by Ashish Monga
In the first part of this series we looked at what the “Chinese New Year” is all about & what happens in China during this time while in the second part, we focused on the impact of the Chinese New Year on “Production Timings” & “Product quality” as well as how Chinese factories normally prioritize their orders and clients.
In this part of the series on Chinese New Year, we look at the logistics situation in China during this period & how it impacts the entire supply chain, especially in regard to “delivery times” & “logistics costs”. Being aware of the logistics situation during this time of the year is important for importers not only because of delays to shipments but also because new importers are often surprised at the steep freight rate increases during this period.
Holiday Schedule for Key Parties
Once the goods are ready to leave the factory, the key parties involved on the “Logistics” side of things include, shipping lines, service based companies (i.e. forwarding companies, customs brokers, sourcing & quality control companies), trucking companies & most importantly loading/unloading labour at the port as well as truck drivers.
The customs at major ports like Shenzhen & Shanghai is pretty much operational throughout the holiday except for 2-3 days when they are. However they are under-staffed & that combined with the congestion at the port leads to delays. Small “feeder ports” are often closed as per “government regulations” for around 7 days & hence are best avoided at this time wherever possible.
Forwarding, Trading, Sourcing & Quality Control Companies
Most of the forwarding & QC companies are “technically” closed for 1 week as per the government regulations, however many are closed for 2 weeks. The companies closed for 1 week, are in most-cases “officially open” but operating at less than full capacity as employees often ask for a longer holiday during this time.
While the above companies being service based tend to have a much shorter holiday than the factory workers, their operations are also severely hindered due to the increased volume of shipments combined with the reduced availability of labour & truck drivers.
Blue Collar Workers
Shortage of “Blue collar” workers is often the main bottleneck in the system & it leads to the most disruption in the supply chain. This includes blue collar workers at the port, loading & unloading workers & critically “truck drivers”.
The biggest challenge during this time is the availability of trucks/lorries or more precisely “truck drivers”, which leads to significantly increased trucking costs & longer waiting times. This problem is especially severe a couple of weeks before the Chinese New Year day as a lot of the drivers would have already left for the holiday & the ones remaining behind capitalise on the opportunity to earn increased margins.
Forwarding companies rarely ever own their own fleet of trucks, except some very large ones, contrary to what they may often claim. This is where a forwarding company’s relationship with trucking companies (which if often linked to the size of the forwarder) is an important factor as good forwarders often get preference & hence booking with smaller forwarding companies (which China has plenty of) can lead to additional delays.
One of the key reasons for logistical delays during this period is the congestion at the port, due to the reasons discussed above. Due to this, shipping lines often have to leave containers behind, even if there is a valid booking. This can often mean, you either have to wait another week for your container to go on the weekly scheduled departure day of that vessel or at least wait a few more days for the container to be loaded onto a different vessel.
This is where booking your container with large well known shipping lines is recommended, even if their freight is a little higher, as major shipping lines that operate on routes around the world, will often divert vessels from some of their other routes to China during this peak season. They also tend to be more organised & well prepared to deal with the peak demand in this season compared to the smaller lines that only operate on certain routes & do not have excess vessel capacity.
Normally during the 15 day period between the Chinese New Year date & Lantern Festival, the congestion is cleared at the port as there is little new production coming to the port as factories are closed. Once the congestion is clear the rates tend to fall quite a bit & then stabilise.
Freight Rates during the Chinese New Year
One of the most common questions I often get is how much does the “freight rate” increase during this time. It is an extremely difficult question to answer as freight rates depend on a number of factors, both domestic & global. However, as a rule of thumb freight rates before the Chinese New Year can rise sharply, and in the 2 weeks before the Chinese New Year holiday, can go up by as much as 100%.
For e.g. this year (2015) exactly 1 Month before the New Year date, the “indications” from our contacts at “shipping lines” is that the “maximum” freight rate hike expected would be around $900 for a 20GP container. This could most likely result in General rate increases (GRI’s) of $500 – $700 (depending on demand) and may only peak at $900 a couple of weeks before the holiday & then fall again after the Lantern festival. However, this is just to give a very rough idea of the process, as freight rates are volatile and depend on several factors.
Please feel free to share your experiences about logistical problems you may have had during the Chinese New Year in the comments or ask any questions. In the next part of this series, I will share a checklist importers can use to avoid most of the production, quality & logistics related issues we have discussed in the first three parts of this series.
Ashish Monga is the founder of IMEX Sourcing Services, a sourcing & Quality Control company helping people importing from China manage their costs & risks as well as develop new products. Ashish also does consultancy work in the field of international trade & import risk management. He is also the author of The Sourcing Blog, a blog focused on sourcing advice for importing from China.