- Disruptions to sea and air freight caused by the coronavirus pandemic are delaying payment terms for Chinese factories.
- Smaller exporters are rejecting orders to prevent cash flow problems caused by goods that can’t be shipped.
Small and medium-sized Chinese export manufacturers reject orders and scale back production to avoid mounting inventory and cash flow problems caused by extended shipping times reports South China Morning Posts.
Disruptions to shipping – both sea and air – due to increased pandemic control measures, including lockdowns, are stretching out payment terms for Chinese factories.
Challenges
Cash is being tied up in inventory that cannot be shipped quickly, forcing people like Betty Chen, who runs garment factories and wholesale shops in Guangzhou, to cancel orders to stay afloat. The problem is adding pressure on Chen and other business owners already struggling with the high cost of raw materials.
“I’ve been in export manufacturing for over a decade, and I’ve never seen a situation like this year,” Betty Chen said.
Before Covid-19
Before the pandemic, it took three months for Chen’s orders to be made and paid for, but that has been pushed out to at least four. To add to the problem, upstream material suppliers are now asking for payment terms of 15 days or less, and sometimes even cash on sale.
Raymond Ye, an original equipment manufacturer producing footwear products in Zhejiang, also made the difficult decision last weekend to reduce his production by a third for the rest of the year, even though his factory was expected to be at total capacity and export orders were still coming in. He canceled most of the orders placed by Chinese online merchants, saying the risk of slower payments from cross-border e-commerce traders is high. Chen and other manufacturers’ cutbacks are reflected in the latest factory activity data.
Staying Solvent
But as actual exports are still buoyant and overseas demand for Chinese goods is healthy – as shown in August trade data – the slowdown among small producers is supply-driven; manufacturers are taking the initiative to reduce production to stay solvent. Kevin Huang, who produces hardware in Guangdong province for export, said he is not short on orders or foreign demand.
“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,” he added.
Exporters are scrambling to find available containers for goods in major exporting countries across Asia, while in the United States, Europe, and Australia, empty containers are piling up at ports because production has not returned to pre-pandemic levels delaying their return to China.
When big ports like Yantian in Shenzhen and Ningbo-Zhoushan in Zhejiang have gone into lockdown due to coronavirus outbreaks, container prices and shipping have jumped. It is no longer unusual for it to cost more than US$20,000 to ship a 40-foot container to the United States. The value of a single container of Chinese furniture imported to the US is basically comparable to the cost of shipping. Virus outbreaks and lockdowns have also caused delays and driven up prices at airports.
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Source: South China Morning Posts
