Coronavirus shipping delays force China’s small manufacturers to cancel orders as inventories pile up
- Disruptions to sea and air freight caused by the coronavirus pandemic are delaying payment terms for Chinese factories
- With cash tied up in inventory that cannot be shipped, smaller exporters are rejecting orders to avoid cash flow problems
Small and medium-sized Chinese export manufacturers are rejecting orders and scaling back production to avoid mounting inventory and cash flow problems caused by extended shipping times.
Disruptions to shipping – both sea and air – as a result of increased pandemic control measures, including lockdowns, are stretching out payment terms for Chinese factories.
Cash is being tied up in inventory that cannot be shipped quickly, forcing people like Betty Chen, who runs garment factories and wholesale shops in Guangzhou, to cancel orders to stay afloat.
The problem is adding pressure on Chen and other business owners already struggling with the high cost of raw materials.
I’ve been in export manufacturing for over a decade, and I’ve never seen a situation like this year
“I’ve been in export manufacturing for over a decade, and I’ve never seen a situation like this year,” Chen said.
“Orders are good but every factory has a serious and worsening shortage of cash flow. Shipments are being delayed and payments are being deferred.”
Before the pandemic, it took three months for Chen’s orders to be made and paid for, but that has been pushed out to at least four. To add to the problem, upstream material suppliers are now asking for payment terms of 15 days or less, and sometimes even cash on sale.