The Impact Of Lunar New Year On Global Supply Chains

Lunar New Year, otherwise known as Chinese New Year, is a holiday that sees many Asian countries celebrate the start of a new lunar cycle. It has been dubbed the world’s largest migration due the billions of people who travel to be with their family and loved ones. 2023 being no different.

What is different though is the absence of demand. Ordinarily, the holiday is preceded by a rise in trade. However, this year both air and ocean operators have stayed quiet. In ocean, the lead-up to Lunar New Year has been the worst for 13 years.

As you might expect, this is partly down to economic pressures. But it’s also due to the timing of the holiday, which is in late-January this year. This has meant that factories that have already been disrupted by zero-covid policies will now close again for anywhere between 2 to 4 weeks.

It seems retailers in manufacture in the region can’t seem to catch a break.

The challenge for businesses

Over the past few years, inventory management has become an impossible task. One month retailers are sitting on stock, the next they’re struggling to meet customer demand. And while the former is true today, we could see empty shelves by mid-February.

To some extent, businesses can prepare for holiday related closures. What they can’t prepare for is a surge in covid cases after the festivities. China may have lifted lockdowns for now, but a tidal wave of cases post-Lunar New Year could change things.

As China doesn’t publish covid transmission data, it’s hard to know what the situation is, and how it would have to change for the government to bring back lockdowns. It’s this uncertainty that prevents businesses from being able to plan ahead. That’s why traffic has stayed down.

How the industry is adapting

With levels being approximately half of what they were around Lunar New Year 2022, companies are having to change tact.

Carriers are reportedly giving up in their efforts to raise freight rates and instead are looking to secure cargo volumes in anticipation of the dip post holidays. Some don’t expect consumer demand to recover until at least March.

Retailers on the other hand are using the stockpiles they built up over the past few years. With demand being what it is currently, this should last them in the short term.

But if there are more factory closures, and customer demand rises despite inflation, we could see congestion across the supply chains again as brands fight for stock.

It’s still too early in the year to gather any actionable insights for 2023 moving forwards, but if current customer behaviour is anything to go off, we may see rates drop further yet.