Early Chinese New Year supply chain disruption is expected due to Covid-19. Whilst the Government has not officially publicised any special measures. It is expected that travel restrictions will be imposed to prevent the spread of Covid-19 on what is one of the world’s biggest human migrations.
Therefore workers may leave factories even earlier to get home in time for the Chinese New Year holidays.
In a normal year, factories try and complete orders at least 10 days before the holiday. The surge in order volumes coupled with labour shortages can compromise manufacture quality and delivery schedules. Many factory workers leave 1-2 weeks before the official holiday begins, as most come from remote and rural areas of China, where getting home by bus or train can take 4 to 5 days in any direction.
Should the CNY celebrations go ahead as they always have done, the Chinese population will take a staggering nearly 3 billion trips, over the 40-day celebration period. The public holiday is only 5 days from 12-17 February, but a lot of people take holiday from NYE through to the Lantern Festival which ends 26 February 2021.
It then takes time for people to travel back to work. That is those that do return to work. It is common for factory workers in China to stay on until Chinese New Year to receive their end of year bonus, then they go home and never return to the factory.
During the holidays, workers spending time with family and friends share information on wages and new employment opportunities; and with so many people leaving their jobs at the same time it can be easy to find a new job.
So post CNY this huge workforce turnover leaves a labour shortage and slows down factory outputs.
In anticipation of this prolonged disruption during Chinese New Year, sea freight is already in high demand. We are witnessing carriers failing to honour contracts. Guaranteed slots are suddenly only available at prices far higher than listed spot rates. Spot rates Shanghai to New York surged 24% last week to $6,385 per FEU, according to Drewry, this is up 148% year-on-year.
On many US routes we are seeing premiums and/or surcharges being added to spot rates to guarantee space. The difficulty in securing slots and equipment in China is also now evident at ports in other parts of Asia.
We expect to see things improve after Chinese New Year, but between the backlog of sea freight availability and the decreased factory manufacturing output it may take a little time.
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