April 14, 2008 7:55 AM, EDT

China’s Olympics Clean-Up Plan Could Snarl Shipments to U.S.

By Eric Miller, Staff Reporter
This story appears in the April 14 print edition of Transport Topics.

Plans by the Chinese government to close factories in and around Beijing and Shanghai this summer to reduce air pollution for the 2008 Summer Olympics could cause early or late peak seasonal surges in exports to the United States, shipping industry executives and transportation experts said.
Though the extent of the factory closings and their effects on the manufacturing and shipping of goods from China are still unclear, ocean carriers said they have begun exploring potential scenarios to adjust to freight spikes.
The factory closures from mid-July to mid-September are among several measures China is taking to clean up its pollution, especially in the capital city of Beijing, both to protect Olympic athletes and to showcase the country in a favorable light.
The Chinese central government has mandated that factories within a 200-kilometer radius (almost 125 miles) of Beijing be closed during the nine-weeks from July 17 to Sept. 20, said Brian Conrad, executive administrator of the Transpacific Stabilization Agreement, a group representing Asian-U.S. ocean shippers.
Others said they have heard of plans to order factory closings also in Shanghai, the site of several Olympic events.
“We think there will be some effect, but the size and the extent of the effect, we’re not quite sure yet,” Conrad told Transport Topics. “Because of this, you may see people advancing their shipments, just to make sure they don’t get caught in anything that happens in the middle of summer.”
The good news is that shippers and carriers have seen it coming.
“This is sort of a planned disaster, as opposed to the ones that hit you out of the blue,” said Daniel Smith, a partner at The Tioga Group, a transportation and logistics consulting firm.
Mike Zampa, a spokesman for APL Americas, a global container shipping company that does business in China, said the company was aware of the closings but that little is known at present about how the effort to improve air quality will affect trade.
The factory closings are scheduled at a critical time, when shipments usually peak as retailers increase their inventories to get ready for back-to-school, Halloween, Thanksgiving and Christmas business.
One reason for uncertainty is that China’s government has been less than forthcoming about its intentions.
“My contacts in China have indicated to me that, already, one of the steel mills has been given notice that it has to shut down.” said Brian Black, a senior vice president of  trade for Hyundai Merchant Marine. Calls to the Chinese Embassy in Washington were not returned.
Although the closings will not likely cause seasonal freight volumes to increase, they could change the timing of shipments, Black said. He said he sees three possible supply-chain scenarios that could result from the temporary Chinese factory closures:
Freight could be shipped in May or June, ahead of the fall peak season.
Shipments could move later in the season, after the Olympics conclude in late August and factories in China operate 24/7 to catch up.
Importers could search for temporary alternative manufacturing sources in such countries as Vietnam, Indonesia or Bangladesh.
Many executives in the transportation industry said they think early shipments are the most likely result. That change could mean the normal shipping peak for some trucking companies could occur earlier in the year than usual.
However, if the shipping season moves up by a few months, it could mean the “importers will have to carry the inventory for a while, which is very, very costly,” Black said.
If Chinese factories run behind in their production, it also could mean that some shippers would find it necessary to spend more money to hire a team of truck drivers to get their goods to markets in the Midwest faster, by truck rather than rail, Black said.
Paul Bingham, a principal at Global Insight Inc., said that, although many of the factories near Beijing don’t manufacture many of the common items shipped to the United States, there is a concern that coal plant shutdowns could create regional power outages. Those shutdowns, in turn, could create production problems at factories elsewhere in China that manufacture such major U.S. import commodities as toys, clothing and athletic shoes.
But Bingham said he believes the effects of the closings will be less than now feared, primarily because many importers who deal with China and know their supply chains will be on top of the problem and will place orders in advance of the factory closings.
Adding to the complexity of the potential problem is the fact that the ports of Los Angeles and Long Beach are in a period of transition as drayage drivers sign up for their Transportation Worker Identification Credential, port officials begin implementing their clean trucks program and the longshoremen’s union negotiates a new contract for port workers, said Art Wong, a spokesman for the Port of Long Beach.
“It’s going to be a tough year,” Wong said.