You will be redirected back to your article in seconds
Skip to main content

Perfect Storm? China Sees First Covid Death Since May as 22 Million Locked Down and Lunar New Year Looms

With coronavirus cases rising again in China–still a key apparel production hub despite substantial declines in 2020–and the Lunar New Year coming up on Feb. 12, a perfect storm could be brewing for brands and retailers still sourcing there.

China’s National Health Commission has told workers to not make the traditional trek home for the holiday to curb the spread of the virus, which could limit the standard multiple-weeks factory shutdowns, but a production crisis could still be on the horizon. The commission said it is encouraging provincial governments to persuade workers to follow the suggestion, while taking into account their personal wishes.

This week, Chinese authorities locked down three cities home to more than 22 million people and ordered a crash-testing regime of nearly every resident there, which was completed in a matter of days, the New York Times reported. Districts in Beijing, the Chinese capital, also shut down.

“With large numbers of people infected by the virus and unable to report for work, the supply chain is potentially facing challenges to find enough workers for goods distribution,” said Ben Hackett, founder of Hackett Associates, which produces the Global Port Tracker Report with the National retail Federation.

On Wednesday, the National Health Commission reported 115 new cases of confirmed infections and no deaths. Overall, the National Health Commission has received reports of 87,706 confirmed cases and 4,634 deaths on the Chinese mainland, and in all 82,288 patients had been cured and discharged from hospital. There still remained 784 confirmed cases, including 21 cases in serious condition.

Related Stories

On Thursday, the National Health Commission reported a coronavirus death in the mainland for the first time since May.

Vincent Iacopella, executive vice president for growth and strategy at freight forwarder Alba Wheels Up International, said in speaking to the company’s offices in Shenzhen, China, and to factories there, that 100 cases of coronavirus were being reported per day, “which seems quite low compared to what we have been experiencing” in the United States.

“Our customers have been asking questions and we need to know what to anticipate,” Iacopella said.

He noted that what many in the U.S. don’t understand is that the reaction to Covid cases in China is generally more swift and severe than in the States. That makes a difference to manufacturers because if someone tests positive in a factory, the government might shut down the entire plant for a week or more.

“So, you could have very severe and rapid changes in supply availability,” Iacopella said. “The fact that large areas could be locked down almost immediately adds uncertainty to the ability to get you goods made or shipped. If the number of cases [begins] to rise, the reactionary activities rise as well.”

He also confirmed that the factory owners are encouraging and incentivizing their workers not to travel and go home for the holiday this year to minimize the spread and the risk of a longer shutdown than the week-long holiday due to a labor shortage.

“What’s also new is that because of increased demand, many factories are going to operate at 50 percent capacity during the holiday,” Iacopella said, based on conversations with the plant operators. “And they are paying workers incentives to stay.”

With China's coronavirus cases rising and the Lunar New Year ahead, a perfect storm could be brewing for apparel brands sourcing there.
Loading and unloading cargo at Lianyungang Port in Jiangsu, China. Imaginechina via AP Images

Global Port Tracker forecast February cargo imports to be up 6.1 percent at 1.6 million 20-foot equivalent units (TEU), and March shipments to reach 1.64 million TEU, up 19 percent from March 2020, when factories in China failed to reopen after the Lunar New Year holiday due to the then-budding coronavirus pandemic.

Daniel Hackett, a partner in Hackett Associates, said retailers account for the impact of the Lunar New Year in their long-range planning efforts “and many will likely have considered the possibility of another wave of COVID-19 infections.”

The U.S. imported 14.9 percent more apparel to 778.7 square meter equivalents (SME) in November compared to a year earlier. But imports from China have still plummeted 40.27 percent in the 11-month period though November to $14.07 billion, and its position as the go-to apparel supplier to American brands and retailers faces challenges.

However, U.S. apparel imports continued to recover in November, after dramatic declines throughout the year, with shipments up 9.5 percent in volume to 2 billion SME compared to a year earlier, according to the Commerce Department’s Office of Textiles & Apparel. The surge of shipments after a severe drought incited by Covid-19 has led to port congestions and equipment shortages.

“In the short term, I believe that the large volume of cargo presently moving from Asia to North America and the resultant shortage of empty containers and tight vessel capacity is a larger issue,” Daniel Hackett said.

On the other hand, supply chains might get some much-needed relief from the Lunar New Year, said Phil Levy, chief economist at freight forwarder Flexport. At the beginning of the pandemic, there were limitations on China’s ability to produce and move goods and after a couple of months, “those binding constraints shifted to demand from the rest of the world and then to the ability of the global logistics system to move goods,” he added.

“Fast forward to now–these ports are still seeing record numbers and are congested due to the imbalance of containers,” Levy said. “With ships and planes fully booked, there has been little opportunity to fix the equipment displacement, which is also contributing to the increased rates we’re seeing.

“This last constraint has been so severe that some degree of slowing might give the industry the reprieve it needs to reallocate equipment and relieve some port congestion,” Levy added. “Hopefully, we see this respite due to the Lunar New Year and not because of worsening health crises, though we’ve seen what those effects can be.”