Although the Lunar New Year holidays do not officially start until the end of the month, factory towns across China’s manufacturing heartland have been powering down this week due to labor shortages or weak order books, hitting export loadings earlier than expected, according to logistics executives.
Spot rates to Europe have already seen declines in January, but with forwarders predicting bookings will fall further next week and many manufacturers not expected to be back to full output until at least mid-February, spot rates could see further declines through February.
After a sharp uptick in ocean volumes through Chinese ports in early January in advance of Chinese New Year, carriers are already reducing capacity through blank sailings in anticipation of an accelerating shutdown next week as exports from the Pearl River and Yangtze River delta regions dry up prior to the official holiday, which runs from Jan. 31 to Feb. 6, according to David Goldberg, senior vice president ocean freight - Asia Pacific, DHL Global Forwarding.
Ferry van Meggelen, country head of ocean freight for Greater China at Panalpina, said the return of truck drivers to villages in droves was also starting to slow up supply chains to ports. “This makes it extremely difficult to find ‘wheels’ in the market for pre-carriage of the containers,” he said. “Hence, we expect a slowdown in bookings in the week before Chinese New Year.”
Shanghai-based Meggelen told JOC that 2014’s relatively early Chinese New Year means shippers and 3PLs transported many goods from Chinese ports during December. Even so, there has been “a moderate surge in volumes” in the first weeks of January, “which posed some challenges for finding the necessary carrier capacity”.
But he warned it was a common misconception in the West that the Chinese New Year spanned only one week. “The real effect — as hard as it always is to predict — is much greater,” he said. “Most workers only return to their factories on the 14th day after Chinese New Year.
“For 2014 this means that actual work will be picked up again in week eight only. Ocean freight bookings will then follow with a bit of delay. Signals from the market suggest that it will take until week nine or even ten for volumes to get back to ‘normal’.”
Goldberg said he expected most factories to close tomorrow for about two weeks. “It would then take another week once back to have finished goods for export so we anticipate, as is normal, a slow down for about three weeks which would then see a build up again mid-February,” he said.
Michael Rainsford, freight trader at Morgan Stanley Commodities, said with declines on the Asia-Europe trade already evident even before factories in China started to close, the probability of lines introducing GRIs on Asia-Europe was increasing.
“While no announcements have yet been made about the next GRI on the Asia-Europe trade, a decline of this magnitude does increase the probability that carriers will have to announce something for March if not before. Failing this, rates will succumb to fundamentals, and assuming the return of weekly schedules to their normal state, this will not be pretty for carriers.”
Contact Mike King at email@example.com.