Chinese New Year Adds Uncertainty for Importers in Unstable Trade Climate

Date: Thursday, January 31, 2019
Source: Sourcing Journal

This year, Chinese New Year could complicate things more than in years passed.

The normal rush to get goods into the U.S. from China prior to Chinese New Year and the resultant factory shut downs of up to four weeks has been exacerbated this year thanks to the already heightened fulfillment and delivery concerns caused by the U.S.-China trade war.

Typically, apparel, textile and footwear importers plan accordingly and don’t have many problems, but it seems uncertainty is the new normal in trade strategies of late.

“Much like forecasting the container volumes in the final three months of 2018, projecting the impact of the Lunar New Year on import volumes to the U.S. and Canada this year is complicated by the specter of increased tariffs set to take effect on March 1,” Daniel Hackett, founder of Hackett Associates, said.

There was an end-of-year surge in cargo volumes, according to Hackett, as retailers brought merchandise in early ahead of the original Jan. 1 time frame for the increase in tariffs, and now there could be another surge in February.

“That would require factories in China to resume operations more promptly than we typically see following the holiday,” Hackett said. “The flip side is that factories may have reduced orders” due to the threat, as importers have diversified to limit the risk form China, “and will therefore take longer to return to full operation. Either scenario would have a huge impact on the cargo volumes we can expect to see in the coming months.”

U.S. ports covered by Global Port Tracker handled 1.81 million twenty-foot equivalent units (TEU) in November, a 2.5 percent year over year increase, but an 11.4 percent decline from the record 2.04 million TEU set in October. A TEU is one 20-foot-long cargo container or its equivalent.

December retail cargo imports were estimated at 1.79 million TEU, a 3.7 percent year-over-year increase. But January shipments are forecast at 1.75 million TEU, down 0.9 percent from a year earlier, and February imports are seen falling 0.9 percent year-over-year to 1.67 million TEU. Looking further ahead, cargo imports are projected to be up 0.6 percent in March to 1.55 million TEU and increase 3.7 percent in April to 1.69 million TEU.

February and March are typically two of the slowest months of the year for imports due to the post-holiday drop in demand and the impact of the Lunar New Year factory shutdowns in China and some facilities in Vietnam and elsewhere in Asia.

Industrial contract manufacturing company East West, offering advice on its website to customers, said, “Although Chinese New Year officially only lasts for one week, many factories and businesses shut down about 10 days before…to allow time for workers to travel home. There is always a mad rush to ship product out of ports before the country shuts down. This can lead to increased freight costs and longer transit times if there is a delay at port or a container is not loaded on its intended vessel.”

East West said the holiday can disrupt production and shipping schedules for up to three weeks or more. With the holiday and surrounding disruption beginning Tuesday, this would mean the entire month of February could be a washout.

“Since China is an economic giant in the global exporting industry, the effects of Chinese New Year can ripple around the world, especially for retailers and anyone else who relies on imports from China,” East West said.

Alba Wheels Up, a customs brokerage and freight-forwarding firm, said in its newsletter this week that despite a rush to ship goods prior to Chinese New Year, the Asian air freight market remains reasonably flat.

“Carriers may turn to higher rates during future shipping peaks in order to recover losses experienced during the lull periods,” the company warned.

Hackett noted that the threat of the March 1 imposition of 25 percent tariffs on a range of goods, including apparel and footwear, entering the U.S. from China could change plans for factories in the country. According to which Trump administration is speaking and at what moment, the two countries are either close to reaching an accord to avoid further tariffs or miles apart.

He noted that last year, the West Coast ports in the U.S. and Canada covered by the Global Port Tracker experienced a 19 percent decrease between February and March during Chinese New Year, which began 11 days later on Feb. 16.

“This year, the holiday falls a little earlier than in 2018, but we anticipate that the overall decrease during the period will be similar,” Hackett said.

 

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