The festive atmosphere around the Chinese New Year (CNY) is not to be misjudged. The national “holiday mood” often comes at odds with the tremendous pressure felt by foreign managers, who are compelled to adjust to the changing business pace. Put bluntly, from a logistical standpoint, the CNY poses challenges to almost every company doing business in China, be they foreign or local. Undoubtedly, Covid-19’s ripple effects have intensified these challenges. Ostensibly, the Chinese market has long emerged from the crisis, but the pandemic’s impacts on supply chain management haven’t disappeared. From shipment cancellations and delays, to containers shortages, meteoric increases in raw materials and shipments costs. In 2022, along with the “classic” factors that affect the management of logistics in China around this time of the year, several other challenges are expected to come into play.
Check out this overview of logistical challenges around CNY 2022 and a recommended tip-list for early preparations.
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Usually, on CNY, local employees travel around the country to reunite and celebrate with their families. This massive “migration wave” starts before the holiday and continues at full force throughout the festivities. As a result, the workforce and output of domestic companies shrink dramatically. Usually, employees get a 7-day vacation, also known as the Golden Week, although the vacation can sometimes stretch to over 12 days. In 2022 the official Golden Week dates are January 31st – February 6th.
Note that as part of China’s zero-Covid strategy, it is most likely that in the event of Covid-19 resurgence, the government would implement national and provincial protective measures that might disrupt the planned resumption of work and may even go as far as regional lockdowns.
Tighter bottleneck in the especially long holiday season
Production and shipping processes in China are accelerated way before the “real” holiday starts. Manufacturers and exporters rush to produce and ship as much as possible before the Golden Week period. This causes a bottleneck in customs offices and ports, so delays and cancellations start to take shape.
In this upcoming holiday season, the CNY falls in proximity to Christmas, the Gregorian calendar’s New Year as well as the Winter Olympic in Beijing (February 4-20). This tight schedule is expected to slow the business activity in China even further, for an estimated period of around two months. Therefore, early preparation is extremely necessary. Foreign companies should expect China to get back to normal capacity not before the middle of February.
The race for completing orders has also resulted in an astounding cost rise in several components of supply chain management in China. For instance, the growing demand for plastic, silicon, and steel around CNY is demonstrated in a 10%-50% increase in the prices of raw materials.
As for the cost rise of shipments from China – figures provided by Air Cargo News reveal that in September 2021 (before the last National Holiday’s – Golden Week), the air freight rates broke a record high that stretched back to 2015, when the price for a package on HK – North America route exceeded $10 per kg (over 106% increase compared to the year prior), and on the Shanghai – North America route the price even exceeded $11. This trend is consistent also when shipping to Europe, where the price for a package shipped from Shanghai exceeded $7 per kg. In light of this trend of increased costs prior to the Golden Week period, as well as the global supply chain crisis, a similar price increase should also be anticipated in the run-up to CNY.
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Ten top tips for smooth logistics operation in CNY
For companies doing business in China, creating a logistical plan and roadmap is crucial. Here are some tips to help you prepare, avoid delays, cancellations and headaches:
- If possible, we recommend ordering sufficient inventory for Q1 to reduce the impact of the supply chain disruptions.
- Check carefully all the stages of your production, shipping, and the handling of your products around the Chinese New Year dates.
- Split your shipments into urgent and non-urgent categories and prioritize accordingly.
- Make early shipping reservations by 10 days at least.
- Prepare at least half of your inventory for shipment after quality control inspection.
- Document all orders and agreements with employees and suppliers in writing.
- Plan orders and shipping schedules for after the holiday, so that employees can resume work immediately.
- Draft contingency plans in case the vacation is extended and prevents a proper return to work.
- If you hire employees in China, put back to work the employees who live closest to the factory, in case government policies will not allow all employees to return to work.
- Utilize a professional and trusted service provider in China who could support and promote your logistical operations and local interests.
Have a happy and prosperous New Year!