What the Chinese New Year Means for Your Supply Chain
As we usher in 2019, China and a few Asian countries with large ethnic Chinese populations begin their festive season to celebrate the traditional Chinese New Year, also known as the Spring Festival or Lunar New Year.
The “Year of the Pig” begins on February 5, 2019, according to the Chinese zodiac, which is based on a twelve-year cycle with 12 animals being designated for each year.
The Chinese New Year holiday season is a time when businesses and factories shut down for three to four weeks to allow millions of workers to return to their hometowns to celebrate the festivities with their families. Although the duration of the holiday is officially about a week, factories normally shut down 10 days prior to the holiday, to allow travel time for their employees. Many factories in China have been closed since the last week of January, and some employers allow additional time for the employees to travel back to the city after the holiday. Thus, the period before and after Chinese New Year not only heavily impacts the Chinese manufacturing industry, but simultaneously creates a domino effect of disruptions to international businesses that rely on production in China.
Factories normally face a production peak period, in order to get products out and make up for lost time lost during the holiday, as well as for an expected slow ramp-up in business afterwards. It’s quite common for most workers not to return to work, or take an extended period before doing so. Moreover, Chinese New Year is the time for ocean and airfreight prices to increase, as carriers take advantage of high demand for capacity.
Ocean freight prices have been on the rise since before Christmas 2018, as U.S. importers rushed to bring in goods produced in China ahead of January 1 to avoid a 25-percent tariff increase. Earlier reports had indicated that tariffs on Chinese imports to the U.S. would be raised from 10 to 25 percent at the beginning of 2019. However, the increase has been pushed back to March 1, as negotiations between the two countries continue.
According to industry sources, the cargo rush and tight capacity contributed to an ocean freight rate increase in January during the pre-Lunar New Year period. The action will affect shipping lanes from Asia-Pacific to Europe, Latin America, North America, the Middle East and North Africa, as well as within the Asia-Pacific region.
Ports in China were already facing some congestion before Chinese New Year, as a result of shippers rushing to get their cargo out before encountering port capacity constraints. This development also reflected carriers’ plans, with a few vessels scheduling blank sailings or revising ETAs to some Chinese ports, including Shanghai, Qingdao and Kaohsiung in Taiwan, to avoid the first and second weeks of February.
Due to the rising popularity of e-commerce worldwide, consumers continued to purchase products of western brands online prior to the Lunar New Year. Thus, the upsurge in demand to get goods to buyers on time has caused upward price pressure for airfreight carriers. According to industry sources, capacity for airfreight from Asia-Pacific to Europe and North America has been affected, with demand exceeding capacity in January. Capacity demand was also high for air routes from Europe and North America to Asia, with the possibility of cargo backlogs forming until after the Lunar New Year.
As Chinese New Year is an annual festival, companies with suppliers based in China are advised to liaise with suppliers and manufacturers in the region to mitigate any disruptions that arise after the holiday period, and apply the lessons learned before next year.