German delivery firm DHL is projecting an 88% drop from typical volumes of China-U.S. freight during the first week of the Chinese New Year, which begins February 1. Worse, the carrier predicts that, even in the days preceding the official start of the holiday and for weeks following, production at manufacturing facilities across China will slow to a complete stop.
Other factors likely to create production and transportation bottlenecks in the weeks ahead include the continuing pandemic, power shortages in China and the Beijing Olympics. All could have major repercussions on U.S. businesses that aren’t adequately prepared for the holiday and its aftermath.
The current situation is unlike that of the last few years, when freight volumes kept growing as shippers came out of the U.S. holiday peak season, notes Greg Hewitt, chief executive officer of DHL Express U.S.
“We would normally have expected to see a big volume spike coming out of China around now, knowing the country would shut down for a week or two, [but] we haven’t seen that huge lift yet,” he says of the early weeks of 2022.
It’s all part of the rollercoaster ride of the past two years, Hewitt says. During the pandemic and related frenzy of consumer spending on goods rather than services, U.S. imports from China spiked at times by as much as 30%. Normally, there would be a 12%-15% surge in trade at this time of year, but growth rates are presently at around 5%.
An omicron outbreak and China’s zero tolerance approach to Covid has idled top-selling carmakers’ factories, sparking broader concerns about what the months ahead will look like.
Hewitt says DHL is using this period of lower-than-expected volumes to encourage staff to take voluntary time off, as well as to conduct training and other activities. At the same time, he’s advising shippers to get more proactive about securing freight capacity.
“You still need to prepare for potential disruption in your supply chain,” he says. “Covid isn’t gone; it’s even surging. So whether it’s your manufacturing facility having an outbreak and being closed down, or handling crews in ports and airports having outbreaks and shortages of staff, you need to be prepared.”
Hewitt foresees a continued scarcity of air-cargo space, particularly from Asia.
“Even with the Olympics, they’re limiting tourism and fans, so there’s going to be no additional [capacity],” he warns. “Meanwhile, the ocean cargo backlog still isn’t completely clear. My advice is, you still need to prepare for delays, so plan early and secure your space.”
At times like these, there are advantages to running a fixed carrier network, Hewitt notes, because air freight capacity isn’t tied to the ebb and flow of passenger traffic. Such a setup also allows the carrier to handle heavier cargoes and reroute shipments when necessary.
The days of being able to find extra capacity at short notice are gone for now, Hewitt says. DHL has moved to limit volumes to ensure its ability to handle the business it accepts.
“People have to get used to the idea that even if demand is up 80% … you might not have access to someone who can deliver that for you,” Hewitt says. “You have to plan around finding someone with that space. You can’t just expect [to find capacity] on a whim.”
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