The most severe weather to hit China in more than 50 years couldn’t have come at a worse time, as millions of Chinese head home for the long Chinese New Year holiday and factories rush to get orders to the ports before closing for a week or longer. The logistics picture is especially bleak, as the double whammy of weather and congestion of shipments threatens the global supply chain. Business Week quotes the cost to China’s economy somewhere around USD 7.4 billion.

The severe snowstorms (BusinessWeek.com, 1/30/08) have closed China’s highways, railroads, and airports, stranding people in central and southern China for days. Li Qing, a senior manager in Shanghai at Xiangcai Securities, went to Hunan province on a business trip last week and tried to return home starting Jan. 26. Because flights and trains were canceled for days, he couldn’t get home until Jan. 31. “I have a lot of friends from Hunan in Shanghai. Although they have booked tickets to go home for Chinese New Year’s, the trains have been canceled so they can’t take the train home. They’ve also booked flights, but they still don’t know if they’ll be able to go back,” he says.

While the economic impact of the snowstorms won’t be known for several months, Taiwanese tech company MediaTek, a top designer of chips, has already cited the severe snowstorms as one factor why it is projecting a slight decline in first-quarter revenues. Taiwan’s largest supplier of semiconductors for low-end handsets in China is concerned the snowstorms preventing Chinese from returning home will cut into mobile-phone sales bought as gifts. “There’s a lot of uncertainty,” Chairman Tsai Ming-kai said on a conference call with investors Jan. 30. “The snow could hurt demand and distribution for mobile phones,” Tsai said.

While costs in China continue to rise and some companies are beginning to look elsewhere for sourcing, they still are (and will continue to be for some time) the “world’s factory”. For those importers who planned ahead for the Chinese New Year shipping period, many of them may weather the storm, for lack of a better analogy. But for many companies, with equipment and vessel capacity already strained due to Chinese New Year, this storm could be the breaking point for key inventory items or supplies. Add in the fact that some of the Trans-Pacific carriers reduced capacity over the winter citing high bunker costs, and the situation is much worse than some realize.

We’ve talked to our consolidators/forwarders and carriers regarding the current situation in China and here is what we have heard concerning the weather situation:

Shanghai: Despite some improvement in the trucking situation, many roads remain frozen and the further snowfall today threatens to bring things to a standstill again. Some roads are blocked or congested due to the slow and heavy traffic and disabled vehicles. We have not been informed of any terminal closings at the port, only that operations are slow and of course there remains a large possibility that some vessels could be delayed.

Ningbo: Some of the roads which were closed due to snow have reopened again today and trucks are very slowly moving in and out of the terminals. The terminals are supposedly slammed with traffic jams and expected to continue for several days. Domestic courier service to and from Ningbo (and probably most of China) is limited or nonexistent, although International courier service is supposedly still operating normally. Vessel delays are very possible.

Nanking: Trucking is congested and very slow, but moving. Expect traffic jams in and around the terminals, but doesn’t sound as bad as Ningbo. The terminals are working very slowly. Yesterday vessel operations were stopped due to snow, but appear to be working now.

I don’t have any information on Tianjin / Xingang or Dalian (sorry) but have been informed that other major ports are operating close to normal. Of course, with the Chinese New Year holiday rush to get everything out before the factories close, that doesn’t mean much as many companies were struggling to find equipment and deal with rolled shipments before the bad weather hit.

As for the company I currently work for, so far so good, although we are eagerly awaiting any news from the carriers on delayed vessel departures. We’ve certainly had our fair share of rolled shipments and container shortages, but so far it has not been a major problem. Why? Well, here are some of the things we did about a month ago in preparation for Chinese New Year:

1) Reached out to all our suppliers and buying agents in China beforehand to identify any trouble spots, encourage them to book earlier than normal, and get estimated volume forecasts over to our consolidators.

2) Reached out to our inventory management colleagues to go over critical orders and/or suppliers and make plans accordingly.

3) Built a detailed week-by-week volume forecast broken down by origin for our carriers so they could allocate equipment accordingly.

4) Where possible, booked cargo to arrive destination at least a week earlier than needed, so that in case of any possible rollings or equipment shortages we’d be covered.

5) For critical origin points, opened up container bookings to all our carriers. A small, short-term spike in overall freight costs from those origins, but you can’t buy peace of mind knowing that you don’t have to worry about getting product in on time,

These are just some of the things we did, but it gives you an idea of the importance or prior planning around major events like Chinese New Year. We haven’t had many shipments rolled, but the few that have aren’t affecting us negatively overall due to early booking and arranging earlier than expected arrival dates. So even with a one week delay, we are still in the clear. Obviously we are not out of the woods yet thanks to the weather - who knows if/when/how many vessels will be delayed - but I feel fairly confident we will come through fine. I’m amazed when I talk to people how many just recently began looking at the impact of Chinese New Year on their shipments, not to mention the effect the storm is going to have on their current and future shipments.

Update: China Law Blog emphasizes the significance of China’s bad weather with a post titled “China’s Weather Report: Because it Really Matters” underscoring the effect that the weather will have on Chinese sourcing. He links to several very important posts regarding the effect China’s weather is having on not only China’s economy but the world’s.

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