Just found the article Special Delivery: UPS Moving Ancient Terracotta Army, and had to write a quick post as I think this a great example of how some firms are able to get themselves into the middle of some interesting things.

For those who have yet to visit Xi’an, these warriors are simply an amazing site, and they rank up there with the Great Wall and Forbidden City in terms of cultural significance.

According to the ariticle:

UPS (NYSE:UPS) today unloaded an exhibit of the 2,200-year-old Chinese terra cotta warriors, horses and other artifacts at its West coast air hub in Ontario, Calif., after a long flight from Shanghai.

to make this move possible, UPS actually had to take special care

The U.S.-bound exhibit was packed in 42 specially-constructed crates for movement in the 747-400:

So, for whoever sold this project on behalf of UPS, my hats off to you. In my mind, this is one for the books, and I am sure the people in Nanpu and Atlanta are gleaming over this

Note: for the sake of full disclosure, I was once an intern with UPS and they forced me to shave off my goatee.

While living in the United States, I must admit that I knew little about city planning.. and I really didn’t care. I enjoyed driving, and my morning/ evening commute was always an adventure.. .and more than my morning commute, I loved getting out on the open road for a cross country trip.

But that was when I had the time, and gas was only .98USD/ gallon.

However, with 6+ years in China (the last 5 in Shanghai), all I can say is that China for me is a model of what transportation networks in cities - and between cities - should be for the future… and what makes me appreciate Shanghai more and more, is reading article/ posts like the one Jim Kunstler just wrote called Blind Spot on his blog Clusterfuck Nation:

I got a little guided tour of Minneapolis from the author-shlepping service that my publisher engaged. We rode past the old Minneapolis central train station. He said no trains stop there anymore

In other words, this region of the country has next-to-zero railroad service. Can we pause a moment here to ask: exactly how far does America have its head up its ass? Do you get the picture? Can you connect the dots? The airline industry is dying and absolutely no thought is being given to how people will get around this big country — except to make the stupid assumption that we can just drive our cars instead. Even during the several days I was around Minneapolis, no news media or politician raised the subject of reviving passenger railroad service.

In point of fact, these are exactly the kind of trips that would be better served by rail, anyway — the towns that are less than five hundred miles apart. The travel time between trains and planes would be comparable, considering the two hours or so that you have to add to every airplane trip because of all the security crap, not to mention the delays. As a matter of fact, USA today ran a front page story two days after the Delta / Northwest announcement saying “Air Trips Slowest [now than] in Past 20 Years.” Subhead: “Trend likely to persist as congestion worsens.”

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I learned a long time ago, that while Shanghai moves quick you sometimes end up hanging out while people need to make their way across town for appointments. So, wihle waiting for my lunch appointment (I made it early), I caught up on some reading by opening up the CHaINA that is sitting on my desk.

By far China’s best english language logistics publication, I was happy to see that I not only made the front cover, but that my post last month entitled Factory Closing: Why Is Anyone Shocked? This Was Coming was highlighted in the blog section.

Mug shot of me, and a reposted All Roads article aside, this magazine is a must for anyone looking to learn more about cold chain (particularly those interested in the Olympic food chain) . There are also a number of interesting articles on the logistics of flowers from Yunnan (written by Chris at Go Kunming), and a large news roundup section as well.

to access the new (and fantastically slick) web version go here, and honestly (this is my inner treehugger talking) you do not need to print this or ask for printed copy anymore. Their web version is more than enough.

For anyone who thought consutructing a JV in China was difficult, here is a story for you.

With the NPC now half complete, the curtain was brought up and 5 new super ministries have been unveiled:

• Ministry of Industry and Information
• Ministry of Human Resources and Social Security
• Ministry of Environmental Protection
• Ministry of Housing and Urban-Rural Construction
• Ministry of Transport

and according to this AFP article:

Under the new system, China’s cabinet, or State Council, will have 27 ministries and commissions, one less than before. No time line was given for when the reformed cabinet would come into effect.

With that in mind, I would like to prepare every reader who is invested in, or looking to invest in, that what we are going to witness is pure gridlock as these groups come together. When we met last month to discuss the draft Energy Law, we looked at the structure of it, and there were 13 ministries/ 2 committees involved.. and even if it were pass tomorrow, it would still take years for the organization to come together. YEARS

It is still too early to really predict the level of chaos these integrations will create, and it is going to be hard to judge what the products of the integration will look like, but I have a strong suspicion that once integrated we will see a much higher level of enforcement on many fronts…. especially when it comes to the environment

One ministry I would like to pull out in a later post (once I get my hands on more information), will be with the Ministry of Transport. China’s Logistics industry is currently running at 20% GDP, double the U.S. or E.U. markets… so reducing will be a priority as planning of networks can be centralized…. theoretically.

With that, the only value I can really add is just for everyone to push their projects through as soon as possible.  If your project is caught up in the middle of the integration, it will create issues…. people will move, standards/ regulations may conflict, etc.

In China, it really is difficult to imagine all the behind the scenes planning going on every 5 years in Beijing. But, the evidence is very visible. New government buildings in many city, airports, ports, roads, metro, and so on. It is an infrastructural orgy of investment, and as we have seen over the last 10 days, it is still not enough.

As if we needed another reminder of just how the transport systems in China are being pressed to the max, this Aviation Week article provides as interesting look at the aviation industry in China and how it just cannot grow anymore without the addition of more infrastructure.

With regard to the recent air capacity issues, this is a situation that was horrible 18 months ago. Planes were consistently 1-2 hours delayed, lines were long, and even getting a cab from the airport seemed to take a half day (unless you took the gypsy cabs). A large part of this was the number of airplanes available for commercial airliners, and the fact that any weather delays forced the system to a halt as new lanes could not be made available.

There has been some improvement over the last year as a few “guaranteed” lanes between the major cities have been established, and as they are the most heavily traveled lanes it has provided some relief. However, as a recent announcement to build 97 new airports indicates, there is still a lot to do.

What I find interesting about this situation is that while oil prices are increasing, and traffic has never been higher, the prices are still going down.

With all that China has grown, it is fairly easy to get lost in the glitter and believe that things are more stable that they really are, and the last week has really shown this. There has no doubt been unprecedented growth and investment in many areas of the economy, but things are still very fragile in certain areas and will require more time before fully balancing. The airline industry is one of those

An interesting clip on Youtube as been released by the user TNTcommunications on TNT’s China Operations.

While the China domestic market one of great interested by everyone in the express market, TNT has taken a much different approach. The clear leader at this point being Fedex, who purchased Datian and have 38 guaranteed cities, I have yet to see TNT do much more than to buy out their partner Sinotrans.

Where TNT has taken a stronghold is through their Shenzhen Anda operations, and their capabilities in their automotive services.

With that being said, if TNT is anything like the other groups then they are defiantly looking at ways to improve their position, and while FedEx has a clear advantage at this point, it is safe to say that anything is possible in the domestic market.

This is a story that has been building for a while, and it is something that I have been covering on a few different posts, but given the fluid situation I thought I should bring it all together under a new post.

First, what is known at this point. (updated Feb 3)
As of the last reports, upwards of 17 of China’s provinces are experiencing power brownouts. the severity seems to depends on several things, but while Guangdong’s train station has been the major focus, the province of Guizhou, and its 35 million residents, are having extremely serious issues.

CNN and other mediums are reporting this as a major inconvenience for “the mess” that is the transportation network. But the story is much bigger. there are people stranded on trains, in buses, and for sure there are stories that have yet to make it into onto the air because many areas inland are just not accessible to even the army.

Update 1: According to the Shanghai Daily, the city of Chenzhou in Hunan province, population of 4.6 million, has been without power and water for 6 days. Full details in article.

Update 2: The news in other parts of China is growing more grim as cities like Chenzhou are still without power or water (7-10 days now). fortunately, the donations are starting to role in. Charity machine rolls into action as more snow is on the way.

Update 3: China’s banks have been told to pump money into the affected economies through loans to the ongoing concern of affected economies (more on this later…)

Update 4: A friend in the north reports that coal mines recently shut down have been reactivated (more on this later….)

Update 5: As I forewarned below, all rail transportation is being  diverted to support coal and relief. 42000 rail cars yesterday alone were loaded (makes me wonder if Santa will need a new mineral to give to the bad kids), and stockpiles in Guangdong are beginning to rise

What happened, and how we got here
There is a FT article that is online now that does a good job of presenting what the current situation is, however as I have covered on a number of posts previously and in the comments section of another post, the core issues surrounding this problem is not a spat between the power companies and the coal miners.

The core problems: rail capacity and drought.
18-24 months ago China began importing coal from Australia/ NZ to support Guangdong. the basic issue being the rail network could not get the coal out of Shanxi and into GZ. so, they had to import.

At the same time, the south has been going through a drought that has reduced hydro capacity significantly. Another addition to the problem, but not a massive problem even with the other problem above

Match both of those to a diesel shortage, and you have a third strike, but this one is more subtle… because it is what prevents trucks picking up the capacity following 1 and 2

Now, bring all those together… add a snow storm.. then add the factors in the article, and it you get a massive problem.like this…. Guizhou declares blackout emergency

What the impact has been so far
If there is a sad irony to this, to foreigners there will be limited immediate impact. Factories were already shutting down for the holiday, safety stocks were built, and we were already planning on 2-3 weeks of downtime.

However, with that said, this situation may result in a few disturbances over the next 3-6 months. (1) factories may be forced to accept a longer vacation as employees may not return as planned (2) inputs and energy are going to increase; and (3) this situation will inflame the domestic inflation issues (more on that later)

What the impact could be
To be honest, nobody knows how bad this could get. More storms are predicted through the weekend, and there are reports that there are coal plants running a dangerously low coal piles (2-5 days). So… it can get much worse.

From an economic standpoint, the risk is that inflation will only increase as supply chains grind to a halt (domestic trunk links are a mess), oil supplies are diverted to support energy, crops freeze before hitting the market, etc.

Update 1:  In thinking about the impact of this storm on production, I cannot help but think that if there were ever a time for the entire transportation and power grid to go down it is now.  I understand that there are a lot of miserable people right now, but from a production standpoint, many factories had already prepared for 2-3 week holidays and had moved a lot of containers in January to beat the yearly traffic jams at the ports.  The question for me will be the ability of raw material deliveries to happen around the 3rd week of the month.  this is when people will start trickling back from their hometowns, but managers will have already begun placing orders the week before to get inventories of materials back to normal.  If the rail/ highways are still a mess around the third week, then the economic impact could be much more significant.

Additionally, from a consumer base. Chinese New Year is the biggest holiday of the season. As my girlfriend says, no one closes shop before the New Year, because everyone sells something before it. but, if people are stuck, and forced to stay away from home, people may choose not to spend… short term bad… medium term deflationary.

What needs to be done
the army has been deployed already, and so I expect that means that a lot of supplies are already on the move (via air network). Update (Feb 3). More than a 500,000 troops and paramilitary (not sure why they are involved) are on the ground now cleaning up the snow from roads and rail.

China needs to find a way to get the trains running (electricity) and get more coal into the critical plants. Obviously, the snow has made this problem worse, but a large part of the Guangdong problem is lack of coal. Update (Feb 3) - China has put an extra 1000 trains on the track. I expect this means that the old diesels that were taken out of service by the recent electrics are now back online.

so, the short term will lead to a focus on turning ships around, building a coal train of bulk carriers, and building up the piles in front of all the power stations.

On a long term basis, China will need to begin to build power capacity on a much more sustainable and balanced basis. the lost capacity from hydro levels has really hurt them, and things were left to run with little room for error.

And that failed.

Gas prices, price caps, snow, and so on all played a role, and lessons need to be learned.

As updates come in, I will continue to update this post, but I expect this will get worst. I do not see this as a destabilizing event by any stretch of the imagination nor I do not see this as an event that will hurt exports for next 2-3 weeks (I know some readers are concerned about that).

The power shortage is something that has been coming for a long time… and the snow only exacerbated the problem. Were this not the run up to the holiday, exports would have been impacted, but for the short term this will be a domestic issue and the impact will be here.

Updated: What You Should Do
Following a little more thought (the above was written on the fly while watching a CNN report), here are a few things that I think firms/ individuals should know about what they can do.

Nothing. Short term, this is like a hurricane. It is going to be something that needs to clear first before anyone really knows what the real severity of the problem will be.

If you are traveling in China over the new year. Don’t travel by train for two reasons (1) the lines are going to be crazy and (2) others need your seat more than you

If you are a manufacturer in China and supplying export market, call your forwarders when you get back to the office to find out what the backlog at the docks is likely to be. Perhaps we will get lucky on this and the impact will not be that great, but it is possible that some of the docks that are typically reserved for containers are prioritized for bulk shipments like coal

Ongoing, safety stocks should be increased through the spring and summer just in case. this is a problem that will impact manufacturers for time time… particularly if this summer brings another drought

If you are manufacturing in China, and in Guangdong. Have your GA (Government affairs) person contact the local officials to see what the power supply looks like. Like I said, this is not some freak inefficiency in pricing that the power stations are trying to take advantage of. This shortage was something that was reported widely this summer, and I expect that it will continue well after the snow thaws (although, the snow pack melt may helps alleviate short term hydro issues).

Ongoing, safety stocks should be increased through the spring and summer just in case. this is a problem that will impact manufacturers for time time… particularly if this summer brings another drought

If you are manufacturing in China, and are buying bulk materials (especially metals). Wait to place your orders, particularly if you need aluminum, iron ore, or god forbid coal. These goods are ones that will see impact right away. Smelters are already down in Guizhou (10% of capacity), and I would expect others will be taken off as they are huge energy consumers and the power needs to be diverted to support other things. Prices should go down if you can wait as emergency orders are processed and supply can resume normal levels

If you are an investor or a member of the clean tech sector in China, this could work out in your favor as China is going to look to really ramp up on energy reserves. My guess is that the Energy Law that has been stuck in a round of inner-ministerial ping pong, will come out very strong as the central party will use this to bring people into line (think of the effect of the labor scandal on the labor law - or the nationalist rhetoric on the M&A law).

If you are an investor in the Stock market. Hedge short term towards the down. The market here has been overpriced for a while, inflation is going to kick this country in the economic gut, and pumping the stock market is just not helping anyone.

Updated: What you should not do
Don’t use this as an excuse to get out of China. there is a lot of talk about Vietnam and India right now, and to be blunt…. they would have blown faster. What really is scary about this situation is that China has been throwing a lot of money at infrastructure and they are still having this size of a problem. Imagine Vietnam or India, which have historically spent much less on their infrastructure. A sudden move to either of these countries en mass would simply paralyze their logistics systems… and lord only knows what the grid would do.

So, stay focused. China is still a good place to be. Sure, the risk is a little higher, but I am guessing that over the next 2-5 years we will see that membership will have its privileges. the global market is experiencing pains in many markets, and China is certainly one of them, but overall China is still very stable and this crisis has yet to show me any sign that that will change.