2016’s Chinese New Year will last from February 7th to February 13th. It’s also known as the Lunar New Year or Spring Festival, and it’s the biggest Chinese celebration of the year.
This is an important event for importing companies to know. Your supply chain may be disrupted for a significant period of that time.
Factories will be closed for the entire week. Keep in mind that the majority of Chinese laborers have jobs that are far from their hometowns; their return to family is one of the largest migration events every year. Businesses typically allow workers to start packing up as much as two weeks before the celebration. They’ll also take a week or more to return. All in all, factories may not resume production by the third week of February. That may take you to almost four week’s disruption, compounded with delays in transportation.
Here’s another issue: Even after factories re-open, it will take a while for them to return to production at full capacity. That’s because up to a third of employees never return to work. The inexperience from new workers can cause longer delays and lower product quality.
A top-tier supply is likely to have all these issues worked out or at least mitigated. So not the entire manufacturing sector is going to be affected in the same way, but you should be aware of these general effects.
What can you do to plan ahead?
Because of record low ocean rates, ocean carriers are planning capacity reductions for Chinese New Year. Some report that they’ll reduce capacity by up to 40%
That could be an issue if you don’t have protected space. Carriers and Freight Forwarders have an allocation based system which rewards shippers who consistently move freight throughout the year. If you’re not moving freight regularly, it may be a challenge to find space.
How can you avoid this challenge?
Plan ahead and work closely with your freight forwarder. Your forwarder can work with carrier partners to protect allocations or might be able to get space from another carrier. Forwarders may also have the chance to get allocation space from another shipper.
You should also plan to order at least three weeks prior to Chinese New Year. If you do, containers should be at the port by the second week of January.
Finally, consider shipping by air if you have a strict deadline from a retailer or are running out of stock. Paying for stock expensively might be better than having no stock at all. Don’t leave that decision for the last minute: flights just before Chinese New Year are often overbooked and carry a higher premium . Consider non-direct flight options and makes sure that your connection is outside of China.
Price increases during Chinese New Year
Seafreight and airfreight costs will increase before Chinese New Year. Carriers get overbooked earlier than usual. Be warned that even if you get a booking confirmation, your containers may still get rolled to the next available sailing. Carriers are especially eager to increase rates at this time.
Ocean carriers have already announced a Far East Asia to United States and Canada General Rate Increase (GRI) effective as of January 1st, 2016. Rates are meant to be as high as these levels:
Imports to the East Coast of the United States and Canada: US$1600 per 40’ container.
Imports to the West Coast of the United States and Canada: US$1200 per 40’ container.
Carriers have also announced a Peak Season Surcharge for all dry cargo in this tradelane. A US$400 surcharge per 40’ container will be effective as of January 15th, 2016. Furthermore, carriers have announced a $600 surcharge effective as of February 1st, 2016.
These are pretty high announced rate increases! But just because carriers have announced them doesn’t mean that they’ll be exactly this high. In the current market, it’s possible that the GRIs will be mitigated. The Peak Season Surcharge, though, is more likely to stick.
Don’t wait until the last minute. If you can manage it, place your orders now and avoid unnecessary delays next month.
Ocean carriers successfully implemented a General Rate Increase (GRI from Far East Asia to United States and) effective as of January 1st, 2016.
Here’s data from the Shanghai Containerized Freight Index:
Dec 2015-Jan 2016, rates per 40’
USWC = United States West Coast Ports
USEC = United States East Coast Ports
The Jan. 15th Peak Season Surcharge (PSS) was postponed to February 1st. Rates are expected to drop between now and February 1st.
It remains to been seen if February 1st increases will stick or not, we will update you as soon updates are available in the market.
By Nerijus Poskus, logistics manager at Flexport.