A rise in COVID-19 cases has prompted societal shutdowns in a major manufacturing hub in China, triggering concern among promotional products executives in North America that there could be further delays with production and stateside delivery of items made in the region.

Delays in the delivery and stocking of products made overseas, where the vast majority of domestically sold promo products are manufactured (particularly in China), can lead to inventory shortages here. Stock gaps have been a persistent problem for the branded merchandise industry over the last year or so due to pandemic-related challenges.

As part of efforts to help control what’s reportedly the worst COVID outbreak in mainland China since the early days of the coronavirus, authorities have this week ordered the week-long shut down of Shenzhen, a city of about 13 million people that’s a finance and technology capital in the nation’s Guangdong province.

Shenzhen – and Guangdong more broadly – is a manufacturing powerhouse within China, producing an array of items that include various hard good promo products and technology goods, like Bluetooth speakers, USB drives and power banks. It’s also home to some of the world’s busiest, highest-volume container ports, including Yantian.

Some promo companies report preliminary impacts from the shutdown in such an important manufacturing and export center are already being felt, with factory partners in the region temporarily closing up shop.

“Several of our (factory partners) alerted us over the weekend that they are shutting down for at least a week for quarantining and testing,” says Eli Schneider, director of operations at Los Angeles-headquartered Top 40 distributor BAMKO (asi/131431), which does considerable direct importing through its global supply network.   

So far, however, domestic promo suppliers say there haven’t been major supply line disruptions from the new shutdowns in China. Still, they say much could depend on whether or not the lockdown is extended beyond a week, as well as if sweeping shutdowns are implemented in other production hubs elsewhere in China. Some report such societal restrictions are already underway in Chinese cities that include Beijing, Shanghai and Guangzhou.

29%
Percentage of global manufacturing output that China accounts for.

(United Nations)

“The lockdown hasn’t had any major impacts yet, but it can certainly have an impact if it is protracted,” says Doug Donnell, chief operating officer at Florida-based Top 40 supplier Hit Promotional Products (asi/61125).

Donnell says that Yantian Port is one of the largest in the world, “so that’s a specific area that can become problematic if that is shut down, but as of Monday, March 14, they’re saying they are operating normally.”

He notes that the port closed for several weeks last summer, and it took months for port operations to recover.

“If the lockdown is lifted after one week as is currently planned and the port remains operational throughout, the impact will be limited to factory manufacturing operations, which will result in roughly a one-week delay to open orders,” Donnell opines. “That would be a best-case scenario.”

Scott Slade explains that supply lines for certain technology items that promo imports could be particularly affected, again depending on how long a shutdown might last.

“Shenzhen is really a tech production hub – with manufacturing on products like mobile phone accessories, USB drives and more,” says Slade, CEO of New York-based Top 40 supplier Tekweld (asi/90807). “If the city is shut down for a month, you’ll see issues with getting USB drives and other tech products. It could be especially bad for importers who buy on demand.”

Slade notes that Tekweld is amply stocked with inventory and expects to continue to be, thanks to proactive sourcing practices that include ordering overseas-made products earlier than pre-pandemic norms, holding higher inventory levels, and some U.S.-based production.

More price increases on #promoproducts could be coming. Skyrocketing costs for oil, natural gas, raw materials & labor, along with geopolitical uncertainty, have suppliers eyeing potential hikes https://t.co/poDedKSynA @asicentral @ASI_MBell @Tim_Andrews_ASI

— Chris Ruvo (@ChrisR_ASI) March 14, 2022

Meanwhile, Schneider is concerned about prolonged widespread lockdowns, given China’s “zero-tolerance” policy on COVID, which sees authorities institute sweeping shutdowns of normal life, including factory operations, if even a small number of virus cases are detected in an area.

“The policy is going to be a cause of major disruptions throughout the consumer goods industries and will affect (the promo products industry) greatly,” Schneider believes. “Omicron is much more highly transmissible than previous variants of COVID, so authorities will keep turning up cases, which will increase the lockdowns throughout the country. We are seeing shutdowns in major cities and they will probably continue to balloon. This will get worse before it gets better.”

Meanwhile, Peter Hirsch notes that the heightened COVID concerns in China come as promo suppliers are dealing with recently intensified massive rising cost pressures in their supply chains, a significant part of it due to fallout from Russia’s war against Ukraine.

“We have had factories outside of Shenzhen contact us regarding the price of natural gas increasing 200% and shortages of certain raw materials due to the war,” says Hirsch, owner of Texas-based promo supplier Hirsch Gift (asi/61005) and also Counselor’s 2018 Bess Cohn Humanitarian of the Year Award winner. “Some factories have also started informing us about COVID issues that for the main part are affecting logistics and shipping. We will definitely see some delays and price increases in the next few months.”