Rising COVID-19 infections in China and other Asian countries are causing more supply chain disruption for the North American promotional products industry and other Western importers that rely on factories in those nations to produce the goods sold here.

COVID-driven complications have fouled promo’s supply chain, leading to inventory shortfalls that have made doing business much more challenging. In many instances, the troubles have caused distributors to lose orders with end-clients.

Higher prices on products, longer times for order production, eroding customer service levels, delays in delivery of finished orders and other headaches are some of the problems stemming from the pandemic.

Got 1 minute? Then you can get the basics on what's causing inventory shortfalls & rising prices in the #promoproducts industry with this vid. More depth? Read: https://t.co/rTZceaX0dP @Melissa_ASI @Tim_Andrews_ASI @ASI_MBell @asicentral pic.twitter.com/N7aT0U7TY5

— Chris Ruvo (@ChrisR_ASI) June 8, 2021

Now, escalating COVID cases in Asia and related actions by authorities to combat the infection increases could exacerbate those issues further. China, where the majority of domestically-sold promotional products are produced, has tightened societal restrictions in some areas in response to an uptick in COVID cases that’s been driven by the virus’ delta variant.

On Monday, China reported 143 new cases, the highest daily count for the country since January. While that tally may seem small in a nation of 1.4 billion people, the Chinese government has adopted a “zero tolerance” policy to COVID that results in swift, sweeping shutdowns and fast mass testing in locations where cases are reported.

That strategy has led to factory closures and resulted in the suspension of operations at a terminal at Ningbo-Zhoushan, the world’s largest port. “Prepare for the worst,” a China-based freight partner told a U.S.-based promo supplier in regards to the Ningbo closure. “Now that the Ningbo port has been closed, we can't enter or get containers. All container ships are not allowed to approach the dock. Waiting for notice from Ningbo government.” Earlier this summer, operations at another major port in China were crippled due to a COVID outbreak, fallout from which is continuing to occur.

The societal restrictions are also making it harder to transport goods within China.

“Interprovincial transportation of products is becoming a challenge” as transportation routes between towns and cities are stifled, Craig Allen, a former U.S. ambassador who is president of the U.S.-China Business Council, told CNBC. “For factory products that are made in city A but assembled in city B, that supply chain is being disrupted, and workers are not able to get to work.”

“There are economic costs, not only within China, but globally as a result of this,” David Roche, president and global investment strategist at Independent Strategy, said in an interview with CNBC.

Indeed, Roche added, lockdowns in China could further disrupt already struggling, slowed-down, overloaded global supply chains, which could dampen international trade and further escalate the cost of at least some products, leading to heighted inflation everywhere.

Factory activity in Vietnam and other key manufacturing centers in Southeast Asia has also been affected by COVID-related shutdowns, making the situation worse. For instance, sportswear brand Adidas reported recently that it suffered due to factory closures in Vietnam.

Weather challenges, like flooding, aren’t helping matters either.

“The flooding in China and the Delta COVID-19 spread impacting Asia are starting to impede supply shipments,” says Patrick Penfield, a professor of practice in supply chain management and director of executive education at the Syracuse University Whitman School.

Penfield continued: “Manufacturers are going to need to brace themselves for more cargo delays, supply shortages and increased prices in the third and fourth quarters of this year. This is going to be a trying and stressful period for companies that are trying to keep up with demand during the holiday season. Unfortunately, the global supply chain is in crisis.”

The Effect on Promo

Promo suppliers are feeling the impacts.

“COVID is definitely on the rise again in China,” says Trevor Gnesin, CEO of Top 40 supplier Logomark (asi/67866) and a member of Counselor’s Power 50 list of promo’s most influential people. “We have had two smaller factories affected that had to be locked down. Potentially the flow of products could be impacted.”

The supply chain's a mess, but proactive #promproducts suppliers are working to navigate it & keep business moving. https://t.co/c8PwJwUBZ6 @Melissa_ASI @asicentral @ASI_MBell @Tim_Andrews_ASI

— Chris Ruvo (@ChrisR_ASI) August 5, 2021

Jeffrey Nanus, president/CEO of New Jersey-based supplier AAA Innovations (asi/30023), tells ASI Media that none of the firm’s main factory partners have closed, but a few component factories have temporarily shut down. “We’ve received news that factories are closing for two to four weeks in some areas,” he reports.

Another source of frustration: The cost of shipping containers and securing shipping space continues to soar as demand from Western importers overwhelms cargo carriers. That could ultimately compel further price increases in promo, as shipping is a component of a product’s cost.

“Containers are over $20,000 now and climbing,” says Nanus. “It’s terrible, and there’s no end in sight.”

Adds Gnesin: “Carriers are limiting how many containers one can ship on a weekly basis and it is definitely getting more difficult to get space. This will affect the smaller importers who have no volume to negotiate and will be forced to pay even higher prices as demand soars.”

Recently, Nanus received word from his air freight forwarder about air freight capacity reduction at key hubs in China – another testament to the situation on the ground overseas. Reduction in such capacity makes it harder to get goods out of China and to North America for stocking and sale.

Meanwhile, even when products do arrive, congestion at domestic ports and delays in truck/rail transport are contributing to making promo’s inventory replenishment take longer. As just one example, some trucking companies have announced service cuts and limits, or the elimination of guarantees in certain geographic areas.

At ASI Media, we've been "beating the drum" for a while about the need to plan proactively now for Q4 challenges that lie ahead. Here's a reminder why in less than 90 seconds. @ASI_MBell @asicentral @Tim_Andrews_ASI @Melissa_ASI pic.twitter.com/NDAVDjyp3u

— Chris Ruvo (@ChrisR_ASI) July 26, 2021

J.B. Hunt, a transportation and logistics company, recently had to restrict capacity to certain customer locations because of demand outstripping resources. On Aug. 3, Roadrunner Freight stopped providing inbound and outbound service to areas of Maine, New Hampshire, Vermont and upstate New York.

Estes, the largest privately-owned freight shipping company in North America, recently announced that “due to COVID-19’s ongoing impact on shipping volume, we are temporarily suspending our transit time financial guarantee for inbound, outbound, and through transit Time Critical Guaranteed shipments for our Mobile, AL, Fort Worth, TX, Sacramento, CA, Portland, OR, and Tucson, AZ, terminals.”

Regarding domestic transport, suppliers say they’re running into issues with less-than-truckload (LTL) carriers even when they do get service. Problems center on delayed deliveries and opaque communication that leaves suppliers uncertain when shipments of incoming inventory and outbound orders will arrive.

“The delays are creating problems on both the inbound and outbound sides,” explains Paul Dubois of Keene, NH-based supplier Safety Made (asi/84514). “For inbound, we are stuck waiting several extra days, usually with no visibility. That means we know we have inventory inbound and available but we don’t know when it will arrive. This creates challenges committing to orders without confidence in arrival dates.”

Dubois continued: “For outbound orders, generally when the order size justifies LTL, our customer relies on us to setup the LTL shipment. Unfortunately for us with this we also open ourselves up to the blame when shipments are delayed. With the current situation our staff is working to warn customers before committing to LTL as it has become completely unreliable.”

Dubois isn’t optimistic about the months ahead when it comes to LTL. “We expect major issues on time-critical shipments and will likely have to rely more on UPS and FedEx even at higher rates to ensure delivery,” he says.

Despite all the challenges, proactive suppliers are taking steps to mitigate impacts. You can read at length about their actions here, but one primary tactic is ordering more inventory farther in advance than normal. “We’re very conscious of not wanting to run out of inventory, so we have brought in so much merch that we have had to find more space to store it,” says Nanus. 

The mounting supply chain fiascos come just a little more than a month from the start of the fourth quarter – traditionally the busiest time of the year for promo distributors. In order to get first-choice products for end-clients and ensure on-time delivery amid the disruption, suppliers suggest that distributors order as far in advance as possible for Q4.

“Attention to this now will help us to help our distribution partners ensure continuity of supply and on-time deliveries,” says Holly Brown, chief revenue officer at Top 40 supplier Polyconcept North America (PCNA, asi/78897).