With Chinese New Year starting Sunday, and manufacturing and logistics operations virtually shut down there for two weeks, experts say retail inventory levels are in a good place given recent gluts and proactive restocks, but the weeks following will bear watching and might bring issues.
System shutdowns related to Chinese New Year, which runs from Jan. 22-Feb. 9, are expected to be somewhat extended, due to what is believed to be many millions of COVID-19 infections there, and the unreliability of data on cases coming out of the Chinese government.
“So far there’s not too much evidence of things getting delayed (out of China) ahead of the holiday, but typically that happens several weeks after (New Year),” said Douglas Kent, executive vice president of strategy and alliances for the Association of Supply Chain Management (ASCM). “Beyond the impact of New Year, you have the potential for workers calling in sick after. The predictable piece is accounted for; it’s what happens after that’s of greater concern.”
The most recent Global Port Tracker, put out jointly by the National Retail Federation and Hackett Associates, said monthly container traffic at major U.S. ports has fallen below 2 million twenty-foot equivalents (TEUs) and should remain there through March, as trade has lessened.
Also, the busy ports of Los Angeles and Long Beach, which had more than 100 vessels at anchor a year ago, has been completely cleared out, and container dwell time is back to normal. Now you have the unusual scenario of the port director criss-crossing the country in an effort to woo back shippers who have departed for other inbound destinations over labor concerns.
“After nearly three years of COVID-19’s impact on global trade and consumer demand, import patterns appear to be returning to what was normal prior to 2020,” said Hackett Associates Founder Ben Hackett in a release. “Nonetheless, as inflation eases and consumer spending returns, we project that growth will slowly return going into the second half of the year.”
While there were “no big surprises” going into Chinese New Year, with shutdowns happening earlier due to low demand, production delays are expected to be elongated, said James Gagne, president and CEO of Seko Logistics.
Despite rhetoric around a massive shift of sourcing to places like Vietnam and Bangladesh, especially for apparel and textiles, Gagne said China “still works extremely well.”
“Whether it’s asset vessels or air cargo, you’ve got greater capacity available, and the cost of doing business is more efficient than it was before,” he said. “Bangladesh has always been a major exporter and producer of ready-made garments. But you can’t just move a lot of high-tech supply chain work there. That doesn’t mean you can’t see more growth in other sectors.”
Simon Geale, Executive Vice President of Procurement at supply chain and procurement consulting firm Proxima, said things are fairly balanced at present, based on demand, capacity and pricing, but a lot of factors could lead to disruption later in the year.
“The scope of the COVID-19 outbreak (in China) will have an ongoing effect, and no one’s sure of the impact of the political and social unrest in China,” Geale said. “It’s at the point where it’s functioning but stretched. A lot of businesses we work with are it watching intently.”
Moving through the year, he said, there are still plenty of potential for supply chain issues both here and abroad to surface and cause delays. For one thing, labor issues lurk in the ports, on the rails and at UPS, where contracts expire at the end of July. “It doesn’t look like we’ll get away scot-free,” he said. “It will still be a challenging year.”
Alexander King, a branch manager with global 3PL Dimerco Express, said factory orders and exports from China for his customers have been down between 30% and 40% due to COVID-19 cases at factories.
“It’s not really impacting importers, who actually want to slow down orders as they’re sitting on too much inventory,” King said. “Plus, containers arrive at port and have nowhere to deliver to, with warehouses and DCs at maximum capacity (due to inventory levels). Given the situation, importers are almost relieved orders are being canceled or delayed.”
King said he does have customers in consumer electronics like Verizon and T-Mobile who have been forced to shift volume from ocean to air freight based on factory delays in China. He added this phenomenon has been isolated to that sector and not widespread.
“It’s disappointing for them,” he said. “Right when they were seeing ocean freight moving and were less dependent on air freight like in 2021 and 2022, the factory shutdowns happen.”