The global supply chain relies heavily on the country of China. In fact, according to the latest statistics, China is responsible for 30 percent of total world output. Unfortunately, worldwide dependence on one country has created tremendous strain since COVID-19.
With so much of the supply chain resting on the shoulders of one location, your company must understand how to navigate issues with supply chain management in China. Let’s unpack the key issues so that you can implement strategies to navigate the backlog.
The Primary Challenges with Supply Chain Management in China
Many big-ticket issues that have affected the supply chain in China. Plus, there are other items that haven’t generated as much attention. We’ll take a look at these challenges:
- Labor shortage
- Port congestion
- Capacity constraints
- Market rates
COVID-19 protocols have affected every mode of transportation in and out of China. Although the rest of the world is now producing and shipping at almost pre-COVID levels, the country is still working through congestion and capacity issues. Piles of shipping containers are stuck in China without enough equipment or personnel to move them.
Certain regions in China have experienced a pattern of lockdowns, re-openings, and more lockdowns, which has prevented the country from building momentum and creating a sustainable operational flow.
2. Labor Shortages
The labor shortage in China is well-documented. There are many different theories about the root cause of these issues, but the bottom line is that there are not enough workers to get the job done. Without access to capable and experienced workers, companies in China simply can’t move as many containers as they were able to during the pre-COVID era.
3. Port Congestion
Because containers are not being moved, ports remain in a state of congestion. For example, ships are waiting days to pick up containers for transport. All of these ships are sitting in one location with nowhere to go, creating major back-ups.
In Shanghai, the port continues to experience declines in productivity due to COVID restrictions and a lack of available workers. This situation has created inefficiencies and long wait times for ocean freight liners.
4. Capacity Constraints
There are many ways to move products out of China, not just by sea. However, there are capacity constraints with alternative transportation modes, such as air, road, and rail. The same issues apply such as a lack of capable workers, appropriate containers to transport products, and COVID restrictions.
Often, companies are paying exorbitant prices trying to find the fastest way to get products out of China by sea, plane, roadway, or train.
5. Shipping Market Rates
One of the least-talked-about issues with supply chain management in China is that shipping rates have not yet leveled out to pre-COVID levels. Yet, this is one of the most important issues that supply chain/logistics managers need to pay attention to in order to keep costs under control.
According to one report, the current freight rate is 10x higher than it was before COVID. Also, the container rate is about 7x higher. Companies started to think more about paying for air freight, but now the price for transporting products out of China via planes has started to increase. And the backlog remains.
Strategies to Mitigate Backlogs in China
Now that we’ve unpacked China’s primary constraints, let’s identify strategies your company can implement to build a more resilient supply chain. We believe there are three main strategies for dealing with the backlog. Not all of them are comforting or favorable, but rest assured that congestion issues will slowly start to ease and work themselves out.
In the meantime, it’s best for shippers and logistics providers to understand that shipping costs into and out of China will continue to be much higher than usual since demand is so high. Here are the strategies we recommend.
1. Make budget compromises and adjustments for now. Companies need to be prepared to adjust their budgets to accommodate higher-than-usual prices for any mode of transportation. You also need to be smart about when to use your budget on mission-critical shipments that need to be transported as quickly as possible versus not paying premium prices on lower-priority shipments that can wait.
2. Maximize visibility as much as possible. Your team needs to know where your freight is at all times and be able to recognize any potential issues as early as possible in the supply chain flow. This way, you can set expectations and make accommodations as soon as possible.
3. Have patience. The supply chain issues in China are affecting everyone right now across all industries. We know that supply chain professionals are weary from hearing about the latest disruptions, port congestion, and other issues. But, instead of becoming frustrated, it’s time to adjust expectations accordingly.
Fortunately, there are some improvements in China. They’re more incremental and not the major improvements that we would all like to see, but there is a not-so-distant light at the end of this tunnel.
How CloudLogix Supports Global Supply Chain Management
Ultimately, visibility is key. Through our CloudLogix supply chain logistics platform, we can help your team see the status of freight as early as possible. This is a huge benefit to be able to see when freight is released for shipping from your suppliers.
Additionally, you want to make sure that all freight carriers are integrated into a central location so that your team can make informed decisions about which carrier to select. Using our platform, you can have eyes on your products as close to real-time as possible. This is the best defense against disruption, so you can manage exceptions and expectations as quickly as possible.
Finally, you’ll be able to see trends in certain shipment patterns. For example, you’ll be able to notice when prices rise for specific shipping modes. Using this information, you’ll be able to make better backup plans and faster decisions moving forward.
– CloudLogix is here to help you with supply chain management in China. Let’s talk about implementing our strategies for success. We can also discuss the power of our CloudLogix platform to simplify your supply chain, streamline shipping processes, and help you regain control of global shipping orders.
Contact us today to discuss a solution that fits your need!