As the year draws to a close, an update and look ahead are in order. While I hate to be the bearer of bad news, forewarned is forearmed. I’ll provide quite a bit of detail below, but the material point will be to encourage our manufacturer customers to:
- Examine your production schedule and evaluate ingredient needs
- Communicate your herb needs for next year to us very soon, if you have not already
- Order extra materials and order them early
- Expect longer lead times to receive your material
Supply chain management keeps getting more challenging, so I suggest you plan for 2022 to be even more problematic than 2020 and 2021. Prices will also go up, in response to multiple factors.
The prices at farm level have increased for more than 80 percent of Chinese herbs harvested in 2021. Some of these increases are small, mostly attributed to higher labor and energy costs, while for others like Di Huang (Rehmannia) the price has almost tripled due to extreme weather conditions in Henan, Hubei, and Shanxi. The price increases are compounded by the unresolved supply chain constraints, involving a shortage of shipping containers, truck chassis, truckers, and all the other elements in the logistic supply chain that you probably have read about.
I have a sneaking suspicion that the prices will further increase through the year because of the energy shortages and extreme weather across the planet. One of the major factors impacting this year’s harvest and the herbal supply chain going forward will be extreme weather events, as the predicted effects of climate change manifest. I am writing this update with water streaming off my roof due to very unusual atmospheric river rains in Northern California. China experienced early snowfall this year, and it was heavy.
According to weather professionals, this is caused by La Nina weather pattern, which will contribute to an extremely bitter cold winter in Northern China and its surrounding neighbors. The severe weather will further exacerbate the energy crunch being experienced world-wide. This is just the latest in a string of extreme weather events that will impact herbal production in China, which started with relentless rain in Henan, Hubei, Shanxi and its surrounding areas that caused flooding that damaged more than a million hectares, that’s 2.5 million acres, of farmland.
As winter is coming and the demand for energy continues to increase, the prices for coal and other forms of energy world-wide are increasing at multiples. Not only will we experience higher winter heating bills, but the cost of processing the herbs will also increase. Currently, power plants in the China are losing money per Kw of energy generated and sold, so their incentive is to slow the bleeding by minimizing energy generation. Although the Government discourages this, there are all sorts of reasons power plants can go offline.
This energy shortage, real and artificial, has combined into a perfect storm that has led to energy rationing in China, in particular Northern China. This has resulted in lost workdays for factories, including the ones processing our beloved Chinese herbs. We have a factory that is currently operating only 4 days a week. Fortunately, one our friends notified us of this issue early on. We collaborated with our partner to maximize production during the days that we have energy, so our output is only 7-10% less than usual.
It is very fortunate that Nuherbs moved to a distributed model of processing, where we use several partners to process our materials versus having everything done at our own factory. My forward-thinking mother had the foresight to move to this model in (year?) because she wanted to process our didao (geo-authentic) herbs close to where they are harvested for quality reasons, which also minimizes time and miles to the processing site. Yes, she was green before it was hip.
All of this is to say that, based on the current logistical constraints and weather-related impact, the prices of Chinese herbs prices will increase. Additionally, lead times will get longer. Although the herbs will be available, if an item goes out of inventory, it may be a while before gets replenished due to the long lead times from China. While the actual travel time is the same, delays getting on the ocean, then off again at the destination port, and then transported to our warehouse nearly triples the total transit time from what we’ve been used to relying upon.
For our manufacturer customers: we are taking annual orders and fulfilling them based on your demand and/or schedule. I urge you to think even further ahead than you did to accommodate pandemic-related delays, because now we’re dealing with a whole new level of disruption. As always, we are here to serve you and help you navigate through the price increases and more importantly the supply chain disruption nightmare. The better our communication, the more we can help you. If you have any questions, please do not hesitate to contact me. We will get through this together.