When is the Chinese New Year?
The Chinese New Year celebrations will begin on February 9th and conclude on February 24th.
According to Maersk, the Lunar New Year is also celebrated in several East Asian countries, including China, Vietnam, Singapore, Malaysia, Philippines, Indonesia, and North & South Korea.
How will supply chains be affected?
As is traditionally the case, production begins to slow down in Chinese factories at this time of the year ahead of the festivities.
Dachser warns that Chinese suppliers begin closing their operations “one to two weeks before the holiday,” and adds that although the official celebration only lasts a week, most factories “remain closed for a whole month, some even longer”.
“The [Red Sea] crisis hits as China faces its seasonal export surge before factories close for the week-long Chinese New Year holiday starting February 10. With fewer vessels available, this rush will strain capacity. Repositioning empty containers back to China has also been disrupted,” explains Mike DeAngelis, Head of International Solutions at FourKites.
Danish logistics giant DSV also explains that the situation has knock-on effects on ports and transportation. In its advisory article on the Chinese New Year, DSV states that restrictions on freight arriving and leaving Chinese ports are to be expected.
DSV advises that ships will “depart late and miss ports”. Moreover, it says that “restrictions may also affect storage capacity at ports”. The company adds that the situation in the Red Sea will also reduce freight capacities and exacerbate the already-extended transit times.
When it comes to air freight, DSV says it expects short-term flight cancellations both before and during Chinese New Year. This, in turn, will naturally reduce air freight capacity.
Container shortages can also be an issue in the opinion of Maersk. The shipping line states that a “shortage of empty containers continues to be a key source of disruption during the Chinese New Year”. Maersk believes the shortages are caused by “a ripple effect” of factors, including rising global demand and operational challenges.
Finally, both DSV and Dachser stress that it will take time for market conditions to normalise even after the conclusion of the holiday period.
Shipping and transport costs
As Maersk explains, “increased demand and low supply lead to inflated rates”. The shipping giant adds that this means “exorbitant freight rates and additional peak season surcharges”.
This view is shared by Freja Logistics, who has told its customers:
“During this period, you might experience a significant price increase due to rising demand. Furthermore, the current situation in the Red Sea has added extra pressure on capacity and containers, resulting in longer transit times, additional surcharges, and increased freight rates.”
Speaking during Drewry’s latest ‘Freight Loop’ podcast, Philip Damas, Group Managing Director and Head of Drewry Supply Chain Advisors, nonetheless stressed his belief that rates would fall after the Chinese holiday period.
“The next five weeks leading to Chinese New Year on the 10th of February are going to be very difficult for shippers and for shipping. But we at Drewry have grounds to believe that shipping has more than enough capacity to do this many ship diversions around Africa, and that spot rates will decline again after Chinese New Year,” said Damas.
Vespucci Maritime CEO Lars Jensen has also been quoted as saying that rates will drop to an extent after the Chinese New Year.
Moreover, according to Cichen Shen of Lloyd’s List Intelligence, “demand from this year’s pre-Chinese New Year mini-boom appears to be not as strong as expected”. Shen adds that there have also been concerns there “will not be enough cargo to fill the current high-priced vessel slots, despite constrained capacity supply”.
This would indicate the situation will not entail the kind of jaw-dropping freight rate hikes that some shippers had been fearing.
How the impact of the holiday disruption is typically minimised
According to Dachser, companies dependent on Chinese or Asian suppliers often take Chinese New Year disruption into account by increasing their inventories. This, says the German Freight Forwarder, leads to a pre-holiday freight rush.
FourKites’ Mike DeAngelis nevertheless adds that even in cases where this has been done, a continuation of the Red Sea crisis could still result in product shortages:
“Retailers planning for spring sales events ship goods early enough to avoid any annual delays caused by the Chinese New Year. If the Red Sea disruption lasts another two to three weeks, there will be product shortages in April and May, except for those higher-end retailers that can afford to shift to air freight,” said DeAngelis.
The shift to air freight is also a possibility Freja Logistics has referred to in a customer update, in which it stated that “a sea-air solution could also be relevant for your company”. This option is suggested for urgent deliveries, though Freja Logistics’ Head of Business Development, David Nielsen, emphasises that it will be necessary to schedule flights a few weeks ahead.
Another tip suggested by Maersk is to distribute larger shipments into multiple less-than-container loads (LCLs), with each package having its separate bill of lading (BoL). “This way, you can reduce the risk of shipping delays, as any delays affecting one container or carrier will not impact the entire shipment,” says Maersk.
In addition to this, Maersk recommends leveraging data to understand past customer behaviours and plan inventory, as well as pre-booking containers or vessel space.
Photo: Bruno Corpet (Quoique), CC BY-SA 3.0, via Wikimedia Commons