Archive for July, 2008

With inbound container traffic reaching its annual climax between May and October, peak season surcharges are often imposed by logistics companies to offset the headaches created by the added port congestion. Scheduled to take effect August 1, these peak season surcharges will increase shipping costs by an estimated 8-10% until expiration prior to the start of the Holidays.

Though the start of the Olympics are still a month away, the impact of the Games on glove production has already intensified. Beginning July 20, and continuing until the conclusion of the Paralympics on September 17, strict controls will be enforced by the Chinese government in an attempt to reduce the smog and pollution lingering in and around Beijing.

Many factories have already been shutdown, and many migrant workers are returning home not expecting normal production to resume for many weeks. Speculation is rampant that the government may use this opportunity to shutdown the city’s heaviest pollutors permanently, although no formal announcements have been made to suggest this.

For manufacturers, the question of a shutdown is more a matter of when than if. Lack of clear communication from the Chinese government has created substantial uncertainty in the marketplace. Many factories expecting to be shutdown are still awaiting formal notice from the government.

Factory shutdowns are not the only impediment to the supply chain. Traffic controls began taking effect July 1, and will linger for more than two months. Only local vehicles will be permitted to enter the city during this time, and only on alternating days. Most importantly, trucks will be blocked from traversing many parts of the city, curtailing transport of product during the enforcement period.

Many of these same policies will reach far beyond Beijing. Neighboring cities, and other cities across Northern China that will be hosting events, are also expected to be impacted.

Already, reduced capacities and logistics problems have hit glove prices, and with so much speculation and uncertainty still surrounding China’s plans for the Olympics, it is unlikely price relief will come anytime soon.

Further reading:
China: An Olympic Loss for Industry
China Scrambles on Construction, Pollution to Meet Olympic Deadlines

Late last week, the largest manufacturer of vinyl exam gloves worldwide announced it was no longer able to meet contractual obligations with customers due to the extraordinary cost and supply volatility currently characterizing the industry. After months of raising prices and readjusting delivery agreements, the company no longer could provide any guarantee of pricing or product without complete renegotiation of contracts.

This announcement is expected to have a dramatic effect on the entire industry, driving glove prices steeply upward as buyers compete to secure alternative supply sources.