Global Supply Chain: Manufacturing Power Rations
Helping You Mitigate Supply Chain Disruptions
The global supply chain faces more uncertainty. Many provinces across China have implemented factory and residential power rationing. These are beginning to affect all aspects of the supply chain, beginning with manufacturing. Some factories reporting their power will be off three to five days each week, limiting their production capacity immensely.
While this has led to an increase in candle and generator sales amongst those living in the affected areas, Industrial manufacturers have no choice but to shut down when the power is off.
What We Know
These blackouts are a result of a sudden manufacturing ramp up coming back from the COVID-19 lows. Their power infrastructure is unable to handle the sudden increase in demand, resulting in power rations. Factories were ramped back up as fast as possible, but the coal supply and delivery of power just can’t keep up. Hydroelectric power under performed with the droughts in southwestern China. Natural gas supplies are also at a low worldwide, both have contributed to the power consumption issues. The main issue is still coal, China’s main source of power generation.
By some estimates China relies on coal for 70% of its power. They have been trying to reduce those numbers to fall more inline with global environmental regulations, but the infrastructure has not caught up yet. In hopes of being carbon neutral by 2060, China has reduced its internal coal production while simultaneously cutting off Australian coal importation.
This has caused the price of thermal coal to increase 300%. Normally this would result in higher electric costs, but their utility rates are capped. Due to the utility caps, many power plants have been running at a deficit for months. In an attempt to manage the utility costs and power distribution, China has implemented these rolling power outages, also known as “brown outs”.
Officials have started to target manufacturers of textiles and plastics particularly hard as they typically consume the most energy. They’re doing their best to allow the surrounding residential communities power for necessities like elevators and water pumps. As the power rations continue, it is spreading to other provinces affecting many more industrial manufacturing sectors. This rationing has had massive repercussions on the global supply chain. We have seen production lead times grow more than double in recent weeks. In addition, the power rations have no set schedule, leaving many factories in the dark on multiple levels.
It is expected that these problems will not improve much over the next several months as the factories prepare for a cold winter. Officials have ordered the state owned energy companies to acquire fuel at all costs to get through the winter, though there is no guarantee that this will be enough fuel to reboot the industrial sector.
In response to this unprecedented situation, their central government is examining ways to reduce their carbon footprint and become more green.
Plan of Action
Much of the component manufacturing worldwide is dependent upon the manufacturing landscape across Asia. We have been very proactive with our customers since we first learned of these manufacturing hurdles. We have been insisting that they place future production orders and forecast their demand to help mitigate the effect of these power rations as well as other supply chain issues during these unprecedented times. Production delays coupled with port congestion means that production orders need to be placed months ahead of their needed arrival. Contact us today to find out how our production is being affected and how we can help you plan accordingly.
