Each year sometime between January 21st and February 21st, the world experiences the greatest human migration as hundreds of millions of Chinese citizens hit pause on work and head home to their families. We are of course talking about Chinese New Year, AKA CNY, AKA Lunar New Year, AKA Spring Festival. This massive global holiday is not exclusive to China but is also widely celebrated across Taiwan, Hong Kong, Indonesia, Malaysia, Vietnam, Korea, Macau, Singapore, the Philippines, Thailand, and many other Asian nations.
The Spring Festival Holiday is celebrated differently from country to country, but generally is a 15-day holiday window full of publicly observed holidays where all non-essential businesses completely shut down. Much like the USA Christmas, Hannukah, etc holiday window, preparation for the holiday begins over a month in advance of the holiday start and extends a few weeks past the formal holiday conclusion.
This year’s Spring Festival Holiday is different for a few reasons and the effects of 2022 CNY will reverberate across the world. The impacts are already being felt.
Normal Annual Supply Chain Disruptions:
Our team at Suuchi Inc manages a global sourcing network of hundreds of factories, many of which are in Asia. As our team coordinates purchase orders and shipments, our business partners in China and greater Asia begin discussing Spring Festival “solutions” months in advance of the actual holiday. The complete factory shutdowns typically range from 2 business weeks up to a full month, but the normal pauses on work for foreign projects are greater, generally 4-8 weeks. This is because when factories reopen, many individuals have taken extended vacations or have moved onto new companies as there are many seasonal laborers. As labor shortages are an annual road bump for most factories, domestic projects take priority over foreign purchase orders and production work. As frustrating as this is for North American customers of Chinese factories, this makes sense, and our country operates the same way thinking America first.
Operating in different time zones, speaking different languages, and observing very different cultures, North American businesses often plan for the worst around CNY so typically companies will place larger than normal purchase orders well in advance of CNY to ensure they have inventory on hand to ride out the production stall. Typically, any big shipments out of China need to leave the port end of December or the first week of January, otherwise, they are too late and risk serious delays. Production timelines vary industry to industry and based on your relationship with factories, you may be seen as a priority or not when the factory opens back up. It is normal to expect a halt in shipments from China factories between the end of December through the start of April (a three full month hiatus or 1/4th the year). In today’s economy where trends pop up quickly and businesses need to react, being able to execute purchase orders just 75% of the year can be a real challenge.
Olympics Start Feb 3:
2022 CNY is different. One big reason why global supply chain effects will be felt for even longer this year is because of the winter Olympics being hosted in Beijing. The Olympics are an exceptional marketing opportunity for nations to puff their chest a bit and show the world what a great nation they are. Olympic hosting nations generally see a meaningful tourism boom in the following years. China has and will be investing tens of billions of dollars as well as focusing their supply chain efforts on driving an incredible global experience. The winter Olympics go from Feb 4ththrough Feb 20th so businesses can expect even greater supply chain impacts this year.
Although the winter games do not kick off for another week, businesses have already been feeling the effects. Freight delays have been par for the course for the past several months as containers and vessels have been prioritized for getting materials to the Beijing game venues and surrounding area. Businesses hoping to get shipments out of Asia as soon as the games conclude will likely be SOL. When hearing of freight delays, it is hard to directly attribute these delays to Olympic supply chain prioritization, but this is certainly a large factory.
As China emerges past CNY and the Olympic games, the world will still dominantly rely on China for sourcing, but it will be a slow restart for many businesses. The name of the game in Chinese sourcing is the biggest book of business gets priority treatment. The Nike’s and Puma’s of the world will have products on the first ships out of China, but for small and mid-size players, this may mean an additional month+ of supply chain delays in 2022.
Although many western nations are rightfully skeptical of China’s reported COVID numbers to date, China’s stringent zero-COVID policies have no doubt throttled the domestic spread of infectious disease. As CNY kicks off and the Chinese population embarks on the world’s largest annual migration, what do you know, COVID numbers are on the rise. CNY hasn’t even formally started yet and already at least 14 Chinese provinces are reporting COVID infections (as of 1/27/22). While the case count being reported is relatively tiny compared to the USA and European numbers, the holiday travel window is just beginning, there will be mass global travel from countries without zero-COVID policies for the Olympics, and it will be interesting to see if and how China reinstitute their zero-COVID policies. My take on the next month is that China will downplay numbers to ensure they get through CNY and the Olympics, but as soon as the Olympics end, there will be a prolonged factory reopening until the COVID numbers subside. This likely will not be broadly publicized but rest assured North American businesses will feel the downstream supply chain pains.
Thoughts Ahead of 2022 CNY:
In previous blog posts, our team has shed light on rising freight and material costs, port delays, big brand / MOQ prioritization, etc. All of these supply chain trends are pushing brands and businesses to consider alternative sourcing in new parts of the world. That said, we know that the reality is China and greater Asia will remain the dominant production go-to for many more years even if supply chain disruptions continue. Other nations simply pale in comparison to China’s production infrastructure and it took China decades to build to where they are today.
While this is the case, if China is closed for foreign production 25% of the year, companies surely might consider transitioning 25% of their production to other nations. Each product category is different and different nations around the world have certain production specialties and timelines to develop new products. In apparel, for example, it might take an additional 60 days to complete thorough pre-production for first-time orders. If businesses leverage CNY down-time to develop LATAM, SA, and/or domestic production avenues, they can approach post CNY factory conversations with confidence that they can produce products across more diverse geographies and drive more competitive supply chain outcomes.
Not Sure Where to Start?
Our team specializes in global sourcing for certain product categories. Whether we can provide strategic production connections for your business or not, our team offers free consultations, and we can point you in the right direction to get started. Make this your new year’s resolution!
Bobby Hamill is the VP of Sales at Suuchi Inc. With over five years experience at Netsuite, Bobby leads the Suuchi team to help hundreds of businesses take the first step to a digital future for their supply chains.