For almost three years, the world has been impacted by China’s inability to manage COVID. Logistics managers and supply chain managers have tried to navigate the seemingly endless shutdowns, but the vulnerability still exists. Even with the recent announcement that China is reopening, don’t expect the supply chain to go back to normal.
Why? Because the supply chain needs people. It takes people to make and move products. The country may be “open,” but China’s infection rate remains high and it is affecting the workforce.
In Honour Lane Shipping’s HLS TransPacific report, it could not be spelled out any clearer: “We expect a very soft volume after the Lunar New Year because a lot of factories have slowed production due to the increasing infection and have to cancel or delay the bookings for the second half of January and also early February.”
This is just one example of the supply chain pressures resulting from COVID.
Over the weekend, China’s Zhejiang, home to many of Apple’s suppliers, reported 1 million daily COVID cases. This is raising supply chain concerns.
So what does the Chinese government do in response? Block out the reality of the situation.
The National Health Commission stopped publishing the daily infections and transferred the task to China’s Center for Disease Control and Prevention.
The Chinese government may think it can hide behind this cloak of obstruction, but the reality of the situation will be uncovered by those who know the supply chain. The world will need to keep an eye on manufacturing volumes and energy consumption. That physical evidence will provide the truth.
Some believe the supply chain is normal because freight prices are down. This shows a lack of knowledge or understanding of the supply chain. The lack of freight orders is behind the drop in price. That is a reflection of demand, not supply chain, operating normally.
The shortage of children’s cold medicine in the United States is the latest supply chain problem facing Americans. The soaring number of illnesses is only exacerbating the problem.
“Clients and many grocery chains are seeing fulfillment rates in the mid-60 percentiles,” explained Jeff Tucker, CEO of freight brokerage Tucker Co. Worldwide. “So production is way behind. Before COVID, production, at least in the U.S., reached as close to perfect supply/demand planning in history. It’s still something of a mess, globally. Once it sorts out, like freight did, we’ll see prices normalize and fall.”
This information is based on the people moving the product. So what is the supply chain reality? Those who manage the supply chain tell the harsh truth.
In a recent survey conducted by CNBC, companies that are members of the National Retail Federation, the American Apparel and Footwear Association, the Council Of Supply Chain Management Professionals, the Pacific Coast Council, the Agriculture Transportation Coalition and the Coalition of New England Companies for Trade weighed in on the supply chain outlook. The survey questioned 341 logistic managers the week of Dec. 12-19. These are the individuals with a finger on the pulse of the supply chain because they work in this logistical mess day in and day out. The only bright spot is that orders are down because of bloated inventories and consumers looking for a bargain.
Sixty-one percent of respondents described their current supply chain as not operating normally. Thirty-two percent said it was functioning normally. This is the reality. It’s all about a company’s ability in having orders fulfilled and moved.
As far as “normal,” when will that be? Heck, if we all knew the exact time frame, we would be rolling in cash. But the outlook is not as positive as those declaring normalcy based on freight prices.
Of those surveyed, 22% said they were unsure, 19% said 2023 and 30% said 2024.
An additional 29% said in or after 2025 — or never.
The rate of infection is sparking concerns from surrounding countries. Japanese Prime Minister Fumio Kishida announced that the government would tighten restrictions on travelers entering Japan from China. All travelers from China will be tested upon arrival. If they test positive, they will be sent to a designated facility for a seven-day quarantine. Don’t be surprised if other countries start to adopt similar measures.
So put down that party horn and confetti. China’s COVID problem and the impact on the supply chain are not going away anytime soon. The country’s infection figures might not be announced daily anymore, but that does not mean COVID has faded into the history books. The flow of trade does not lie.