The average American “holiday season” usually begins somewhere around Halloween and continues at a frantic pace through January 1st. For those of us who work in supply chain management, the holiday season has a completely different meaning.
For those that work with Asia, the holiday season starts around National Day (aka Golden Week) at the beginning of October and ends after the Chinese New Year. In addition to managing all the challenges that come with the company shut downs, staff holidays, and shipping issues that come with the U.S. holidays, we are trying to manage and plan for the largest holiday shutdown in the world. That shutdown just so happens to be right in the middle of the first quarter of our year.
Given the fact that Chinese New Year (CNY) is a lunar holiday, there is fluctuation from year to year in the actual dates. In 2019, CNY falls very early, starting February 5th and going through February 19th. There are both positives and negatives to this. On the positive side, the sooner the CNY falls the earlier it is over and we can plan on normalized production schedules for the rest of the year. However, there are significant challenges that arise when the date falls so early:
- The CNY will fall less than 6 weeks after the US holiday season. This leaves little room for error in production scheduling
- The Section 301 Tariffs are scheduled to increase from 10% to 25% on January 1st, 2019 which has put a strain on some supply chains
- November and December are peak shipping season so trying to bring in product early will cost more in freight
Capacity is always the biggest challenge as we head into CNY preparation. That is why working with a manufacturing partner where you have guaranteed production space becomes critical. As I mentioned previously, the Section 301 tariffs that went into place in late September are set to move from 10% to 25% effective January 1st, 2019. For many U.S. companies to plan around that, while evaluating moving their supply chains out of China, was to buy as much of the inventory that they could for Q1 in Q4.
Manufacturing Planning for U.S. and China Holiday Seasons
There is less risk to pay a 10% increase than wait to see what happens with the 25%. What this has done has caused an early capacity strain on a lot of manufacturers in China. Having just returned from a two-week trip to our office there, I could see first-hand that many of the larger volume orders you typically see before the CNY are already in place to try and reduce the exposure to the tariff increases.
At Epec, we typically start releasing manufacturing to the floor about eight-weeks before the CNY in order to make sure that we can build everything we have booked for not only the two weeks of the shutdown but also the following two weeks that it will take the facilities to fully get back on schedule. . Given the increased volume of these tariff orders, production lead times are already starting to be pushed out, even though we are eight weeks out from the start of the shutdown.
The second challenge of an early CNY and the potentially more expensive in my opinion is preparing your production schedule around peak season freight shipping. While the freight peak season usually starts as early as August each year, the entire transportation system including small packages will feel the strain through early January. I remember the systemic breakdowns of both UPS and FedEx in 2017 and the amount of critical delivery packages that weren’t delivery in time for the Holidays. While everyone on the transportation side is rushing to increase capacity to catch up with our e-commerce driven world, it is going to take time. Additionally, with companies like Apple and Amazon shipping directly from their manufactures in China, it continues to compound the problem.
In addition to the “standard” peak season challenges this year we had the added hurdle of a potential UPS Freight strike. While an official strike was averted and business wasn’t fully halted, UPS Freight had notified their customers to prepare for disruptions. Some did by moving to different shipping methods or freight forwarders. This extra distraction of potential disruption or creating new supplier relationships is a risk in long term holiday planning.
Much like the production capacity challenges, the Section 301 tariffs have added the same capacity challenges to transportation. When space on ships and planes is already at top value, we now have people trying to bring in sometimes double or triple the amount of product than they normally would. For example, at Epec we can usually get our ocean cargo moving within 5-7 days of booking an FCL shipment. Right now, it is closer to 7-10 days to book the physical space on a boat. If you aren’t shipping regularly with a supplier, the challenges of booking space are going to continue to escalate over the next 45 days. To make it even more difficult, many shipping or logistics companies aren’t bringing on new customers during the peak season without either the guarantee of a volume of work or pricing that is significantly over what the current GRI is. It doesn’t matter how quickly you can get your product made if you can’t get it into the country.In my 15 years of experience with Chinese New Years, no two have ever been the same, and they all provide both unique opportunities and challenges. Most years the improved equipment and capabilities that manufacturing installed during the shut downs outweigh the stress of making sure all your orders get here before customs shuts down. This year has its own set of challenges, mostly because there is so much uncertainty between the U.S. and China. As we are all adjusting to this new tariff structure, we are going to be faced with the complete shutdown of manufacturing and that is difficult to plan around. However, I remain confident that on February 20th, 2019 we will look back at the dawn of the Year of the Pig and like we do every year, realize that all of that hard work and preparation successfully got us through another holiday season.