China’s Widespread Power Cuts Further Strain Global Supply Chain

If there isn’t already enough going on to disrupt the global supply chain, you can now add power cuts and forced electricity rationing throughout China to the list.

It seems like one supply issue after another, and we’re still dealing with backlogs thanks to the past typhoons and flooding that swept across the nation and forced port, terminal, and warehouse closures, not to mention the still present disruptions thanks to COVID.

All of these factors have put further strain on production and logistics, and as Amazon sellers work to get their last Q4 shipments out of the country, these electricity supply issues couldn’t have come at a worse time.

Due to the significant increase in lead times that will be created by this problem, suppliers are even beginning to encourage sellers to get their Q1 inventory orders sent in as soon as possible so it can ship before Chinese New Year.

The power restrictions and supply issues result from government orders aimed at reducing energy consumption, part of China’s greater plan to enforce tighter environmental regulations, coupled with the fact that coal prices have reached record levels, making it impossible for many power plants to run a profitable business.

Government Push For Energy Targets

Word has it from state-run newspapers that many local governments have ordered the curbs on electricity use so as not to miss the targets laid out by the Chinese Communist Party in Beijing regarding emissions intensity and energy reduction. These rules imposed by the CCP are an attempt to make China fully carbon-neutral by 2060.

These recent curtailments come after the nation’s chief economic planner identified nine provinces last month that had increased energy intensity over the first six months of 2021, amid a rapid economic recovery witnessed in China after the peak of the pandemic.

So far, the cuts have been felt in over ten provinces, with commercial powerhouses like Guangdong, Zhejiang, Jiangsu being some of the worst affected. Many of China’s major production companies are based in these regions, and news sources in China reported that several of these businesses had gone as far as to declare the impacts of the power shortages in filings with stock exchanges.

It is advisable for sellers to reach out to their own suppliers for updates on lead times and whether their production has been affected. Some of our personal sources in China share that this may become more widespread across the country in coming months so all sellers should be prepared. We have also learned that some factories have had to supplement their power sources with generators. Judging by these hardships, plan for not just lead time increases but possibly cost increases as well due to the economic shifts all this will likely create.

Coal Prices Hit Record High

Meanwhile, as electricity demand has risen, so has the price of coal, and with the government austerely regulating electricity prices, coal-fired power plants are unwilling to operate at a loss. In fact, coal prices are now at an all-time high, making business unprofitable for several of the country’s largest power plants, with many drastically reducing their power output, leading to supply issues in many provinces.

Since China still relies heavily on coal, with more than half of the country’s power coming from the combustible energy source, we should prepare for a rough time on the supply chain ahead if these gaps do become more prevalent and expand into more areas. If that does occur, the effects of supply issues could be more severe than even the previous power limitations that hit many parts of China over the summer. Developing more flexibility along your supply chain and finding backup suppliers may become more important now than ever.