Will Chinese factory electricity woes affect the outdoor industry?

News reports on CNN, MSNBC, NPR, WSJ and more have been drawing attention to a growing problem in China that may or may not have an affect on the outdoor industry as best as SNEWS® can tell.

News reports on CNN, MSNBC, NPR, WSJ and more have been drawing attention to a growing problem in China that may or may not have an affect on the outdoor industry as best as SNEWS® can tell.

Apparently, with the enormous and rapid expansion of the Chinese population and consumption-based economy, power demands on China's electrical grid are exceeding existing infrastructure. China is scrambling to build new plants and play catch up, but this isn't going to happen overnight.

Many factories, we have been told, actually foresaw this possibility and have installed huge electrical generators on factory grounds to supply electricity in the event the grid overloads.

Reports out of China confirm that the Chinese government has instituted rolling blackouts and is rationing power forcing some factories to shut down for several days. A few factories have been forced to close for longer periods. In some cases, factories with generators are being told they can't buy fuel oil, further exacerbating their woes.

SNEWS® has checked in with many manufacturers that rely on Chinese factories for production and here is what we can determine:

1. Larger companies that either own the factory, or make up the lion's share of production for that factory are being less affected. Worst-case scenarios right now indicate deliveries of Chinese-made goods might be at most two weeks late, with the majority of deliveries remaining right on time. Some larger manufacturers told us that they will air freight goods to the United States (at a minimum added cost for each apparel item of $5 to $6 that either the company or the factory will eat) to ensure deliveries remain on time. The fact is, you can make up an entire month's delay with an airplane, if the company can afford the freight.

2. Companies that have diversified their production by spreading manufacturing around various factories throughout China and in other nations will likely experience little or no impact.

3. Smaller companies that make up only a fraction of a Chinese factory's yearly production runs, and companies that are housing their production at factories that are not in the good graces of government connections (in China, it is all about relationships and who knows who) might have more problems than others with rolling blackouts and factory shut-downs.

4. Retailers should make a point at Outdoor Retailer Summer Market (or if you are not going to the show, then call your various vendors) to ask where the product you are ordering or awaiting shipment is being made, and if the problems in China will affect delivery.

SNEWS® View: While many are focusing on the problems with Chinese factories, there are others issues at work here that will affect the global economy and deliveries of outdoor industry goods into this country. Bangladesh, for example, is still under water, so if any company had production in factories there, good luck because factories still aren't up and running. A few companies we spoke with told us they got their production out of Bangladesh just in time. Then there is the issue of labor. As more production heads into China and other countries, demand for workers increases and workers begin to find that they can ask for and get higher wages and better benefits. It is a free enterprise system at work and it should surprise no one. What that means is the huge deflation that the outdoor industry has experienced in apparel, especially outerwear, will soon be a thing of the past. Prices are going to begin going up, gang, so buckle up and prepare yourself.



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