In this  Supply Chain Matters commentary we reflect on the start of 2022 Lunar New Year festivals across Asia and the implications to ongoing industry supply chain disruptions.

 

On Monday, the traditional 16 consecutive day celebration of the Lunar New Year, Spring, Tet or Lantern Festival occur across China, parts of Asia and other countries. The year 2002 is deemed the Year of the Water Tiger.

In China, the national Lunar New Year holiday spans from January 31 to February 6. With traditional add-on holidays, manufacturing workers can be away for upwards of 16 consecutive or more days, while manufacturers and businesses suspend operations during the official holiday or run with reduced staff to allow workers time to enjoy holiday traditions and festivities with family.

Global supply chain teams have come to assume that production output should not be planned during this period. Ocean container shipping lines similarly have taken this period as an opportunity to re-position global fleets as well readjust the supply of available empty shipping containers among major China and other Asian ports. But these are not normal times for global supply chains, and concerns grow that the holiday, coupled with the threat of added COVID-19 infection rates involving the more contagious Omicron variant will present yet another supply chain production and transportation disruption to begin this year.

Nikkei Asia reported last week that government officials as well as businesses have been urging millions of contracted factory workers to forgo the usual trips to home provinces because of concerns that mass travel will increase COVID-19 infection rates. Reportedly, local governments, especially within China and some portions of Vietnam are threatening stricter multi-day quarantines, and multiple testing requirements for those traveling into and out of local areas.

The report additionally notes that some manufacturers and employers have offered workers cash incentives to defer travel and remain close to factory facilities.

Foxconn’s Zhengzhou facility, one of the largest iPhone assembly facilities was reportedly offering workers the equivalent of $250 if they only took three days of holiday and a lessor amount if they elected to take five days. Despite these measures, factory officials indicated to Nikkei that there are concerns that just as occurred last year, fewer workers will immediately return from the holidays.

 

Global Shipping

On the global shipping front, major congestion and disruption remains.

As an example, the Port of Ningbo-Zhoushan, located near Shanghai, remains hampered from ongoing restrictions on trucks and warehouse operations because of local COVID infection rates. Chinese health authorities continue with a national zero-tolerance policy regarding the smallest number of confirmed infections. Factory operations in Tianjin were impacted by mandates for mass testing of upwards of 14 million residents because of a local infection. The same is occurring with other Chinese regions.

Ports on the U.S. West, and now, East coasts remain clogged because of both increased Omicron variant infections as well as clogged logistics, lacking room to be able to either offload inbound loaded containers or move empty containers to other domestic or foreign locations where they may be needed.

The ability of container shipping lines to be able to rebalance the supply of available empty containers appears rather challenging at this point.

A new consideration of concern is new data from Flexport’s Ocean Timeliness Indicator (OTI) which now reflects that average transit times from Asia to the United States reached an all-time high of 113 days in December. That is reportedly 41 additional days than at this same time in 2021, and higher than pre-COVID levels.

Even if manufacturers make their post Lunar Year start-up production commitments, it will likely take an additional month of transit time to reach a U.S. port and meaning that late February shipments would not likely arrive to U.S. port destinations until June or July.

 

What Does All of This Mean?

What this implies is that 2022 will begin on another sour note in overall global and domestic supply chain movements.

There is a good possibility that Asian factories will struggle to restore post Lunar Year holiday production levels, that container availability will remain an ongoing challenge, and that clogged and disrupted logistics are likely to be extended for some time. Much depends on the domestic spread of the new COVID-19 variants and the ability of ocean container lines to be able to effectively support the rebalance of global logistics flows.

For manufacturers and retailers, the implication are the possibilities of extended lead times for inbound components and finished goods, continued inflated costs of transportation and rather frustrated customers still awaiting their open orders.

Patience added resolve and contingency planning are unfortunately the playbook to begin the year. Some luck would help as well.

 

Bob Ferrari

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