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Upcoming Olympic Games Will Impact Supply Chains Around the World

China Law Update Cathleen T. Yu

With the upcoming Olympics in China beginning August 8, 2008, companies that source products from China should be aware of potential disruptions to their supply chains and take precautions to avoid any effects on their businesses.

Factory Shutdowns and Transportation Restrictions

First, due to concerns about air pollution during the Olympics, manufacturers that are considered "heavy polluters" by the Chinese government have already been closed by the Chinese government, or forced to move operations elsewhere. These "heavy polluters" include manufacturers producing chemicals, paper, tire, metal, cement and tile. In addition, more polluters located in Beijing, Inner Mongolia, Tianjin, Shandong, Shanxi and Hebei will be closed if they do not meet certain pollutant discharge standards by the end of June. These manufacturers could be closed from July to September of this year.

Second, to reduce congestion as well as air pollution, the Chinese government has implemented a number of traffic, construction and transportation restrictions, with cargo transportation in and around Beijing and Tianjin being the most affected. For example, all vehicles in Beijing will be subject to alternate odd-even license plate number controls, so that a vehicle may only operate every other day between July 20th and September 20th. Similarly, restrictions on truck weights, registration and emission-levels may prevent certain trucks from entering Beijing between now and September 20th. In addition, all transport providers in Beijing will need a special "Passport Road License," issued only to providers who have a valid Transportation Business License and operate a specified number of "Green Label" emission-controlled trucks. If you or your supplier use a large cargo transporter in Beijing, it probably has this license. However, smaller cargo transporters or freight forwarders may not be able to operate. In addition, if your supplies or products are transported through Tianjin, port restrictions and traffic controls may affect operations. If you require transport of hazardous materials through Beijing, Shanghai or Tianjin, expect that you will be affected.

Steps to Avoid or Mitigate Your Risks

The coming transportation restrictions will shrink line-haul capacity in northern China, driving up costs and lengthening delivery timelines, and some of your suppliers may be shut down. Even if your supplier or Chinese affiliate can get the products to the ports, ports may be restricted for security, creating difficulties shipping goods out of China. Consequently, check with your supplier or Chinese affiliate to assess any potential impacts on product delivery times and possible increases in costs. If your company sources products from a supplier that may be considered a polluter and is located in one of the areas listed above - and you have not already discussed these issues with your supplier - it would be prudent to consider purchasing safety stock or making back-up or alternative sourcing arrangements quickly. And, contact your freight forwarder to ensure that it has a plan in place to avoid the potential transportation problems to come.

Create a Strategy Now!

This is the time to make sure that your sales and logistics departments are in sync regarding Chinese supplier or affiliate shipping issues and the potential impact to customer delivery times. Develop a company strategy for the next three months to address the upcoming Olympics to make sure that your company does not end up out of the competition!

Anyone who has any questions, or would like help developing a company strategy to address the Olympics, should contact Cathleen Yu at (602) 229-5237 / cyu@quarles.com or their local Quarles & Brady attorney.