DULUTH — As COVID-19, the respiratory illness caused by the coronavirus, continues spreading worldwide, the economy has taken a hit, supply chains have been disrupted and many nations have restricted travel.
In northern Minnesota, businesses are also feeling the effects.
Duluth-based American Precision Avionics, which makes wire harnesses and cable assemblies for aerospace and industrial industries and companies like Cirrus Aircraft, has had a shipment of a key part from China delayed twice due to the virus.
But general manager Lynn Andrews believes it could damage supply chains for other manufacturers if Chinese factories remain closed.
“I definitely believe that it has the potential to become a bigger issue impacting the supply chain in general,” Andrews said.
On Monday, March 2, the Mid-America Business Index, a monthly by survey of nine Midwest states, including Minnesota, reported 40% of supply managers are facing negative impacts from the coronavirus, while 27% said they stopped or reduced international buying.
The nine-state index fell from 57.2 in January to 52.9 in February, and from 57.9 to 53.3 in Minnesota. Anything above 50 is considered growth.
“This month’s softer reading plus the mounting negative impacts from the coronavirus should concern policymakers regarding the strength of the economy,” Ernie Goss, director of Creighton University’s Economic Forecasting Group, said in a statement.
Last week, state budget officials warned COVID-19 could affect the Minnesota economy forecast.
"Every day brings new understanding of the public health effects of the disease, and the economic impact remains uncertain,” State Economist Laura Kalambokidis told reporters.
Brian Hanson, CEO and president of APEX, said he hasn’t seen major impacts locally, but businesses are taking preventative steps.
“As long as our region doesn't somehow become a hotbed, I think … cooler heads are prevailing and folks are doing the small smart thing (to prevent the virus’ spread),” Hanson said.
For now, the local impacts seem limited to the supply of specific parts or materials and the cancellation of business trips.
Impacts on supplies
Most of the materials used in making solar panels come from China, complicating things for Ontario-based Heliene, which operates Minnesota’s only solar panel plant, in Mountain Iron. While it’s unclear what effect COVID-19 will have on the business, Heliene President Martin Pochtaruk said the company won’t be able to take commitments if it can’t count on its supply of raw materials.
“The full scale of the impact is not yet known,” Pochtaruk said in an email.
While the panels’ glass comes from China and Malaysia, the backsheets come from Italy, which is also facing an outbreak of the virus.
“We are buying backsheet from Italy. Guess what — that factory is temporarily closed and employees in that region of Italy are requested to stay home,” Pochtaruk said. “Therefore, nobody wins in this type of crisis.”
At American Precision Avionics, Andrews said the part from China is already a long wait and the COVID-19 outbreak is only making the wait longer, so the company is looking to source it elsewhere. But the new part needs to be traced back to its origin and manufactured to specification to make sure its high quality.
“And then of course, that's going to have an increased cost,” Andrews said. “So the potential to affect the bottom line is great.”
Another aviation electronics manufacturer in Duluth, GreyStar Electronics, hasn’t heard from vendors yet if there will be delays for parts, CEO Mary Moldenhauer said last week.
But she’s bracing for it.
“I really expect that to be coming down the line,” Moldenhauer said. “I really do.”
Most of the high-cost parts come from Canada, but many other parts come from China, leading Moldenhauer to believe she’ll be affected soon. She said she doesn’t order materials ahead of purchase orders and is confident her vendors will be able to find an alternate source if needed.
“I got a feeling that it’s just a matter of time,” Moldenhauer said.
Cirrus Aircraft, which is owned by China Aviation Industry General Aircraft, which in turn is owned by the Chinese government, declined to comment on any effects it is facing from the virus.
GPM, a Duluth-based manufacturer of industrial pumps, also has a business segment where it operates as a distributor for other pump manufacturers. Blake Kolquist, GPM’s marketing director, said parts for the Flowserve pumps it distributes won’t be delivered on time due to the virus.
“They get some of their parts from China and we have been advised that there are going to be some delivery delays,” Kolquist said.
It won’t affect any of the pumps GPM manufactures in Duluth because nearly all parts are sourced from the U.S., with the exception of one Canadian supplier, Kolquist said.
But the company is having trouble getting at least one of its new pumps started overseas.
The area’s steel and forestry industries will likely be hit the hardest if the virus reaches a significant portion of the population, Hanson said.
If widespread, the construction of housing will likely slow, resulting in a decrease in demand for certain forest products like two-by-fours. As for the steel industry, it could be hurt if major automobile manufacturers slow their production, he said.
Kolquist said a pump built by GPM in Duluth was supposed to be commissioned in an Indonesian mine but will have to wait. A team from Duluth was expected to travel there but canceled because they would have had to go through South Korea and other locations heavily impacted by the virus.
“We've put up basically a ban on global travel for our own personnel,” Kolquist said. “We have equipment all over the world … but we're waiting patiently before we're sending anybody over there.”
Other Duluth companies have also limited travel or canceled trips.
American Precision Avionics’ Andrews said the company was expected to meet with a large customer at its sister plant in Mexico.
“Due to travel concerns, that meeting was canceled,” Andrews said.
At Superior’s Amsoil Inc., travel for staff of synthetic motor oil company has been limited because of the virus, said Parnell Thill, senior manager of marketing.
When businesses take pause to consider travels, they’re considering the necessity of the trip, as well as if the travel is to a safe location, Hanson said.
“(Businesses) want to make sure that you're making the best decision for your employees and for your business at the same time,” Hanson said.
Exports affected, too
Unlike other companies that bring in supplies from China, Ikonics, a screenprint manufacturer in West Duluth, faced difficulty getting its product to customers in China.
“Because they shut down both the shipping and the airport in China, we have a hard time getting our products across the border,” Ken Hegman, Ikonics’ chief operating officer, said.
But it’s starting to open back up.
"We are finding ways to get around that now,” Hegman said. “They’re opening that up a little bit now, but for a period of time, there were some challenges with that.”