Help! The Chinese New Year effect – production and shipping from China during the Chinese New Year
The coming Chinese New Year is the most significant holiday for the Chinese people and also the longest one. This is a chaotic period filled with stress and pressure, during which the entire Chinese industry, including the field of logistics, is shut down for almost a month. The impact of the production stoppage during this prolonged period spreads far beyond China and is reflected prominently in the global market.
The next Chinese New Year is officially scheduled for January 24-30 (2020). However, the vacation will begin a week earlier in order to allow the workers to get to their families on time for the holiday. Although the full holiday is celebrated for 15 days, most workers stay with their families for the first 7-8 days and then return to the factories and companies. Despite the fact that all employees are absent from their workplaces for about 21 days (a week of traveling to their families, holiday week and another week to return), the economic and logistical impact of this downtime is estimated at 35-40 days (yes, we have just recovered from Black Friday and the rest of the December sales…). Why? Let us explain.
Homecoming or “The World’s Largest Human Migration”
As we have already noted, Chinese New Year is the most significant holiday for the Chinese people – entire families are reunited during this period. Regardless of the distance that people have to travel to meet their loved ones, they will reach their destination to celebrate together. For many Chinese people, it is the only time of the year they get to see their parents and even children, who are often raised by their relatives living in the countryside.
Most workers in China’s industrial areas are migrants from distant rural areas with very limited employment opportunities.
Due to the country’s enormous size, the families of many workers are located more than 5,000 kilometers away from their workplaces. In such cases, traveling by public transportation, changing back and forth from bus to train, can take 4-5 days in each direction. Note that this is the travel time only, provided that there are available tickets and seats on the bus or train. However, the reality is different: before the holiday, the train and bus stations are flooded with tens of thousands of people, who stay at each station with their bags for days! The stations are overcrowded and there is no option to move or go back. There are no queues or clear timetables and the situation is quite chaotic. Tens of thousands of police officers and soldiers are mobilized to the train and bus stations in an attempt to maintain order.
Now you know why many workers start their vacation a week or two before the Chinese New Year. This is the time of the world’s largest human migration.
Back to work or the factory owners’ prayer for the workers to get back
Despite the difficulties involved in traveling back, all workers and their families always look forward to celebrating the Chinese New Year. This annual reunion is very significant and carries a great emotional value for them.
In recent years, a new practice has been introduced, according to which the workers’ return to work is contingent upon pay raise. Therefore, the workers feel that they are in control of this sensitive time for the factory – without workers, the factory is paralyzed, while orders keep coming and customers’ pressure increases.
According to the newly established custom, the workers inform the factory owners that they will not come back to work for the same wage. This is another factor that results in output decline and labor shortage a week or two after the holiday is over. Holiday’s end is a period of wage negotiations to determine the salary for the entire year.
Over the holiday break, the workers spend time with their family members and childhood friends. During these encounters, they share information on various wage levels and new employment opportunities.
Therefore, many factories lose a significant number of employees by the end of their vacation. For factory owners, it means they must recruit and train new employees – a process that takes up valuable time, while the factories’ output decreases, despite returning to full activity. For the customers, it means that even if they make an order before or during the holiday, there is no guarantee that the factory will be able to meet the production lead time it has committed to.
A job that allows you only a few days a year to spend with your family is clearly not a satisfying one and does not provide a high quality of life. The Chinese government is well aware of this fact and encourages projects aimed to move the factories and industrial sites from the coastline to the center of China and closer to its remote rural areas. As a result of such initiatives, more employment opportunities arise for the workers closer to their homes and therefore, negotiations with the distant factories are quite challenging for the factory managers.
Proper logistics planning of production and shipping from China
Chinese New Year is a unique event in the world of trade and industry. As mentioned, Chinese factories and service providers experience a massive decline in output, spanning a period of time that begins before the holiday and continues after the holiday ends, while the entire industry is paralyzed. Therefore, the factories must complete the ordered production at least ten days before the holiday. The demand is counterproductive in this case since the customers tend to order larger amounts than usual in order to be prepared for the long period, in which the Chinese economy falls into a coma.
In many cases, the tremendous pressure, along with the employees leaving for vacation, results in turning a blind eye to quality control and compliance with product specifications in order to complete the production on time. Keep in mind that managers, supervisors and those in charge of production go on holiday and quite often, there is no one capable of supervising the production in the period leading to the Chinese New Year.
In addition, the factories’ supply chains operate under constraints, like any other business. To produce the goods you ordered, the factory must order raw materials and components required for production, while the impact of the New Year must be taken into consideration, and raw materials and components must be ordered in advance. Otherwise, it might not be possible to carry out orders placed right before or during the holiday. Products that require a relatively large number of components take a longer time to produce and deliver, while the holiday-related time restrictions should also be taken into consideration.
It should be noted that the level of Chinese factories varies significantly. Some are managed better and more effectively than others. Well-managed factories often include warehouses with all the required inventory of products and raw materials. Their financial situation allows them to employ good workers and pay them a high salary, while also incorporating strict quality control. Products manufactured at such factories usually cost much more than similar products from smaller or less quality-oriented plants.
As mentioned, delayed deliveries and
declined production quality also occur during the period of 2-3 weeks
following the Chinese New Year, due to employee turnover, new orders
accumulated during the holiday and the need to purchase components and
raw materials for production.
It is important to distinguish between the production, sales, and management departments. The Sales Department keeps running its operations as usual in conjunction with customers worldwide via the internet and email. You can place your order before and during the holiday, and contact a sales representative and factory management. However, in practice, the production floor is completely paralyzed. Sometimes, the salespeople will provide you with production and delivery times that are not realistic, since the salesperson does not have a clue about the production plan and process, and there is no one to ask since the entire Production Department left for vacation.
In addition, some factories will transfer the orders they cannot finish on time to subcontractors. It is important to take into account that there is a reasonable chance that product quality will not comply with expectations.
And now… Logistics and Shipping
When the factory provides the customer with ordered goods, a new chapter begins Logistics, Customs, and Shipping in China.
customs at China’s ports work throughout the holidays, except for three
days. However, in a manner similar to Western holidays, customs work in
accordance with a “holiday procedure”, which means fewer workers and
longer processing time. The small ports, which redirect activities to
the bigger ports, close for a week and many freight forwarders leave for
a two-week vacation.
Land transportation fees spike during the holiday period, while employees willing to work two weeks before the holiday, as well as during the holiday, expect a significantly higher pay compared to their regular wage. Beware of the promises made by companies stating that they have “their own fleet of vehicles” and that regular delivery times apply to the holiday period.
After passing the stage of transporting the goods from the factory to the port by land, and after passing the customs, it is time to continue the journey to the next stop – the port – with more challenges ahead. During this period, ports are filled with containers and everyone wants their containers to get on the next ship. This is a peak period, in terms of demand for space on cargo- aircrafts and ships, therefore, the prices are skyrocketing.
This article is not aimed to frighten you, but rather to describe and elaborate on the facts proving the significance of careful planning of inventory, production timetables, supply and transportation during the Chinese New Year, in order to avoid unnecessary delays and expenses.
Preferred customers – factory priorities
Everyone wants to receive the ordered products before the holiday and as early as possible to avoid overpriced logistics and shipping delays as a result of the Chinese New Year. Unfortunately, not everyone will get their products on time.
It is important to understand that the sales agents in China will not refuse to take your order, even if they know that it will be impossible to complete the production before the holiday. This situation forces them to prioritize orders, regardless of the chronological order and commitments to complete the production at a certain time. During this period, a regular customer will be preferred over an occasional one and a customer seeking to order a large number of products will be preferred over customers with smaller order volume. In addition, in Chinese culture, as in the Western one, the relationship with the customer plays a major role and is reflected in gifts, personal acquaintance, salutation and greeting letters, restaurant meetings… All these factors will be taken into account in the process of customer prioritization during the Chinese New Year.
If you use external quality control services, keep in mind that you will need more time to prepare, since it will take longer than usual to replace defective goods or products that are incompatible with the specifications.
In conclusion, the impact of the Chinese New Year lasts for about 40 days and therefore, it is recommended to plan your orders for this period in September-November.