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Lunar New Year is Coming – How You Can Navigate the Upheaval

September 29, 2021

Plan for longer than ever lead times for component manufacturing due to worker vacations and attrition, and potential shipping and logistical delays – both before and after this annual holiday break.

Manufacturers with partners in Asia will be familiar with the business impact of the Lunar New Year. Many industry experts consider it the most important traditional holiday for the global supply chain. It’s also the most extended holiday period with financial implications for the world.

Most of the Far East follows a traditional lunar calendar, at least for family and cultural functions. For example, the beginning of the Lunar New Year in China, or “Spring Festival,” can last for nearly two weeks. The Year of the Tiger will begin on February 1, 2022.

Procurement professionals have always had to understand the business implications of the Chinese New Year celebrations and plan accordingly. Strategies have traditionally involved building solid relationships with Asian suppliers, creating forecasts, and building inventory ahead of the holiday.

Even so, with the pandemic, analysts expect the holiday disruption to be more severe than ever. The frustrating delays with which manufacturers have been coping have been getting worse instead of better. Delays in delivery times are now the longest ever recorded, according to IHS Markit. Shipping companies now fear that the ongoing dislocation could continue even into 2023.

Delivery Delays are the Longest Ever Recorded

Whether your business needs to partner with factories producing custom cable assemblies and wire harnesses, PCBs and PCB assemblies, stamped metal components, precision machined parts, plastic injection molded parts or box build turnkey assemblies, our advice is to plan ahead.

Officially, industries in China close for seven days during the Lunar New Year period. In 2022, that break will begin on January 31st. However, the length of time for which individual facilities remain closed varies widely. The shutdown typically runs for two weeks, but it can also vary either way by as much as two weeks.

Next year, factories will start winding down around January 17, and most will start reopening around February 8. The policies that prevailed five years ago have changed dramatically due to trends in worker culture and Chinese geography.

For example, factories in northern China may not close for the entire two weeks because increasingly, more workers now live permanently in the large, industrial cities. Not as many workers need to migrate home to their families and back over the holiday break.

On the other hand, we’ve observed that in southern China, the worker return rate after the Lunar New Year varies a great deal from one year to the next. The annual variations affect factories’ start-up capacity differently every year.

Typical return rates can vary from 85%, causing only limited disruption, to as low as 60%, creating hiring and training delays and impeding the return to full capacity. The 2020 Lunar New Year break didn’t follow any previous pattern, in large part due to the COVID-19 pandemic. Workers chose not to migrate home in the early days of the pandemic, so factories defied expectations by reopening a week early.

Kingstec’s close relationship with factories all over China enables us to keep our finger on the pulse of these volatile trends. We monitor what’s happening and what industry insiders expect to happen next. We observe the latest developments, even during the holiday period itself. The information we gather enables us to continuously update our clients on any changes.

It’s Vital to Plan Well in Advance of Chinese New Year

Given all these variables, it will be vital for companies to plan well in advance when placing orders for the first quarter of 2022. In addition, procurement professionals will need to consider increased lead times for component manufacturing and potential shipping and logistical delays.

Our Kingstec staff have noticed another trend around the Chinese New Year in recent years, barring the unusual effects experienced in 2020 due to pandemic-related lack of holiday travel for workers. We now see delays repeating in the period immediately after the two-week holiday season. The lag results from some Asian manufacturing workers choosing to leave their jobs around the Lunar New Year break.

This trend means that factories and related manufacturing facilities need even more time to recruit, train and orient new staff to their operations. As a result, production doesn’t simply bounce back to total capacity at the end of the holiday period. That means our clients need to allow for this ramping-up time after the Chinese New Year festivities as well.

We’ve also seen a surge of inflation throughout the economy. Price hikes are the downside of the economic rebound as the pandemic winds down. Tremendous demand is now outstripping supply for many products. In addition, the upswing has created a worker shortage and aggravated a transportation system trying to operate beyond its capacity.

Traditionally, companies have expected price increases during the month leading up to the Chinese New Year. This time around, observers believe that the stressors mentioned above will exacerbate this annual trend. Added to this load is also the state-mandated annual minimum wage increase in China that occurs around this same period that also affects your pricing (more on this from Kingstec in a future blog). As a result, many manufacturers, perhaps including your competitors, now plan to complete components one to two months ahead of schedule to avoid price hikes.

Still Time to Avoid Confusion, Delay and Cost Overruns

There’s still time to avoid confusion, delay, and cost overruns if businesses act now. As we move into the fourth quarter of 2021, it’s more important than ever for brands to place their orders with Asian manufacturing partners sooner rather than later.

Navigating all these logistical headaches will be challenging as the Year of the Tiger approaches. However, Kingstec can help your business strategize and move toward a supply chain that has the flexibility and resilience your company needs.

Nobody knows the Asian manufacturing sector like Kingstec. For nearly 40 years, we’ve been connecting growing companies in North America and Western Europe with the cost-efficient, highly adaptable contract manufacturers of Asia.

For example, we can advise you on how seasonality in Asia affects new product introductions in consumer electronics.

One such case is the end of the calendar year, which may be crunch time in North America and Europe, but in China, products need to be aboard ship by the end of August to make it for Christmas. In China, Christmas isn’t a holiday, so it turns out that manufacturing facilities are remarkably accessible at that time of the year. Did you know that Q3 and Q4 turn out to be ideal times for facilities audits in Asia?

We Can Tap into Know-How on Both Sides of the Globe

Along with insights like these, we’ve earned our customers’ trust by maintaining the strictest quality standards. We can help your business get its products to market quickly and reliably. We can match your company with a range of high-quality, cost-efficient manufacturing partners in Asia, which remains the world’s workshop.

With all of today’s logistical challenges, we work to provide value-added support, based on our expertise in engineering, supply chain management, and logistics. We’re based right here in North America, yet we can tap into know-how on both sides of the globe.

Why not call us today to discuss how you can mitigate the risks arising before, during and after the Chinese New Year holiday break?

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