Supply Chain repercussions from Chinese Earthquake

[Starbucks Junkie]

Guys,

Has there been any information in China, as to if any effect on the Far East supply chain will be felt due to the Chinese Earthquake?

SJ

[Bradley A Feuling]

Hi SJ,

My apologies as this response is quite delayed. There have been some logistics affects due to the recent earthquakes here. Many are concentrated on localized distribution in China's interior, but foriegn operations have been impacted as well. With the damage to roads, raw material delivery lead times to manufacturers in Sichuan province has been longer than normal. Raw material production in Sichuan may also face delays depending on the exact location.

Major direct effects are from Chinese manufacturers whose facilities were damaged and people who have choosen to ensure the safety of their families instead of going back to work. Major sections of the power grid were damaged, which will impact electrical needs for many factories. If these suppliers were existing or sub-tier suppliers, production lead times will be considerably longer.

We have also seen logistics capacity utilization impacted. With the focus on relief efforts, many local 3PL providers are offering their services to assist in relief material and human transportation. This has reduced available capacity for product shipments.

One future affect to consider though is how much relief work will be done in Sichuan. With the money from donations, both local and foriegn, and need for rebuilding, Sichuan province may create exciting opportunities for investment in the near future. Much of the infrastructure will be rebuilt, and high levels of demand will be needed for construction materials. This will lead to significant opportunities for companies in related industries.

Hope all is well. Enjoy the weekend.

Brad

Originally Posted by Starbucks Junkie

Guys,

Has there been any information in China, as to if any effect on the Far East supply chain will be felt due to the Chinese Earthquake?

SJ

[Bradley A Feuling]

Hi SJ,

My apologies as this response is delayed. There have certainly been some important affects to the China supply chain due to the earthquake. There also seem to be many developing opportunities as well.

In terms of logistics and transportation, much of the affects are on local distribution on the interior of China. Roads affected have created delays as efficient transportation routing isn't common. Longer lead times can be expected for raw material transportation as well. This will effect both Chinese producers and production requiring raw materials from outside Sichuan province. Manufacturers whose facilities were damaged have faced downtime in production. This has been reported for a number of industries. Local power grids were also damaged causing a limited electrical supply in some areas. Lastly, many people have been affected and have chosen to secure their families before returning to work.

Another consideration are 3PL provider capacity utilization. Many 3PL providers are offering capacity to relief effort materials and people. This has created a reduction in supply for 3PL transportation. Companies may face the effects of this reality as companies secure government and aid work that is far less demanding and necessary to rebuild and stabalize the region.

Lastly, we should look at future considerations and opportunities. With the rebuilding efforts, we will see large investment in infrastructure development and rebuilding. This is going to influence future capital flows and strong opportunities for growth in the region. Chengdu is a growing air shipment hub to Singapore for example.

Hope everyone is well. Have a great weekend ahead.

Brad

Originally Posted by Starbucks Junkie

Guys,

Has there been any information in China, as to if any effect on the Far East supply chain will be felt due to the Chinese Earthquake?

SJ