China’s Worst Floods in Decades threaten to Derail Supply Chains

China’s Worst Floods in Decades threaten to Derail Supply Chains

Executive Summary

  • Since early June, large parts of eastern, central, and southern China have been hit by torrential rainfall, rising water levels, and severe flooding that is being characterized as some of the worst to hit the country in decades. 
  • Severe flooding in areas around the Yangtze River has prompted nearby provinces and cities to declare red flood alert levels — the highest on a four-scale alerting system — with record-high water levels being reported along the Huai and Yellow Rivers and China’s two largest freshwater lakes in Poyang and Dongting Lake. 
  • Everstream Analytics has identified over 27 provinces that have been affected by severe flooding and heavy rainfall, with at least 21 provinces having declared a critical red-level flood or rainstorm alert warning over the past two months. Some of the hardest-hit regions include Jiangxi and Anhui as well as the major manufacturing hubs of Hubei, Jiangsu, Sichuan, and Chongqing. As of July 29, 00:00 GMT, Chinese authorities estimate the direct economic damages from the floods to be about CNY 116 billion (USD 16.6 billion; EUR 14.2 billion); more than 2 million people along the Yangtze River have been displaced.
  • Serious supply chain disruptions due to flooding are impacting the procurement of essential personal protective equipment (PPE) and medical supplies needed to combat the COVID-19 pandemic. Industrial sectors (such as coal mining and steel manufacturing) and food and agricultural production are affected, while disruptions stemming from port congestion and closures have also been reported.
  • Torrential rainfall is expected to continue albeit at a reduced rate that could lead to further severe flooding that may complicate matters for suppliers and manufacturers seeking to source critical materials out of China. Rainfall forecasts indicate for the week of August 2-9 that heavy rainfall is expected to persist in Southern China with 3-4 inches expected in parts of Yunnan, Guangdong, Guangxi, and Sichuan.
  • The devastation caused by near-nationwide floods comes on the heels of China’s economic recovery efforts following the COVID-19 pandemic that prompted restrictive lockdowns and disrupted global manufacturing. Companies will need to remain on alert and plan accordingly to ensure that shipments and essential components and materials sourced out of China are not at further risk to ground transportation and port-related disruptions particularly around the Yangtze River region. 

Overview

Since early June, large parts of eastern, central, and southern China have been hit by torrential rainfall, rising water levels, and severe flooding that is being characterized as some of the worst to hit the country in decades. Torrential rainfall in areas around the Yangtze River has prompted China to issue nationwide red flood alert warnings — the highest on a four-scale alerting system — with record-high water levels reported along the Huaihe and Yellow Rivers and two of China’s largest freshwater lakes in Poyang and Dongting Lake.

Everstream Analytics has found that 27 provinces (including Shanghai and Chongqing municipalities) have been affected by severe flooding and heavy rainfall including in some of the hardest-hit regions of Jiangxi and Anhui and the major manufacturing and commercial hubs of Jiangsu, Hubei, Shandong, and Sichuan. As of July 29, 00:00 GMT, Chinese authorities estimate the direct economic damages from the floods to be about CNY 116 billion (USD 16.6 billion; EUR 14.2 billion); more than 2 million people along the Yangtze River region have been displaced.

Serious disruptions due to flooding are impacting the procurement of essential personal protective equipment (PPE) and medical supplies needed to combat the COVID-19 pandemic. Industrial sectors (such as coal mining and steel manufacturing) as well as food and agriculture have been affected, while disruptions to inland terminals and port congestions and closures are also being reported. 

This Everstream Analytics Special Report takes a closer look at the current situation stemming from the severe flooding and how companies sourcing from suppliers and manufacturers in China will need to adapt. It analyzes the impacted provinces and regions and how logistics and industrial production may be further impacted should torrential rainfall continue to persist across the country. 

Impacted Regions

Figure 01: Highest rainstorm and flood warning advisories issued in China by province (as of July 29, 00:00 GMT). Source: Everstream Analytics, China Meteorological Administration

Large swathes of southern, central, and eastern China were hit with severe flooding and torrential rainfall, which has been attributed to a massive water vapor from the Bay of Bengal meeting colder air from the north amid the start of the country’s rainy season. Heavy rainfall has been concentrated in the middle and lower reaches of China’s largest waterway on the Yangtze River and the water level of 433 rivers is above the flood control line — with 33 of them reaching new record highs. In response, Chinese authorities at the national, provincial, city, and county levels have frequently issued weather advisory alerts as heavy rainfall and floods continue to trigger other natural disasters (such as landslides and mudslides) that have led to serious disruptions to major ground transportation routes including regional highways (see Appendix A). 

Everstream Analytics has found that 27 provinces have been impacted by severe flooding and heavy rainfall, with at least 21 provinces (including cities and counties) having declared an active flood or rainstorm alert warning since early June as shown in Figure 1 (see Appendix A for further details). In addition, Figure 2 indicates the latest weather advisories for the affected provinces and regions as of July 29, 00:00 GMT. Impacted areas across China with significant direct economic losses are being reported in Anhui (USD 4.17 billion; EUR 3.56 billion), Jiangxi (USD 2.94 billion; EUR 2.51 billion), Hubei (USD 3.47 billion; EUR 2.96 billion), and Hunan (USD 1.75 billion; EUR 1.49 billion).

Figure 02: Current rainstorm and flood warning advisories issued in China by province (as of July 29, 00:00 GMT). Source: Everstream Analytics, China Meteorological Administration

The floods are also threatening to derail economic recovery efforts of major manufacturing hubs following lockdowns imposed across China due to COVID-19. Everstream Analytics data reveals that auto and tech manufacturing locations and suppliers are highly concentrated in Wuhan and Chongqing, which have been subject to torrential downpours and regional flooding. Figure 3 shows that 49 percent of the manufacturing and supplier locations in Wuhan — which was at the initial epicentre of the COVID-19 pandemic — come from the auto sector while 28 percent come from the technology industry. Chongqing, a major city in Western China that has received an average precipitation 40 percent higher than normal this year, hosts 48.6 percent of its supplier and manufacturing locations from the auto sector followed by technology (29.2 percent) and engineering and manufacturing (10.4 percent). 

Figure 03: Manufacturing and supplier locations in Wuhan and surrounding areas. Source: Everstream Analytics

Torrential rainfall is expected to continue albeit at a reduced rate that could lead to further severe flooding and other natural disasters that may complicate matters for suppliers and manufacturers seeking to source critical materials out of China. Rainfall forecasts from Everstream Analytics shown below in Figure 4 indicates for the week of August 2-9 that heavy rainfall is expected to persist in Southern China with 3-4 inches expected in parts of Yunnan, Guangdong, Guangxi, and Sichuan. 

Figure 04: Rainfall forecast for China, August 2 – 9, 2020. Source: Everstream Analytics

Industry Impact

Life Sciences and Healthcare

Severe flooding has created disruptions for companies seeking to source critical medical supplies and PPEs (such as disposable lab coats and medical face masks) from areas that have been heavily impacted. Wuhan and its nearby regions — the area at the epicentre of the COVID-19 global epidemic — is home to some of the largest manufacturers of materials used in PPE production. Xiantao, a town located just west of Wuhan, is China’s largest manufacturer of non-woven fabrics used in PPE production, with a third of the country’s total exports coming from the city itself.

Steelmaking and Coal Industries

While operations at most steel mills have largely been unaffected, there have been a few days of delay in the arrival of steelmaking raw materials due to the floods. As a sign of weaker demand amid continued rainfall, freight rates for China-bound iron ore saw a sharp decline for the Dampier (Australia), Saldahna (South Africa), and Tubarao (Brazil) routes into Qingdao.

China’s coal mining industry may also see output restrictions amid calls from authorities for coal producers to take greater precautionary flood measures that could trigger tighter inspections. An unidentified coal mine in Sichuan’s Dazhu County was reportedly flooded earlier this week despite Chinese coal mining safety administrators already previously warning coal firms. 

Food and Agriculture

Heavy rains have also had a devastating impact on the agriculture sector, particularly in southern provinces with at least 2.4 million hectares (6.1 million acres) of crops affected due to the floods. Chinese authorities have already allocated CNY 330 million (USD 47.1 million; EUR 40.2 million) to help farmers and agricultural production that has been distributed in Jiangsu, Anhui, Jiangxi, Hubei, Hunan, Guangxi, and Sichuan. As a historical comparison, 14 percent of China’s entire crop production was impacted in the 1998 floods that were also in the Yangtze River area.

Port Closures and Congestion

Port closures and congestion triggered amid flooding and continued rainfall have impacted operations particularly for the Yangtze River ports of Qingdao, Ningbo, and Dalian. On July 23, the Port of Qingdao was forced to close down due to strong winds in the area after receiving record-breaking daily rainfall on July 22. For the week of July 18-23, strong winds and increased average waiting times at the Port of Dalian, Nansha, and Shanghai were also reported to have disrupted operations and shipping activity (see Figure 5). 

AFFECTED PORTDATEDISRUPTION
QingdaoJuly 23Port closure
ShanghaiJuly 22Average waiting times of around 18 hours
DalianJuly 21Strong winds
NanshaJuly 20Average waiting times of 12-24 hours
DalianJuly 18-19Port operations halted due to strong winds
Figure 05: Port operations impacted by amid heavy rainfall, July 18 – 23, 2020. Source: Everstream Analytics

Acute congestion and disruptions along the Yangtze River ports are posing serious challenges for the product tanker market with reduced demand for crude oil imports due to the flooding. Reports indicate that the average waiting time for tankers to be discharged is around 3-4 weeks for vessels in the Qingdao-Rizhao area and around two weeks in Ningbo-Zhoushan compared to a normal discharge time of around a week. For the chemicals sector, textile and polyester fibre plants have reduced operations rates and will likely lead to the oversupply of purified terephthalic acid.

Outlook and Recommendations

The devastation caused by near-nationwide floods comes on the heels of China’s economic recovery efforts following the COVID-19 pandemic that prompted restrictive lockdowns and disrupted global manufacturing. Despite efforts from Chinese authorities to improve flood prevention measures, the continued recurrence of widespread flooding over recent years is reflective of the environmental and geological realities that supply chain managers will continue to face moving forward.

Everstream Analytics outlines below a series of recommendations to help companies navigate through the latest disruptions caused by the severe flooding situation in China:

  • Ensure sufficient supply chain visibility: Companies will need to ensure that they are able to effectively map out and identify key suppliers and entities within their supply chain network in terms of where they operate, source from, and which transportation hubs are most frequently used amid ongoing turbulent weather across large parts of China. Risk monitoring tools can help organizations analyze the potential impact of flooding and rainstorms by assessing the risks to shipments, products, and revenue. 
  • Execute contingency plans: The ability to execute contingency plans will be crucial for companies to react quickly as heavy rainfall and flooding looks set to persist. This includes sufficiently monitoring and planning ahead with additional inventory, identifying priority locations that are used to either source components or materials, and maintaining a clear channel of communication with key suppliers and freight forwarders. 
  • Monitor weather advisory alerts: Staying well informed of meteorological conditions pertaining to flooding, heavy rainfall, and natural disasters that can range from strong winds to landslides will be imperative for mitigating potential disruptions to production lines and shipment delivery in-and-out of China particularly in heavily affected regions. 

Appendix

ProvinceAffected AreasHighest Alert LevelCurrent Alert LevelNotable Incidents
AnhuiHefei, Fuyang, Anqing, Chizhou, Tongling, Wuhu, Ma’anshan,Huangshan, Xuancheng, Quanjiao CountyRedYellowBlue rainstorm warning for heavy rain in Anqing, Chizhou, Tongling, Huangshan, Wuhu, Ma’anshan, and Xuancheng from July 28.

Orange warning for floods in effect from July 26 for Shuiyang section of Yangtze River
ChongqingChongqing, Wulong DistrictRedBlueYellow warning in effect for the Cuntan section of Yangtze River from July 26.

Severe flooding of Yangtze River passes through downtown Chongqing on July 18 amid rising water levels and torrential rainfall. Parts of Chongqing including Qijiang District hit by worst floods in more than two decades on June 23.
GuangdongGaozhou, Guangzhou, Leizhou, Lianjiang, Qingyuan, Zhanjiang, Zhaoqing, Huidong County, Dabu County RedN/AHuidong County issued a yellow weather warning for heavy rain on July 28. Dabu County upgraded its orange weather advisory to a red warning for heavy rainfall on July 28.
FujianNanping, Sanming, Wuyishan City, Youyang County, Shizhu County, Zherong CountyRedN/ARainstorm in Nanping on July 9 triggers severe landslides and floods. 
GansuLongnan, Tianshui, Pingliang, Gannan, Dingxi, Qingyang, BaiyinRedBlueHeavy rainfall reported in Longnan, Tianshui, Pingliang, Gannan, Dingxi, Qingyang, Baiyin. 
Severe flooding alerts issued for Tao River near Luqu, DaXia River near Xiahe, and Yemu River near Yeliguan.
GuangxiGuilin, Yangshuo, Tianlin County, Baise, HechiRedN/A9 cities and 22 counties in Guangxi Province issue 32 red alert warnings for heavy rainfall on June 26.

Dam collapsed at a small reservoir in Yangshuo County on June 7, inundating roads and fields.
GuizhouRongjiang County Renhuai, Zhen’an County, Bijiang County, Jinping County, Tianzhu County, Congjiang CountyRedN/APortions of National Highway G212 in Renhuai closed due to flooding on July 12. Bijiang, Jinping, Tianzhu, and Congjiang Counties issued orange warnings, on July 26.
HainanBaoting, Lingshui, Wuzhishan, LedongRedN/AYellow warning for thunderstorms and strong winds issued for Hainan Province, on July 28.
HebeiChengde, Tangshan, Luan CountyYellowYellowLuan County issued a blue warning for heavy rainfall on July 28.
HeilongjiangHarbin, Daqing, Qingdang, Mingshui, Duming, LindianRedOrangeOrange warning issued for Heilongjiang Province for heavy rain on July 28.
HenanPingdingshan, Nanyang, Luohe, Zhoukou, Shangqiu, XuchangRedN/ARed rainstorm alert warning issued in Henan on July 22.
HubeiWuhan, Jingzhou, Xianning, Enshi, Huangme County, YichangRedRedLandslide breaks out along Yangtze River near Enshi amid flooding and heavy rainfall on July 22 and 27. 

Severe flooding triggers landslides and disrupts streets and roadways in Yichang.
HunanChangsha, Yueyang, Baojing CountyRedOrangeOrange warning for floods in effect since July 26 for Chenglingji section of Yangtze River and Dongting Lake.
Inner MongoliaHohot, Ordos, Ulanchabu, BaotouRedN/ARed rainstorm warning issued for Inner Mongolia on July 26.
JiangsuNanjing, SuzhouRedN/AOrange warning for floods in effect since July 26 for Taihu Lake. 

On July 18, flood waters in Nanjing rose five feet higher than the warning level, which triggered the highest-level emergency flood alert.
JiangxiNanchang Shangrao, Ganzhou, JiujiangRedN/AOrange warning for floods in effect since July 26 for Poyang Lake.
JilinTonghua, Baishan, Yanbian, ChanghaishanBlueBlueBlue rainstorm alert warning issued for Jilin on July 28.
LiaoningChaoyang, Kaiyuan, Jianchang County, Xinfeng CountyOrangeOrangeOrange rainstorm alert warning issued for Liaoning on July 29.
ShandongQingdao, Rizhao, Linyi, ZhaozhuangRedN/AFlooding triggered and roadways disrupted in Rizhao, Zaozhuang, Qingdao, and Linyi on July 22 following continued torrential rainfall.  Flooding warnings have mainly been lifted since July 23 across the province.
ShanghaiShanghaiBlueN/AAverage rainfall 2.4 times higher than historical levels. Longest rainy season in two decades came to an end on July 20. 
ShanxiTaiyuan, Huozhou, JinchengOrangeOrangeTaiyuan issued a yellow rainstorm alert warning on July 17.
ShaanxiXi’an, Baoji CityRedN/AThe Weihe River has continuously increased its water levels, reaching the highest level of 2020 at Baoji section since July 23. 
SichuanBazhong, Changzhen, Dazhou, Xiaojin County, Danba County, Mianning County, Maoxian County, Yuexi County, Ganluo County, Muli County, Songpan CountyRedYellowHeavy rainfalls trigger flooding in lower-lying areas of the National Highway G542 near Changzhen on July 21-22. Heavy flooding triggered in Pinchang County, Bazhong due to continuous heavy rainfall on July 21-22.  Landslides occurred in Maoxian County on July 24-25, destroying buildings and cutting off sections of Highway No. 213.
TibetLhasa, Linzhi, Nagqu, Shannan, QamdoBlueN/ABlue rainstorm warning issued on July 20 for Tibet.
XinjiangKashgar, Urumqi, Halajun Township, Atushi, Tuoli County, Yili River ValleyRedOrangeYellow flood alert warning issued for Xinjiang on July 28.
YunnanZhaotong, Zhenxiong, Simao, Kunming, LijiangRedN/AMany parts of Yingjiang River and Baoshui River were hit by heavy rainfall triggering floods and landslides on July 18.
ZhejiangNingbo, Hangzhou, Jiaxing, Longquan, Chunan CountyRedN/ARed flood warning issued on July 16 for Hangzhou, Jiaxing, and other cities.
Appendix A: Affected Provinces and Regions Due to Severe Flooding and Rainfall (as of July 29, 00:00 GMT) Source: Everstream Analytics, China Meteorological Administration

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