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Electric power restrictions on Chinese factories 10-15-21

October 18, 2021

Flexport Survey: Electricity Rationing Impacts to Supply Chains

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Since the end of August, China has implemented electric power restrictions across several provinces, impacting factory output and lead times at the cusp of the year-end holiday season. Let’s take a look at what it could mean for supply chains.

Supply Chain Impacts

A Flexport survey of 100 Chinese exporters shows that approximately 38% are reducing production output as a result of electricity limitations.

For some, expected production capacity is reduced by less than a third, although a few share that production has been cut by half or more.

The slowdowns could naturally impact cargo ready dates, but Flexport data does not yet show any significant trends in supply chain exceptions.

Anecdotal descriptions of production also depend on factory characteristics. The regulations allot power based on factory location, scale, energy consumption, and industry, among other factors.

For now, despite production constraints, Flexport has not seen blank sailings or flight cancellations as a result of the outages. Demand for ocean and air remain high.

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Since regulations have not defined a timeline for the situation, there may eventually be broader impacts to cargo ready dates and transit times. Logistics market volatility may arise due to ocean to air conversions or transloading to make up for any lost time.

Overall, impacted exporters are saying they expect production backlogs to continue, but alleviate slightly throughout Q4.

Why Are Power Outages Happening Now?

There is a direct connection between demand for goods and China’s electric power concerns, which fundamentally stem from a mix of cost and climate considerations.

As the world reopens from Covid-related lockdowns, US personal consumption expenditures show elevated preference for goods. Many of these goods involve materials that require a great deal of electricity to produce: steel, aluminum, cement, plastic, and textiles, to name a few.

But the nature of electricity price controls in China means some power plants have temporarily shuttered in the face of overwhelming electricity demand. Carbon emissions are a greater issue now, too.

As a result, factories may receive differing electricity schedules—one day on, six days off or three days on, four days off, while others experience longer blackout periods. The rationing reflects a number of complex factors.

When better balance is achieved, consistent electric power is likely to be restored and supply chain impacts can ease.

For more on this and other macro-factors impacting global trade, subscribe to the Freight Market Update, a weekly email digest of supply chain and logistics market conditions.

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