• Chinese New Year to impact supply chain operations in the coming weeks

    12 February 2018

    The Chinese New Year (CNY) celebration, also known as the Spring Festival, will be celebrated this year officially from February 15-21. As a national holiday, closures of government offices and shutdowns of commercial activities can be expected from the eve of February 15 to at least March 5.

    As China is the largest exporter in the world, the effects of its holiday shutdown will have an impact on both industry supply chains and logistics operations, in particular for industries relying on imports from China. Production in factories as well as air and ocean freight movements can be disrupted for up to three weeks or more in the lead-up to and throughout the annual holiday period. Business operations can be expected to fully resume in the first week of March, though this largely depends on individual suppliers.

    There will be significant delays in production times as factories normally shut down their productions about 10 days prior to the holidays, allowing their employees to travel back to their hometowns for the New Year celebration. Some reports suggest that CNY is a peak season where employees tend to change jobs, with some not even returning to work at all. With the potential for labor shortages, production schedules may take longer as factories struggle to find replacements while juggling production orders.

    Factories in general can speed up their productions prior to CNY as companies rush to ship products out of China before the shutdown. Hence, this will likely lead to an increase in capacity demand, air freight costs and longer transit times. Media sources indicate that the authorities will allow additional flights to operate during the holiday season.

    Precedents show that the below port of departures and countries are highly likely to be affected during the CNY period. Below are some key disruptions that can be expected:

    • Flight cancellations to/from major airports in China including Shanghai (PVG), Beijing (BJS), Xiamen (XMN), Guangzhou (CAN), as well as Hong Kong (HKG)
    • Delays/backlogs at major in-transit carrier hubs, e.g., Incheon (ICN), Tokyo (NRT), Taipei (TPE)
    • Capacity constraints to Southeast Asian countries including Singapore, Thailand, Malaysia, Philippines and Indonesia, as well as main airports in India and Australia – primarily from main U.S. Gateways due to freighter cancellations (Los Angeles (LAX), Chicago (ORD), New York (JFK), Atlanta (ATL), Dallas (DFW))

    In order to prepare for and minimize any disruptions to business, it is advisable to plan capacity needs well in advance by having open communication with Chinese suppliers or manufacturing partners prior to CNY. Companies should consider booking capacity at least two weeks in advance for priority shipments and allow a buffer period in the event of delays and for the post-CNY period, at least until the backlogs are cleared.

Tagged in: