Recently, two highly respected journals, Foreign Affairs and Nature, published a series of articles about the potential for a devastating avian influenza pandemic. The purpose was to assist international health officials spur preparations by governments. The articles provide a sobering reading experience.

Influenzas, like the avian H5N1 strain, often begin in wild birds. The avian strain has been transmitted to domestic chickens in Asia, causing millions of chickens to be destroyed. As of the end of June, there had been 108 confirmed cases of avian flu in humans in Vietnam, Thailand and Cambodia (numbers from China are not available). Of these 108 cases, there have been 54 deaths. More recently, one death has been reported in Indonesia.

The current human cases are all believed to have been a result of contact with contaminated birds. The danger arises when the virus mutates so that it can be passed between humans. The mutated version represents a new form of virus against which most people have no immunity, as a result of which the virus can spread very rapidly.

A precursor to the mutation of the virus is often the spread from birds to mammals. There have been reports that pigs in Southeast Asia may have been infected.

The Wall Street Journal reported on July 7th that the avian flu had been detected among migratory bar-headed geese at an isolated nature preserve in China. These birds migrate from Siberia to New Zealand. Migration to Siberia has already resulted in the death of 1,300 farm birds. In September, they will begin their annual migration over the Himalayas to India and Southeast Asia.

The last pandemic was the Spanish flu in 1918 that killed 6% of the United States population, or 675,000 people. An estimated 50 million people died throughout the world over an 18 month period. While we have certainly made very significant medical advances since 1918, the Spanish flu killed only 2.5% of the people infected and the H5N1 has killed nearly 50% of the infected individuals. The Center for Disease Control has estimated that the avian flu could kill 1.7 million Americans over an 18 month period, with an estimated economic impact of between $71.3 billion and $166.5 billion.

The business impact implications of a pandemic take on a whole new dimension in the global economy. The SARS outbreak in Hong Kong several years ago virtually shut down Asian travel for three months. One infected person who went to Toronto from Hong Kong caused 438 people to be infected and 43 deaths. The Canadian economy is estimated to have sustained a loss of $419 million. On April 1st, President Bush signed an executive order allowing quarantines inside the United States and the isolation of international visitors suspected of carrying the influenza.

In short, if the avian flu mutates to become contagious between humans, it is likely that cross-border movements of people and goods will quickly go from a stream to a trickle. With many companies being dependant on foreign source for components and finished goods, the choking down of the borders will be devastating. Smaller companies may be most vulnerable as they will lack the leverage and resources to find ways to get their goods among the limited amount of material that may move cross-border.

In addition to the restriction of cross-border movements, the spread of avian flu in Asia may cause Asian companies to close because of a lack of workers or to limit contact between people. As a result, even as borders start to reopen, American companies may find it difficult to get the quantity of supplies that they need.

If the avian flu does spread to the United States, which the experts view as almost inevitable, companies will also have to deal with potentially significant disruptions in its work force. Large numbers of people may be ill, caring for those who are ill, or limiting contact with others for fear of becoming ill.

In August, 2005 the National Institute of Allergy and Infectious Diseases announced that it had developed a vaccine that produced a strong immune response to the avian flu among a group of volunteers. While a very positive development, this advancement does not eliminate the business risk. There are a number of practical problems in producing enough of the vaccine to meet potential demand. The United States government has contracted to buy two million doses of the vaccine, but that may only be enough to immunize 450,000 people because multiple doses may be necessary. With the potential for a death toll running into the millions in the United States alone, a limited supply of vaccine may heighten concerns of individuals and add to pressure to close borders.

No one can predict whether the avian flu will mutate and become contagious between humans, setting the stage for a possible pandemic. However, serious health professionals are taking the threat seriously. While companies cannot influence whether a pandemic will arise or avoid entirely its impact if it does, this does not mean that companies should just ignore the pandemic potential.

Companies should identify their risk points, both legal and business, from a potential pandemic. They then can take the appropriate steps to minimize these risks, to the extent possible, and to implement a plan for the actions it will take if the risk of an avian flu pandemic increases. Companies should certainly monitor the avian flu situation through appropriate sources so that it can be proactive in its response.

Steps that a company might consider at this time would include:

  • Reviewing, and revising as necessary, contract language with Asian suppliers in terms of how the risk and loss from a supply disruption would be treated under different circumstances;
  • Reviewing, and revising as necessary, contracts with customers in terms of the risk and loss from an inability to deliver product;
  • Developing a strategy to increase inventory of vulnerable components and products during periods of heightened risk;
  • Analyzing workers compensation and any political risk insurance policies in terms of potential coverage or gaps;
  • Developing a plan to give employees in high risk areas access to immunizing vaccine when it becomes available.
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