China still faces hurdles in making sure its factories can send goods to warehouses

  • The latest China Logistics Prosperity index released this week showed the key business volume component dropped to a record low of 26.2 in February, down from 49.9 in January.
  • The recovery of production-related logistics is relatively “weaker” due to its more spread-out nature, Gao Gao, deputy secretary general of the National Development and Reform Commission, said Friday at a press conference.
  • However, the general expectation is that operations at these warehouse and logistics businesses should be closer to normal in the next few weeks.

BEIJING — The new coronavirus still hangs heavily in China when it comes to moving goods between factories and warehouses, a sign of how far the world’s largest exporter is from fully getting back to work. 

The latest China Logistics Prosperity index released this week showed the key business volume component dropped to a record low of 26.2 in February, down from 49.9 in January. Business expectations also fell, down 6.7 points to 44.9 last month, indicating growing pessimism.

Also known as COVID-19, the highly contagious virus emerged in late December in Wuhan, the capital of Hubei province, and has since killed more than 3,000 people nationwide. The disease has spread to more than 80 countries and killed more than 260 people in recent weeks. What were once concerns about the world’s second-largest economy have now become global growth worries, sending U.S. stocks reeling.

Back in China, the country is slowly getting back to work about a month after the Lunar New Year holiday was originally supposed to end. As the spread of the virus stalls outside Hubei, Chinese consumers elsewhere may be getting their packages more quickly.

But the recovery of production-related logistics is relatively “weaker” due to its more spread-out nature, Gao Gao, deputy secretary general of the National Development and Reform Commission, said Friday at a press conference. That’s according to a CNBC translation of his Mandarin-language remarks. 

“Resuming work and production across the whole (supply and industrial) chain is the next focus,” he said.

That’s key not just for the global supply chain, of which China is a crucial player, but also for the country’s privately run small and medium-sized enterprises. This part of the economy contributes to the majority of growth and employment, but has been hit heavily by the virus’ disruptions to the economy. Their resumption of work rate was about 52%, China’s Ministry of Industry and Information Technology disclosed Friday.

“For small and medium-sized enterprises, the first problem to resolve is … clearing logistics (channels),” Zhang Yansheng, head researcher at the China Center for International Economic Exchanges, told reporters last Friday, according to a CNBC translation of his Mandarin-language remarks.

Zhang pointed out that Wuhan, the epicenter of the virus, is a major thoroughfare for nine provinces.

And in that city, the number of new virus deaths and confirmed cases is still growing, with even some reports of relapsed cases. Meanwhile, in light of sporadic new cases in other cities from travelers returning from overseas, local authorities  are still keeping a grip on regional transport with varying levels of stringency. 

“”Right now, all the warehouses I’m aware of have resumed operations, but there’s still a big gap from what their previous capacity was,” said Gao Huan, a senior director focused on retail and manufacturing at consulting firm Alvarez & Marsal in Beijing. That’s according to a CNBC translation of her Mandarin-language remarks.

“The efficiency is very far from what the demand is,” she said Tuesday. “More than half of workers haven’t returned to their warehouses. Logistics is about the same. It depends on the local government if the roads have reopened.”

However, the general expectation is that operations at these warehouse and logistics businesses should be closer to normal in the next few weeks, especially as the 14-day quarantine period ends for many workers, and roads re-open.

“Logistics overall are in a backlog,” Gao Huan said, noting there will be a lot of work once they recover.

Like many other businesses, logistics firms cut back on operations during the Lunar New Year holiday at the end of January. But due to the virus’ disruptions to roads and economic activity, at least 80% of logistics businesses say they have “suffered great losses,” NDRC’s Gao said Friday.

Meanwhile, just a few delivery companies quickly resumed much of their operations amid the Lunar New Year holiday, such as SF Express and JD.com. The latter operates its own logistics network, which it also sells as a business service to third parties. For this external-facing logistics operation, orders increased 126% during Feb. 13 to 19 from the holiday period, among which supply chain services nearly doubled, according to the company.   

A major online seller of medicine and health-care services in China, Nasdaq-listed 111, has also been able to fulfill most orders due to its five warehouses in China and a strong pharmaceutical network, co-founder and Executive Chairman Gang Yu said in an interview Monday. That’s especially true for areas where the virus has had less impact, such as Inner Mongolia and Yunnan, Yu said. 

While Yu could not disclose specifics ahead of the company’s earnings report set for March 12, he said the company has seen its volume multiply and app downloads surge amid the virus.

However, he noted that imports from overseas are “very hard to guarantee” and that restrictions in cities such as Shanghai and Beijing can mean there may be delays of a day for orders that used to take 24 hours to arrive. 

Here’s a breakdown of the latest on resumption of work:

Daily power coal consumption as measured by the six major power generation groups reached 70% of pre-Lunar New Year levels as of Friday, versus 95% in the comparable year-over-year period, according to Morgan Stanley analysts.

Return of workers to the largest, tier-1 and tier-2 cities has reached about 66%, based on a pool of people who left the cities during the two weeks before the Lunar New Year holiday, the Morgan Stanley analysis found.

Bicycle commuting in the morning is up, six times in Shenzhen on Thursday versus Feb. 5 and nearly 3 times or more for Beijing, Shanghai and Guangzhou, according to data from Alibaba-backed bikesharing company Hellobike.

96 state-owned enterprises have resumed work and production at a rate of 90%, and that of the country’s 500 largest manufacturers has topped 97%, state media reported earlier this week.

Small and medium-sized enterprises had a resumption of work rate of about 52%, the Ministry of Industry and Information Technology disclosed Friday.

Key enterprises in foreign trade have hit a resumption of work rate of 100% in Zhejiang and Tianjin, while that of Guangdong, Jiangsu, Shanghai, Shandong and Chongqing has topped 70%, a Ministry of Commerce official said Thursday.

Railway construction projects have resumed work at a rate of 77.8% as of Thursday, while civil airport projects reported a rate of 59.3%, the Ministry of Transport said Friday.

Source: https://www.cnbc.com/2020/03/06/china-still-faces-hurdles-in-making-sure-factories-can-transport-goods.html

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