Renewed lockdowns in China creating many short- and long-term effects
The Xi regime in Mainland China has been sticking to its ‘zero COVID’ guns as the omicron variant of the disease has swept the globe. In most other parts of the world, either as part of a deliberate policy, rank incompetence or refusals to comply with the mandates of health authorities, a large percentage of the population has been infected. While this has resulted in much pain and anguish and many perhaps avoidable deaths (more than 1 million have died from the disease in the US alone), it has conferred some level of immunity making the gradual reopening of societies to be seen as less risky.
Mask mandates have been lifted in most parts of the United States and Canada. Not so in China, which is still attempting to root out every instance of the disease. This has resulted in a series of regional lockdowns in China in Beijing, Shanghai, Jilin and elsewhere affecting many tens of millions of people.
While the focus from outside China has been on how these lockdowns affect the ports, the internal transport system has been thrown into disarray, too. Some truck drivers have been reluctant to take loads to affected areas, fearing that they will get stuck out on the road and be unable to return home. There have been allegations that the lockdowns have been poorly planned and water, food and fuel are in short supply for some of the people forced to stay in their homes or shelter at their places of business.
Unpredictable knock on effects
That disruption of internal transport has knock on effects for the manufacture of all kinds of goods, said Wilson Lau, president of ingredient importer NuHerbs.
“Because the lockdowns aren’t monolithic across all of China, but are in certain cities or areas, it will impact everyone’s supply chain differently. For example, our organic ginseng has been locked in Northern China for over three months,” Lau told NutraIngredients-USA.
“The effects that are predictable are the easy ones, the factory can’t produce X. The ones that are hard to predict are like the factory is reopened, but can’t make X because the components can’t get there. The list can go on and on, like shipments are stranded in a place or the permits can’t be mailed out because the government office is in an impacted area or you can’t get third party testing done because techs won’t travel in case they get caught in a lockdown for weeks. The knock-on effects are endless,” he said.
Frozen shipments getting fouled up
Shipments into China are also affected, as well as internal shipments. Cal Bewicke, president of ingredient supplier Ethical Naturals Inc., said ingredients flows that have been particularly affected are those that were typically shipped in a chilled or frozen state.
“Bringing containers of frozen materials into China is now extremely complicated due to new regulations that apply to shipping refrigerated containers. Also, the facilities to handle these containers in the ports are so overcrowded that one can’t ship them in. This affects products such Bilberry and Cranberry that are often shipped as frozen whole fruit for extraction in Chinese facilities. Both of these are in short supply,” Bewicke said.
Could lockdowns put vegicaps in short supply?
The possible effects of the lockdowns are turning up in some unexpected ways, Bewicke said. For example, he postulated one of the deficiencies seen in recent testing of supplements purchased on Amazon done by supplement manufacturer NOW might be lockdown-related.
“Almost all of the capsules and vegicaps now come from China. Some specialty vegicaps that were once available on a ‘just in time’ delivery basis now have a 4 – 5 month lead-time. That takes a lot of planning. I was interested to see in the recent NOW report that a product marked as vegetable capsules was in fact gelatin. Some companies will use whatever they can get to fill an order,” he said.
Majeed: Don’t forget worker burnout
Shaheen Majeed CEO of Chinese ingredient manufacturer and exporter BGG, said the lockdowns are likely to have a hangover effect on the mentality of workers, which could have productivity implications in the future. Chinese society as a rule is a more obedient one than what is common in North America, but even those workers have their limits, Majeed said.
“There are reports and cases where workers lived in the factory to avoid the quarantine back at their residential place. But we have seen the psychological changes of the people who suffered with living this way for a long time, especially since they could not see their family, but had to continue to earn income. If these kinds of circumstances continue with greater frequency, the people at these factories will become tired and restless of the situation and resist doing so, opening up new issues not seen yet, but that will have to be managed,” he said.
Saying sayonara to ‘just in time’
Another knock on effect will have to do with supply and manufacturing planning. Just in time manufacturing, a Japanese idea that swept the world in the 1980s, has the benefit of freeing a company from funding the holding of a large amount of parts or materials inventory for a long time. Finished goods can be made faster and more cheaply when the system works seamlessly and raw materials arrive exactly when they’re needed. But in the dietary supplement industry those days might be gone for the foreseeable future, and firms will have to get used to holding more inventory for longer and building those costs into their budget projections.
“ENI now carries up to six months of inventory on key ingredients, with orders far in advance of that; whereas pre-COVID we might have carried two or three months. We also work closely with key customers to predict requirements, and also sometimes have to turn customers away to make sure we can service our long-term customer-partners,” Bewicke said.
“The lingering effects of the current crisis will continue well into this year. It certainly does feel like one step forward, and two steps back. But we’re all in this together now, as a supplier, when we sit across our customers, they understand the need to plan long-term. This wasn’t always the case, so it’s refreshing to have much more open conversations about what we can achieve and what our pain points are,” Majeed said.
Best suppliers have learned the lessons
Bewicke, Lau and Majeed all agreed that the current crisis has helped the quality suppliers come to the fore and become more resilient.
“No one ever wants to be caught with their pants down, but if you haven’t been impacted in the last 18 months or so, then you either aren’t doing enough volume or are the luckiest person alive. Can you mitigate some of these things? Yes, but you can’t eliminate them and take yourself out of these troubled times. So, what I am saying is if your vendors don’t have war stories, they may not be tested and seasoned operators,” Lau said.
Bewicke said the best way ENI has found to weather the crisis is simple, good advice for any time: Do right by your customers and they’ll do right by you.
“There are many companies and people in our industry who’ve spent years paying their bills, building resources, making friends and loyalties up and down their supply chains. Those are the people who are still getting their shipments on time,” he said.
“If anything, this crisis has unified a lot of relationships that were strictly price-driven at one point, and it’s much more reliant on working together to bring consumers what they need,” Majeed concluded.