Chinese New Year (CNY) - Why We Care and What You Should Know
With over 4,000 years of history, Chinese New Year is an especially important holiday that plays a major role in the global supply chain. We want to give you a little overview of what it is, how it affects Keyport (along with every other manufacturer on the planet that sources in Asia), and why you should care.
What is Chinese New Year (AKA CNY, AKA The Spring Festival)
Chinese New Year, aka the Spring Festival, is China's most important celebration. CNY as it is often abbreviated signals the beginning of spring and the start of the new year according to the Chinese lunar calendar. This year is the Year of the Tiger and more specifically, the Year of the Water Tiger.
In addition to a circle of twelve animals, there is also a cycle of five elements - wood, fire, earth, metal, and water - which together creates a 60 year cycle. So, this year's water tiger hasn't happened for 60 years.
For more information on the Chinese zodiac, visit https://www.purewow.com/wellness/chinese-zodiac-elements.
Here are the general key dates to keep in mind for 2022:
- Last two weeks in January - Employees leave the factories
- New Year’s Eve - January 31
- New Year’s Day - February 1
- Lantern Festival - February 15
- Mid-February - Employees begin arriving back at the factories
- February 28 - Operations are almost back to normal
For more on CNY, check out https://chinesenewyear.net/calendar/.
During Chinese New Year, virtually all Chinese mainlanders travel home for the holidays. China's transportation system gets completely overwhelmed as most factory workers in mainland China are immigrants from remote and rural areas of the country. For many who use public transportation like buses and trains, the journey may be as long as four or five days. That is not an exaggeration...
CNY's Effect on Manufacturing
During CNY, all major businesses, including factories, in China and Taiwan completely shut down beginning in the last week of January (some starting 1/24 this year) and lasting at least two weeks and up to five weeks. All production grinds come to a halt, and there is no way to get in touch with the factories until after the holiday ends.
During Chinese New Year:
- Production slow downs begin 1 or 2 weeks before CNY as workers begin to leave early to go back home for the holidays
- All manufacturing is put on hold
- Component manufacturers and distributors also go on vacation
- No production orders ship out of China or Taiwan during CNY
- There is no communication with our manufacturers during this time
- Production may be slow on the back end as well as not all workers decide to return to work (more about this below)
CNY generally impacts about two months of production and shipping. 2022 is expected to be worse due to COVID in its second year (having limited last year's travel), China's Zero-COVID policy, and the overlap of the Winter Olympics in Beijing.
COVID lockdowns, quarantines, and restrictions are already causing travel nightmares and a shipping backlog at some of China's major ports, pushing up air freight costs by as much as 50%... and CNY hasn't even really started yet.
China's zero tolerance policy towards COVID will have a major effect both during and after Chinese New Year.
Supply Wisdom’s Atul Vashistha provided his gloomy outlook, "Combine the shutdowns with the rise in Covid-induced port backlogs, China’s zero tolerance policy, and along with reduced aviation capacity, and the problem becomes even more clear: Cargo continues to surge with no way to move it or places to go."
Why Do We Care?
In addition to the time off (in our experience around 4 weeks) where no progress is made on production and shipping from China, there are other issues beyond our control which affect our products both in advance of CNY and following it that are always cause for concern.
Before Chinese New Year
Before the CNY holiday, we have to be on the lookout for an increase in quality issues. As factories and suppliers prepare for the holiday, they rush to finish as many orders as possible before too many workers leave for CNY. Quality control during this period is often less as the long journey many factory workers have to make prompt some workers to begin their holiday up to a week in advance. This is possible thanks to a practice where factories allow their workers to accrue overtime throughout the year and take it as paid time off at year’s end.
After Chinese New Year
When factories reopen after the Chinese holiday, workers do not come back at the same time, and sometimes not at all.
After having traveled so far to get back to the comforts of home, many workers make their return to work dependent upon a pay raise. Workers know that the this is a sensitive time for the factory as manufacturers are eager to get rolling again and place new orders, so workers feel their bargaining position is at its zenith at this time. Factory workers will inform the owners that they won’t return to work for the same salary. If the factory owners refuse to increase the worker's salary, then they will have to invest considerable time to finding and training new workers. This is a major factor that results in production output decline and a labor shortage right after the CNY holiday.
It is estimated that up to a third of factory workers don’t go back to their jobs. When workers don’t come back, factories must replace them quickly, which leads to lower quality and untrained staff working on production lines. This phenomenon is not limited to assembly line workers. It extends to managers and key employees as well.
As expected, when new workers are on the line, many products will not be manufactured properly. Unfortunately, that doesn’t necessarily mean the factory will re-run our order and, in some cases, they may try to ship the bad products along with the rest of our order. So, we have to be especially vigilant at this time to ensure that our product quality standards remain high.
Post CNY Shipping
We have several outstanding purchase orders that are due to be finished soon after Chinese New Year. As mentioned above, there is already a backlog at the ports and air freight costs are high, which doesn't bode well for what shipping will look like in early March.
Why Should You Care?
It may be helpful for you to know that regardless of how much preparation we do as a small company without our own factory and employees, we cannot control all of the external forces at play.
The shipping glut after CNY is real, and we expect this year will be worse, so it may add ship time to the production orders we placed several months ago in 2021.
Therefore, if you see a product you really like either at Keyport or somewhere else, you may want to get it sooner rather than later as there will be a good chance that products will not be restocked as quickly as expected.
As always we will keep you posted on our progress, but we thought you might appreciate an insider's perspective on Chinese New Year and how a celebration over 5,000 miles away can have reverberations that last months.
To our friends and manufacturing partners in China, we would like to wish everyone a very Happy Chinese New Year.