Coronavirus: Delivery delays from Chinese are hurting Kiwi businesses

Wellington business owner Laurian Godwin has her fingers crossed after hearing one of her contracted Chinese factories has finally reopened.

From silkworm farms, to fabric mills, dye houses to garment factories, her clothing business is totally reliant on Chinese suppliers, and despite some good news on Friday, she still has no idea exactly when 1200 items on order for her Silkbody label will turn up.

“It’s about 40 per cent of my stock in the ether … it’s a bit nerve racking because we’re running out.”

Ripples from the Covid-19 coronavirus have spread wide and run deep in the New Zealand economy which last year imported $13.3 billion worth of goods from China, our largest trading partner.

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Efforts to contain spread of the virus in China have left factories closed or under staffed, and severely curtailed domestic and overseas travel.

The financial impact on New Zealand exports such as tourism, forestry and seafood have been well documented, but many other sectors are hurting too.

Food manufacturers are worried about supplies of ingredients and packaging, some transport companies are struggling to keep their drivers employed as lack of chiller space leads at least one meat company to ration mutton killing.

Coronavirus has delayed the delivery of glazing and panels for Christchurch’s Te Pae convention centre, forcing the contractor to rearrange the construction schedule.

Business meetings, trade shows, and test marketing in China are being cancelled or postponed, putting a potential damper on future trade opportunities with a nation where relationships and face-to-face contact are hugely important.

Supply headaches

The constantly evolving nature of the virus and concerns about where it may strike next presents challenges for businesses heavily reliant on China’s vast manufacturing base.

Half the 100 factories for knitwear brand Icebreaker are in China, and toy maker Zuru estimates it could lose tens of millions of dollars from factory shutdowns there.

The Warehouse Group sources about 60 per cent of its home brand stock from China, and it reports delays of between one and three weeks for some products.

Spark said delivery times and availability of some products had also been affected by coronavirus.

MONIQUE FORD/STUFF

Silk Body owner Laurian Godwin says travel restrictions have stymied plans for her Chinese suppliers to visit New Zealand for the first time. “There are design and pattern discussions that I was expecting to have that would make the process of bringing new styles to market much faster.”

Godwin says her garment factory’s second application to reopen was successful after being turned down first time around, but part of her outstanding order is still in a dye mill which remains closed.

Plans for Silkbody’s Chinese suppliers to make their first visit here in two weeks are on hold, delaying discussions that would help speed up designing of new season styles.

Despite all the uncertainty, Godwin is pragmatic about her situation. “You sweat what you can change and roll with what you can’t.”

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New Zealand cloth nappies business Tuti has $70,000 worth of orders in limbo as a result of coronavirus and their manufacturer, an hour out of Shanghai, is not expected to resume operations until March at the earliest.

Aucklander Doug Chetwynd has already sussed out alternative suppliers in the United States, Canada and Europe for his business Books and Gifts Direct.

The company has 37 franchisees servicing 12,000 sales boxes in workplaces, schools and reception areas, and until now it has sourced most of its stock, up to 120 containers a year, from China.

Chetwynd cancelled a planned trip to Shanghai last week and wonders whether he will get to attend the April session of the biannual Canton Fair, China’s largest trade fair attracting about 200,000 buyers.

Fortunately he had ordered extra stock to cope with the traditional factory shut down over Chinese New Year, but extended closures to combat infection have caused havoc.

Supplied

Books and Gifts Direct co-owner Doug Chetwynd says it’s essential his 12,000 sales boxes are restocked regularly so customers don’t get bored with old stock and stop buying.

Lack of raw materials, as well as lack of workers, is handicapping production and even when it returns to normal, small orders from New Zealand will be in line behind much bigger ones, he says.

Normally his morning inbox would have 60 emails from China. That has slowed to a handful, and he says manufacturers are not always up front about their inability to deliver, so he asked for photographic evidence factories were back up and running.

On a lighter note, one supplier of electronic goods sent a photo of a sales woman being “steam cleaned” on arrival as part of virus decontamination measures.

Exporters awaiting imports

In the year to last September, New Zealand imported about $4.6b of electrical equipment and machinery from China and something like a fifth of our exports contain Chinese components.

New Zealand Trade and Enterprise (NZTE) says about 12 per cent of exporters it has been in touch with have registered concern about accessing supplies imported from China, such as specialty lace and buttons for the fashion industry, insulation products and packaging.

NZTE greater Asia China regional director Fiona Acheson believes it will take another week or so to see how supply chains recover.

“We’ve had roughly 150 million Chinese return to work last week, and another 150 million still to come to ensure factories and companies are fully staffed again; then it will be easier to see what the next stage looks like.

“There’s a tension between getting people back to work and containing the virus spread.”

A drastic reduction in air freight to China has tripled air freight rates, Acheson says. Cartage within China is affected by travel restrictions with trucks unable to enter no-go zones, and major ports are still congested.

Some shipping lines have imposed surcharges of US$1000 (NZ$1580) or more on refrigerated containers sent to Shanghai because they have run out of electrical outlets to plug them into and shipments are being re-routed.

Manufacturers’ Network chief executive Dieter Adam says delivery delays can prove expensive for its members reliant on items made in China.

“It may just be a component that’s not worth a lot in itself, but it can hold up a $50,000 job.”

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Shipping containers have piled up at key Chinese ports as a result of the extended Chinese New Year holiday.

Transport woes here too

Coronavirus has led to pressure on freight transport here too, particularly for trucking companies carrying logs and livestock, with an expectation that deliveries of container loads of imported Chinese goods will also drop.

National Road Carriers chairman Don Wilson says work carting ewes has ground to a halt for his South Auckland company because meat companies unable to get mutton into China have run out of chiller space.

“This week we’re doing three loads of sheep out of a fleet of 16 trucks, this time of year we’d expect to be doing at least one if not two loads a day. We’re struggling to find enough work for the drivers.”

Silver Fern Farms last week told farmers it was still taking mutton in anticipation the China market, where many restaurants remain closed, will free up in the coming months, but it is prioritising processing space for drought-stricken areas.

SCOTT HAMMOND/STUFF

Transport companies are carrying less stock to meat works as a result of issues with mutton sales to China and lack of chiller space.

Federated Farmers meat and wool chairman Miles Anderson says the virus has contributed to a drop in beef and lamb prices and meat companies need to be honest about how quickly they can take stock.

“So much of the country is dry that it’s difficult to de-stock and we could end up with animal welfare issues.”

Although New Zealand has not yet had a single confirmed case of coronavirus, Anderson says meat and milk processors also need to consider how they would cope if the illness did become established here.

“We’re going to have to look at the possibility of industry shutting down for a period while the virus is dealt with… Let’s hope we don’t get anywhere near anything like that.”

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Beijing workers line up for health checks before entering their workplace. The World Health Organisation has received reports of more than 75,000 cases of the Covid-19 coronavirus in 25 countries.

A silver lining

Adam believes the virus outbreak, combined with rising wages in China, may help accelerate the trend towards shifting overseas production back to New Zealand where the supply chain is more responsive.

Cactus Outdoor is one of New Zealand’s few remaining clothing manufacturers and director Ben Kepes says the company is getting enquiries daily from people who have been getting their garments made in China.

“The true cost of doing business there makes them realise that they’re really keen to look at other options.

“It (coronavirus) adds to the unease about putting all your eggs in one basket.”

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Christchurch clothing manufacturer Cactus Outdoor is getting calls from companies worried about their exposure to the slow down in Chinese production. Some workers are still locked down in cities battling the Covid-19 virus and may face a 14 day quarantine when they return to their factory jobs.

The elderly and those with compromised immune systems have been hardest hit by the virus and Acheson says there has been an up-tick in sales of health supplements and immunity boosting products in China, alongside greater online food sales which were already well established in major cities.

Daniel Wang heads marketing for Pic’s Peanut Butter in Asia and he says there is strong demand for healthy food in China.

While young people are used to shopping online, he says it’s a growing trend among older Chinese forced to stay home because of the virus.

Earlier this month live streaming on an e-commerce site by Chinese celebrity Viya saw Pic’s sell more than 30,000 jars of peanut butter in 15 minutes.

Wang is confident demand will be even stronger when the virus problems are sorted, but Anderson speaks for many worried exporters and importers when he says it is still unclear exactly when that will happen.

“Without a crystal ball it’s going to be very difficult to assess what the effects are, and until the Chinese Government, and the world in general, work out how to deal with a possible pandemic, we’re guessing.”

Stuff

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