Mar 8-Mar 15-Mar
Historical BBB Corporate Yield Most recent BBB Corporate Yield (Jan 15-March 11)
10 9.4 10
8 8
6.5
6 6
4 3.3 4 3.4
Historical actuals
2 2
CCAR-2020
0 0
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 12-Jan 19-Jan 26-Jan 2-Feb 9-Feb 16-Feb 23-Feb 1-Mar 8-Mar 15-Mar
Sources: FRB CCAR 2020 scenario disclosures (https://www.federalreserve.gov/supervisionreg/ccar-2020.htm); Thomson Reuters Datastream
© Oliver Wyman 31
KEY ELEMENTS OF PANDEMIC BUSINESS CONTINUITY PLANS
Every company should have a business resiliency team fully activated and focused on these key elements:
Protect your people first Look after your business interests Secure your supply chain
Ensure that your staff understand Know which business processes Clients need to develop an end-to-
what to do (personal actions) to and activities are critical and end supply chain x-ray
protect themselves, and to stop require protection Identify your critical suppliers and
the spread Pay special attention to customers; their locations, especially if in
Ensure your staff know to stay away determine how best to protect and heavily impacted areas or with less
from work if unwell and seek assure them support resources available
medical help; promote use of Plan for how to continue operations Confirm the status and location of
telehealth if you experience significant expected deliveries/shipments
Stay up to date on the latest travel staff absences
Understand what your suppliers'
advice as it could change quickly Prepare for reductions (especially plans are and work together to
Be conscious that your staff may consumer confidence) or increases protect both of your interests,
have caregiving responsibilities for in demand (i.e., cleaning services, particularly if a smaller business
ill family e-commerce)
Listen to and respond to staff Review your relevant insurance
concerns – anxiety can be more policies, coverage, and
disruptive than the virus itself claims processes
Institute work from home policies
if warranted
© Oliver Wyman 32
COVID-19 RESOURCES
© Oliver Wyman 33
QUALIFICATIONS, ASSUMPTIONS AND LIMITING CONDITIONS
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expressly indicated. Public information and industry and statistical data are from sources we deem to be reliable; however, we make no representation as to the
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