The Impacts of Chinese New Year on Logistics
Chinese New Year, or Lunar New Year, is a major holiday that marks the start of spring and the new year. This year’s animal is the wooden snake, a Chinese zodiac sign representing wisdom, transformation, and resourcefulness. Cultural events, feasts, and family reunions mark the holiday. However, it can be challenging for businesses, as the celebrations significantly disrupt global supply chains, manufacturing, and shipping.
This spring festival begins with the first new moon from the lunar calendar on January 29th and lasts until the first full moon 15 days later. In the weeks leading up to Chinese New Year, businesses will experience a surge in activity. For example, factories will maximize production to fulfill orders before the holiday, increasing demand for materials and transportation services. Due to increased service demand, this pre-holiday rush often leads to higher freight rates and a lack of trucking capacity.
The Impact
Many factories in Asian countries, especially in China, begin preparing for Lunar New Year as early as mid-January. Factories close, and workers travel to meet their families. This period typically lasts from one to three weeks. Because of China's significant role in global manufacturing, this widespread shutdown resulted in a substantial slowdown in worldwide production.
The delay will affect their production schedules and customers' deliveries. They must manage their inventories to mitigate the impact of the holiday shutdown. For some, an increase in storage space could potentially increase the inventory holding cost. In addition, some ports and warehouses have become inactive, limiting all transportation.
Nevertheless, businesses will gradually resume their operations after the holiday ends. Still, it will take time for the supply chains to recover from the Chinese New Year shutdown. Companies can start forecasting what might come and prepare for disruption. For instance, they can consider stockpiling some items to avoid shortages in this low-production period or finding a supplier in regions less affected by the Lunar New Year celebrations.
Key Points to Take
Chinese New Year significantly disrupts global supply chains, manufacturing, and shipping for an extended period. Pre-holiday production surges cause higher freight rates and reduced trucking capacity, followed by factory closures (especially in China) that halt production and impact businesses relying on Chinese suppliers. This leads to delivery delays, increased inventory costs, and port/warehouse inactivity. While operations resume post-holiday, companies can mitigate impacts by forecasting, stockpiling, or diversifying suppliers.
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