Shipping Delays Forcing Some Chinese Manufacturers to Cancel Orders Amid Inventory Back-Ups
Some Chinese manufacturers have started canceling orders as COVID-related shipping delays have caused inventory to stack up.
The South China Morning Post reported that smaller manufacturers have started rejecting orders to avoid cash flow problems, since payments are tied up in orders that can’t be shipped.
Betty Chen, who manages garment factories and wholesale shops in Guangzhou, told the SCMP that she’s had to cancel orders to stay financially solvent.
“I’ve been in export manufacturing for over a decade, and I’ve never been a situation like this year,” she said. “Orders are good, but every factory has a serious and worsening shortage of cash flow. Shipments are being delayed and payments are being deferred.”
She added that some suppliers have been asking for payment within 15 days or fewer, possibly even cash-on-sale, which small- and medium-sized businesses struggle with.
SCMP reported that the Caixin/Markit manufacturing purchasing managers’ index dropped below 50, which indicates contraction rather than growth, for the first time in “nearly one-and-a-half years.”
The issue now is that customers who order from these Chinese exporters could see their orders canceled, even though demand is still as high as ever.
“There are a lot of orders, but I don’t dare accept them,” Kevin Huang, a hardware producer in Guangdong, told SCMP. “Now we have an inventory of 80 containers waiting for shipment. I’m running out of funds and under a lot of pressure to pay for my operations, like other factories here.”
The risk of cancellation is also present for these exporters, too, especially in apparel. If an apparel shipment is delayed, then the products could be outdated by the time they arrive.
“If we Chinese factories can’t ship in time and the clothes are out of season, the buyers can easily cancel the orders,” one garment producer said.
Aside from increased demand, one reason Chinese shippers are struggling to find available containers to ship their goods is that U.S. and other Western ports are facing severe cargo backlogs, tying up containers that are already in short supply.
This, as we've seen, has continued driving up the price of shipping. Last week, the Drewry World Container Index increased for the 19th consecutive week to $9,817.72 per 40 ft. container. That’s a 351% increase over that same period of 2020. Other sources are reporting that the cost to ship a container routinely comes in at more than $20,000.
The situation is just the latest in a series of ongoing and cascading supply chain impacts relating to COVID. It's unclear at this time whether any of these order cancellations have occurred at Chinese factories producing promotional products, but it's another potential obstacle for distributors to monitor as they continue the increasingly difficult task of sourcing products for their customers.