Chinese New Year: Impact on logistics and Mitigating Risk
Chinese New Year, also known as the Lunar New Year or the Spring Festival is the most important of the traditional Chinese holidays. As many in the logistics and transportation field know, the holiday has a huge impact on global supply chains originating in China.
The first day of the Chinese New Year 2018, the year of the dog will be celebrated Thursday, February 15, 2018, until February 21, 2018. The government, construction, and factories shut down during these weeks, while ports and customs usually operate with a skeleton staff focusing on perishable priority items. Many manufacturers treat the holiday as an annual break and close down for two weeks or longer as these industries are reliant on migrant labor.
Impact on Logistics:
Since China is an economic giant in the global exporting industry, the effects of CNY can ripple around the world, especially for retailers and anyone else who relies on imports from China.
Many factories and businesses shut down about 10 days before the Chinese New Year to allow time for workers to travel. There is a mad rush to ship products out of the ports. This generally leads to disrupted production and logistics.
- Increased freight costs: As a result of production delays, there is a rush to get cargo loaded roughly three weeks prior to the holiday. During this time, typically there are chances of overbooked vessels and a risk of increased freight cost due to increased demand.
- Longer transit time: Since there is no production for a week and production is slow during the retraining period that follows, ocean carriers use this opportunity to void scheduled sailings in favor of anchoring their ships or sending them in for maintenance due to which the transit time could be longer.
- Production queues: The later that orders are submitted, the further back in the production queue they will be placed. With one month worth of orders backed up, factories will first process orders from their preferred partners.
Mitigating the risk
By implementing a few critical steps mentioned below in advance of the holiday, shippers can avoid unnecessary bottlenecks and continue business with little or no interruption.
Develop a relationship with your supplier or manufacturer
There is immense pressure on Chinese factories right before CNY, and if your business is the newest account at the factory, it’s likely that your order will be their last priority when it comes completion and shipping pre-CNY. If you’re working with a manufacturing partner, ensure that they have experience handling the CNY crunch comes handy. Building a trustworthy supplier network can help ensure your product is shipped on time before the hectic holiday rush.
Plan ahead and forecast
You’ll have an advantage if you can ensure your business has enough stock on hand to last you through CNY. A forecast of how much product you will need for the first quarter of next year always helps to mitigate the risk. An accurate forecast and previous sales history will be beneficial to keep inventory at manageable levels and ensure you don’t over-order product.
Deliver cargo to the port well in advance
If you’re responsible for arranging your own logistics, book shipments well in advance of CNY. Steamship lines are notorious for taking advantage of the situation when there is an abundance of shipments. Steamship lines often impose large freight rate increases during this time, as the demand to get on board a cargo ship is high, and those who can afford to pay the higher cost will leave the port on time. It’s not uncommon to hear of containers getting rolled to the next booking during the weeks leading up to CNY; this means the container gets bumped to the next available vessel leaving port.
Vendor managed inventory
Vendor-Managed Inventory is a business model that allows a vendor and a buyer to maintain an agreed level of inventory for a product. The vendor will ensure the required level of inventory is maintained by ordering more efficiently and adjusting for seasonal demand and shift in the market, helping to reduce the cost for the buyer. VMI is ideal for those who find long lead times challenging and to deal with holidays like CNY, which could wreak havoc on a supply chain without proper planning.
Knowing what to expect during CNY is only half the battle. Being well prepared is the best way to alleviate any negative impact on your supply chain. Planning and coordination are key to ensuring your supply chain continues to run smoothly during the Chinese New Year and you have enough merchandise for your customers.