Preparing Your Business for Chinese New Year 2024
Prepare for Q1 and Q2 if you manufacture in China with these three tips: expect lower capacity and slower volume, anticipate shipping costs and timeline increases, and prioritize strong communication with suppliers to ensure a timely and budget-friendly delivery of goods for 2024.
For many brands in the consumer products space, China is the manufacturing country of choice. Despite destinations like India and Mexico emerging as formidable production hubs, most brand leaders will tell you that it’s very hard to beat China’s incredible ability to deliver quality goods relatively quickly and at a hyper-competitive price. That said, every November/December, just when you think you’re almost out of the woods, your sourcing team reminds you that Chinese New Year is around the corner, and with it, a host of implications for your first half inventory.
From timing to cost to quality, we’ve laid out three things you need to know to prepare for H1 if you manufacture in China, or any other countries that tend to celebrate the Lunar New Year, including Indonesia, Malaysia, Singapore, South Korea, Vietnam, and Brunei.
Capacity is lower and volume is slower pre and post-holiday
The start of Chinese New Year (CNY) is February 10, 2024, and it’s likely that the official government holiday will run from February 9 through February 15. That said, the implications of CNY on manufacturing typically begin at least one week leading up to the official government holiday and last for as long as a month after.
Many factories will start to see reduced capacity in the week or two leading up to CNY, as workers head home to their families. In fact, according to Statistica, in 2020, Chinese New Year represented the largest travel period in the world, with an estimated 415 MM people moving about the country to see loved ones; more than 4x the amount of people who travel for the US Holiday season.
Additionally, there is a prolonged ramp-up period following the official holiday, as workers travel back in waves. Beyond just travel, CNY also represents a period where many workers decide to switch factories for either higher pay or better benefits. This means that in addition to long travel times, many factory managers are rapidly attempting to replace turnover.
All of these factors lead to reduced capacity which means slower production timelines and potentially increased quality control issues as fewer workers or brand new workers with less experience are made to fulfill pre-CNY orders and prepare for mid-Q1 purchase orders.
Shipping costs and timelines tend to increase
Just as manufacturing capacity is constrained during the holiday season, so too are freight and other aspects of the supply chain. And with brands all over the world rushing to get their orders in before CNY, there is often an enormous delta in supply and demand as it pertains to logistics.
There are fewer truckers to pick up goods at factories, leaving containers unaccounted for. Freight forwarders will struggle to book containers and provide shipping updates, which can in turn lead to increased issues with port storage and demurrage (charges incurred for not picking up goods in a timely fashion).
While historically, this increased demand has led to overall shipping rate increases, this year is a strange exception. Data reported from the South China Morning Post earlier this month showed that rates have fallen about 90% YoY as the unprecedented supply chain disruptions caused by the pandemic dissipated. Many analysts are predicting stability through 2023, even throughout the constrained CNY period, although increased lead times will likely continue.
Strong communication with your suppliers is imperative
It’s truly never too early in Q4 to begin thinking about Chinese New Year and its implications on your first half of inventory planning. This is particularly true for brands that offer seasonal newness or for brands that are slated to land on retail floors in Spring 2023.
Based on our countless conversations with brand owners, as well as our own experience, we can say that the number one thing you can do to stay ahead of the curve for CNY is to maintain an open and transparent relationship with your manufacturing partners. Be sure to clearly communicate to them on exact dates you need goods stateside, and how much you anticipate needing for the first four months of the year.
We’ve even recommended brands share their full forecast with their manufacturing partners so that they can plan accordingly, ordering raw materials to arrive before factory shutdowns and then staffing up to ensure production hits the ground running when workers come back.
Get access to capital early
In addition to these essential preparations, brands can further enhance their readiness for Chinese New Year 2024 by leveraging Ampla's Growth Line of Credit. This innovative financial solution provides businesses with a reliable source of capital tailored to their specific needs. By securing access to the Growth Line of Credit in advance of the holiday season, brands can ensure they have the necessary funds readily available for inventory purchases. This strategic move not only safeguards against potential cash flow constraints but also empowers brands to seize opportunities in the market, even in the midst of capacity constraints and logistical challenges surrounding the Chinese New Year. With Ampla's support, businesses can confidently navigate the complexities of the holiday season and position themselves for a successful start to the year 2024.
While China remains the top choice for many brands in terms of manufacturing, the upcoming holiday season will once again create a hectic end-of-year for production. Being conscious of timing and cost, as well as continuing to foster a transparent and trusting relationship with your supplier will help you navigate the headwinds and land your goods on time and on budget for 2024.
To discuss access to Ampla’s working capital solutions, reach out to a sales representative today!