Leading supplier executives say that trouble is again brewing for the promotional products industry’s supply chain due to fast-spreading outbreaks of COVID-19 in China.

Earlier in December, China’s government ended its zero-tolerance policy on COVID, which saw widespread full and partial shutdowns of cities, factories, ports and more to control the advance of the virus.

While supply chain experts in promo welcomed the step toward societal normalcy, at the time they also cautioned that COVID could spread rapidly through China’s population – something that could trigger slowdowns in factory production and exporting of goods produced there as workers stay off the job due to illness.

Q2 Promo Product Shortages?

Those fears, supplier executives now say, appear to be coming to pass. And that’s a troubling development for promo, which sources most products sold in North America from China.

“Factories have informed us that they are closing earlier due to staff shortages and COVID outbreaks in their factories,” says Trevor Gnesin, CEO of California-based Top 40 supplier Logomark (asi/67866) and a member of Counselor’s Power 50 list of promo’s most influential people.

Gnesin continues: “Many shipments have been pushed out for later deliveries next year. I do believe this is going to impact our industry in the second quarter with product shortages. It could get worse if the ports are affected before Chinese New Year and goods don’t get shipped.”

Officially beginning Jan. 22, 2023, Chinese New Year is a time when, among other things, factories in China close and workers visit with family. There’s typically a push by companies across industries that source from China to get substantial quantities of product out of China in advance of the new year to avoid any potential inventory shortfalls.

“Many shipments have been pushed out for later deliveries next year. I do believe this is going to impact our industry in the second quarter with product shortages.” Trevor Gnesin, Logomark

Yuhling Lu, co-owner of Missouri-based Top 40 supplier Ariel Premium Supply (asi/36730), shares that COVID is currently having a “large impact” in China and that supply chain partners are experiencing challenges as a result.

“There are lots of infections and many workers are getting sick,” Lu tells ASI Media. “Worker shortages also make it harder to get raw materials on time. Workers are taking off earlier for Chinese New Year, which makes labor shortages even worse. Factory owners said the impact will continue until the end of February or the middle of March.”

What does that mean for Ariel Premium Supply – and importers within the promo industry more broadly?

“We have already experienced the delay of shipments that we tried to push out before Chinese New Year,” Lu says. “I think some suppliers have prepared deep inventory due to the growth in business experienced in the second half of 2022, however, so hopefully that will help with the inventory situation for January and February of 2023. Nonetheless, there may be shortages of inventory in March and April next year.”

“There may be shortages of inventory in March and April next year.” Yuhling Lu, Ariel Premium Supply

Teresa Fang, vice president of supply chain at Trevose, PA-based Top 40 supplier alphabroder (asi/34063), says the company has been monitoring the situation in China closely, and so far its particular supply network hasn’t experienced significant effects. But that might change, Fang admits.

“Any impact we will see on production and our industry will happen after Chinese New Year,” Fang says, adding that alphabroder is in a strong position from an inventory perspective headed into 2023.

“For the most part, our orders were locked in and produced already and are mostly in the tail end of shipping at this point,” Fang says. “From a logistics and inventory perspective, we were already well into Chinese New Year ramp-up when the zero-COVID policies were rolled back.”

Fang wonders if Beijing will decide to reverse course on the easing of zero-COVID, perhaps reinstituting strict shutdowns to curb viral spread. Such a move could also have productivity-sapping impacts on supply chains.

“I would imagine that there will be even more widespread infections as people move around for Chinese New Year,” Fang states. “It will be interesting to see what the government does if the healthcare systems are overwhelmed, and if they will walk back some of the relaxing of the zero-COVID policies.”

China Covid: Health expert predicts three winter waves https://t.co/wpWqcHbO1G

— BBC Health News (@bbchealth) December 18, 2022

Pierre Montaubin, senior vice president of product management and sourcing at Top 40 supplier Koozie Group(asi/40480), tells ASI Media that the firm’s China-based employees and factory partners are sharing that the situation there is getting worse, with people calling in sick and unable to work. He says some factories are closing to avoid viral spread – a phenomenon he predicts will stretch through Chinese New Year and beyond.

“I see a scenario similar to the 2009 financial crisis potentially unfolding here,” Montaubin shares. “Back then, workers were let go due to lack of work, but when sales started to pick up in 2010, factories struggled to find workers and get orders out the door. While the disrupter this time is different – rampant COVID cases that could affect millions of people now that the rules have been relaxed – the effects could be the same. All sectors, including the promo industry, are going to be affected by this. That said, Koozie Group has purposely improved its inventory position on our top-selling products to help weather these supply chain ups and downs, so we will be ready to answer our customers’ requests despite the unsettled conditions in China.”

The Virus Situation in China

Beyond supply chain issues, there’s also the human impact of COVID. Various research groups are reporting that the end of the zero-COVID policy could result in approximately 2 million deaths or more in China.

For instance: Zhou Jiatong, head of the Center for Disease Control in China’s southwestern Guangxi region, published a paper in November that projected that mainland China would experience more than 2 million COVID deaths if it relaxed COVID curtailment measures in the same manner that Hong Kong did in 2022. Infections could rise to more than 233 million, his forecast showed.

Here’s our latest @BBCWorld TV piece on the #Covid crisis unfolding in #Beijing, #China. Part 1… pic.twitter.com/cfSvYpOh3C

— Stephen McDonell (@StephenMcDonell) December 14, 2022

As of Dec. 19, China had reported 5,242 COVID deaths among its population of about 1.4 billion, though some analysts believe that official number is well below the actual grim tally.

Reuters reported that certain U.S. and European officials are struggling to figure out how, or if, they can help mitigate a COVID crisis in China that they fear will hurt the global economy, further constrain corporate supply chains and produce new variants of coronavirus. Some health experts think it’s already too late.

“What do you do for a Category 5 hurricane when it’s an hour and a half offshore? If you haven’t done it by now, it’s too late,” Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota, said in the Reuters report. “This pandemic is just going to blow through (China) in the next weeks.”