Features, Strategy and Operations

Happy Chinese New Year!

To most Americans, the Chinese New Year (this year it takes place on Feb. 5) is all about dancing dragons, fireworks and, for 2019, the start of the Year of the Pig.

If only they knew.

With so much of what Americans buy coming from factories in China, anything that happens in that country has the potential to have an enormous impact on this country. We’ve seen that with the ongoing tariff war, the fight over intellectual properties and the expanded ownership of U.S. companies and brands by Chinese companies. Those are the parts of the equation that make the headlines. Far less well-known is what Chinese New Year means for all those toasters, t-shirts, televisions and towels stacked up on huge container ships bound for American ports.

And what it means is that the ships simply stop.

In an annual ritual that doesn’t translate well to America, the country of China basically shuts down for anywhere from 10 days to as long as three weeks. Factories close, ports are empty, trucks and rail cars sit idle and the tens of millions of Chinese workers who make this all function stop working. In the U.S. New Year’s is essentially a one-day event: everyone drinks a little too much, watches the ball drop in Times Square, sings an obscure Scottish song and makes ridiculous promises to themselves that are usually broken within a 72-hour period.

New Year’s Is Very Different in China

In China, New Year’s is very different. Though perhaps less so than a generation ago when the country was more rural, the population leaves the cities where they work and live and go back to the small towns and villages were their families remain. Again, car ownership has changed this equation, but for many people, trains and buses are still the preferred transportation option. With travel both ways, family time and the actual holiday celebration itself, the days add up, giving New Year’s its extended timetable.

Add in re-starting up the production lines and getting the goods out the door and you have the reality of what this all means for American importers and retailers.
Over the years, these companies have developed work-arounds, primarily involving loading up on additional inventory in advance of the holiday. This works for goods that are evergreens, products changed little from year to year. It’s a little trickier for seasonal merchandise or new products shown at fall trade shows for spring delivery, especially in anything to do with fashion goods.

This requires American companies to hold more inventory than they normally would knowing there was going to be a several-week time lag in incoming orders. The situation has been further complicated this year as many U.S. importers have increased their Chinese deliveries due to concerns about potential rising tariffs. Already reports indicate that retail inventories are up 3.1 percent year-over-year and wholesale levels are even higher, up 5.2 percent.

” Said one executive in the field, Doug Waggoner, CEO of Echo Global Logistics: “I’ve heard of companies that traditionally carry six weeks of inventories that have bumped it up to six months” due to potential tariff problems.

” The just-ended U.S. government shutdown may have contributed its own set of complications to the situation. A whole host of government agencies involved in the processing of incoming imports were closed for over a month, ranging from the obvious – Customs and Border Protection – to those less-so, including the Consumer Product Safety Commission and the Environmental Protection Agency. Estimates on the cost of the shutdown to importers are hard to come by but if nothing else, the paperwork backlog in processing of 35 days of shipments will no doubt slow down the entire process to some degree.

In the meantime, the celebrations are already starting across the Pacific in China while back home in the U.S., the warehouses are bulging and logistics departments are working overtime

And this happens every year.

Warren Shoulberg is going to celebrate Chinese New Year’s by ordering in from his favorite local Chinese restaurant. Then again, he does that every week.

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