China factories closed by power cuts

The Chinese government has implemented strict controls on the use of electricity that will seriously affect production in factories across ten critical provinces and could see US$120 billion of trade flows delayed.

With severe disruption throughout the supply chain from China, this adds a new headache for manufacturers of products that are being exported globally and puts further pressure and stresses on the logistics platforms as the production of goods inevitably are impacted and delayed.

Many parts of north-eastern China are experiencing power rationing and cuts because of coal shortages and the tightening of emissions standards, affecting heavy industry and manufacturers, with many closing temporarily.

The regulations have been implemented in more than 10 provinces and followed China’s National Development and Reform Commission, releasing a plan to restrict energy-intensive activities and consumption in line with President Xi Jinping’s 2030 target for carbon emissions and to achieve carbon-neutrality by 2060.

Some of China’s key ports, including Ningbo, Guangzhou, Yantian and Shekou, are located within affected provinces, while Shanghai and Ningbo process many container exports from Jiangsu province.

Integrated Circuit Boards are the most impacted commodity at US$1.5 billion which will affect manufacturers and consumers, as the world continues to reel from a global circuit chip shortage.

In addition, the power shortage has already affected the provinces of Jiangsu, Guangdong and Zhejiang which has seen factories producing steel products, plastics, home appliances, chemicals and textiles shut down or move to a three-day week. Many of the factories in these provinces produce steel products, plastics, home appliances, chemicals and textiles.

Telephone equipment (US$1.3 billion) and clothing (US$635 million) are other key commodities that will be impacted if the disruption continues for more than a month, which will therefore affect many companies rushing to ensure they are stocked up with key products for the holiday season.

It’s unclear how long rationing and cuts will be in place, so it is not possible to predict the outlook. In the short-term, it is certain there will be an impact on factory production and this will surely affect container shipment volumes.

In the longer term, will this supply chain ‘shock’, persuade firms that, given the exceedingly high cost of shipping from China, they need to consider moving production to other centres in Asia or the Indian subcontinent. Or even near-shoring, with manufacturers in Turkey and Portugal, among those welcoming an avalanche of new enquiries.

Supply chains are likely to be under further pressure with these developments and while we expect the situation in these regions and surrounding ports will improve, as power is restored, this may take a little time dependent on the next steps followed by the China authorities. We have already seen customers goods delayed and ex-factory timetables adjusted due to the power outages. We recommend and encourage that you check with all of your Chinese vendors to see if they have been affected and whether there will be delays to product desptach.

We will be assessing the situation’s impact on a shipment by shipment basis, which is why we recommend that you give us your shipping forecasts and bookings, as far ahead as possible.

Our supply chain management platform, MVT, provides end-to-end visibility across your supply network, to expedite priority orders and defer those less urgent. It is simple to monitor and add new vendors. Pro-actively managing them, so you can diversify your supplier base.

Please do not hesitate to contact us with any questions you may have and we will continue to share the most important developments, so that you are informed, to make the decisions that matter.