What are the short-, medium-, and long-term impacts of power restrictions and production curtailments on the logistics industry?

Release date:

2021-10-12

Author:

Jinhua Logistics

Ahead of National Day, reports of power restrictions and production cuts across the country have dominated social media and public discourse. According to incomplete statistics, as of now, all 16 provinces nationwide have actively implemented measures—such as operating on a “two days on, five days off” schedule or curtailing output by 90%—to reduce energy consumption.

High‑energy‑consumption sectors such as chemicals, coal, steel, building materials, and textiles will be the hardest hit by power‑rationing and production‑restriction measures. At the same time, these industries are the primary sources of freight for the logistics sector, so the most direct impact will be a decline in cargo volumes and fewer orders—exacerbating the already oversupplied capacity situation and intensifying cutthroat price competition. Moreover, the transportation and logistics industry itself is a major electricity consumer within the tertiary service sector, making it another key target of this round of power cuts and output restrictions, further compounding the challenges facing an already struggling logistics sector.

Accordingly, the question of how power restrictions and production curtailments—spanning the short, medium, and long term—will specifically affect the logistics industry across different regions and sub‑sectors, and for how long these impacts will persist, becomes the central focus of this article’s technical analysis. Through this analysis, the author hopes to offer logistics professionals practical decision‑making guidance to help them prepare in advance and proactively mitigate potential risks.

The Core Reasons Behind Power Restrictions and Production Cuts in Multiple Provinces

Before analyzing the impact of power and production restrictions, let us first examine the most fundamental reasons behind these measures in multiple provinces:

Reason 1: Coal-fired power supply falls short of demand.

On the demand side: Economic recovery and accelerating electrification are driving up electricity demand.

From the demand side, excluding the base effect of the pandemic, this year’s electricity demand growth has been hovering around 7% to 8%. This growth rate is comparable to that of 2018, remaining at a relatively high level historically, and in Q4 2020, electricity demand expanded by over 10%; yet no large-scale power rationing occurred.

Supply Side: Coal prices are rising at an accelerated pace, while power plant inventories remain low.

(1) Persistently high coal prices for power generation have led to widening losses among power producers, while coal‑fired capacity utilization remains at a high level, reaching 73.1%—the highest in the past five years.

(2) Inventory continues to decline, with current levels down 42.6% year over year—the lowest in nearly five years.

Reason 2: The dual-control policy on energy consumption

According to the “Barometer of Regional Dual-Control Targets for Energy Consumption (covering both energy intensity and total consumption)” released by the National Development and Reform Commission on August 17, in the first half of this year, only 10 provinces and municipalities—including Beijing, Tianjin, and Shandong—made satisfactory overall progress toward their dual-control targets, while nearly 20 other provinces fell short of the benchmarks.

Short-, Medium-, and Long-Term Impacts of Power Restrictions and Production Cuts in Multiple Provinces

Next, this paper examines the impact of power restrictions and production curtailments on the logistics and supply chain industry from short-, medium-, and long-term perspectives.

Impact 1: South China, Southwest China, East China, and Northwest China will be the key regions for policy tightening in the fourth quarter.

Overall, the author believes that the “dual control of energy consumption” is unlikely to be fully relaxed in the short term; minor adjustments may occur, but their actual impact remains to be seen. In the fourth quarter of 2021, industrial electricity demand is expected to remain tight.

(1) Supply and Demand: Electricity demand in the fourth quarter of 2021 is expected to remain tight. , Power cuts and rationing in regions such as South China, Southwest China, East China, and Northwest China may be intensified. This is because key provinces and cities are reducing carbon emissions by implementing power rationing, making it difficult to ease coal imports in the short term. Meanwhile, frequent mining accidents and persistently stringent safety inspections continue to weigh on supply. During the autumn‑winter dry season, hydropower generation is declining, while wind and solar power account for only a limited share of the energy mix. With a high likelihood of a cold winter this year, residential electricity consumption could rise.

(2) Policy Perspective: Drawing on the NDRC’s “Barometer of Regional Dual‑Control Energy‑Consumption Targets for the First Half of 2021” and the “Plan for Improving the Dual‑Control System for Energy‑Consumption Intensity and Total Volume,” short‑term policies are likely to reinforce the balance between price stability, supply assurance, and the dual carbon goals, with some preemptive fine‑tuning. However, the actual impact of early‑warning mechanisms for energy‑consumption targets in certain provinces remains to be seen.

Looking at the situation across provinces, five key control measures will be implemented going forward:

a. Strictly control the growth rate of total energy consumption (Anhui, Jiangsu, Gansu, Ningxia, etc.);

b. Strictly control the addition of new production capacity in high-energy-consuming industries (e.g., Liaoning, Fujian, Zhejiang);

c. Strengthen energy conservation and efficiency in industries such as steel, coal, and chemicals (in Shanxi, Hunan, Qinghai, Shanghai, and other regions);

d. Key industries shall strictly implement energy‑consumption‑equivalent and reduction‑based substitution (e.g., Liaoning, Zhejiang, etc.);

e. Energy consumption monitoring in key industries (e.g., Jiangsu, Gansu, Jilin, Hunan, etc.).

Impact 2: The adoption of time-of-use electricity pricing helps alleviate short-term pressure; the logistics sector should closely monitor the production and operational conditions of its own customers as well as those in industries such as 3C electronics and automotive.

For logistics enterprises:

(1) Particular attention should be paid to heavy‑industry customers in the secondary sector, which have been most severely affected by power restrictions—especially the 3C electronics and automotive manufacturing industries, the two subsectors that recorded the fastest growth in electricity consumption over the past two years. The impact of production halts or output reductions at such customers on logistics companies’ revenues warrants close monitoring.

(2) As the second-largest consumer of electricity among tertiary-sector industries, the transportation and logistics sector is highly likely to become a key target of policy regulation. Accordingly, logistics enterprises must, on the one hand, confirm with the government whether their operations are subject to power‑outage restrictions, and, on the other hand, develop robust contingency plans for staggered production schedules. For example, Guangdong Province has recommended that tertiary‑sector users reduce electricity consumption during peak periods.

Impact 3: Power restrictions and production curtailments will drive up costs for exporters and stifle business growth; close attention should be paid to developments in export‑oriented sectors such as apparel and automotive.

1. At present, China’s export capacity is excessive, driving down export prices, while energy and resource prices remain high. As a result, although China’s exports are substantial, they fail to generate significant profits. Therefore, a dual-control system for energy consumption is needed to raise export prices, thereby preventing the U.S. from squeezing profits. The view that power‑rationing and production curtailments are part of a broader national strategy is inaccurate; such measures, when concentrated in the upstream sector, drive up raw‑material costs and increase downstream expenses, thereby squeezing exporters’ margins and undermining their operations.

2. By comparing the General Administration of Customs’ export data over the past year since the onset of the pandemic and excluding upstream raw-material industries with high direct energy consumption, cross-border logistics providers should closely monitor the potential impact on sectors such as automobiles, furniture, and apparel—where volume is rising but prices are falling—commonly referred to as a “capacity trap.” At the same time, they should seize opportunities to support high‑value‑added clients in sectors like pharmaceuticals, home appliances, mobile phones, and auto parts as they expand into international markets.

Impact 4: Over the next five years, China’s electricity supply‑demand gap will persist, reaching its most severe phase in 2024—yet this situation also harbors significant industrial opportunities.

1. During the transition of the power‑supply mix, China’s electricity‑generation growth rate will continue to lag behind the growth rate of electricity demand, meaning that a supply‑demand gap will persist over the next five years. In terms of timing, the gap will narrow somewhat in 2022 as the economy moderates, but the most severe period of power shortages may not occur until around 2024.

2. As the new power system continues to mature and the penetration of ancillary facilities such as energy storage increases, electricity shortages will gradually ease, creating significant strategic opportunities for a clean-energy technology revolution. These include new growth prospects across sectors such as renewable energy, electric vehicles, energy storage, and advanced materials—particularly energy‑related metals and chemical products.

(1) New Energy Vehicle Industry Chain: The new energy vehicle market is experiencing rapid growth, with promising prospects for related automakers; electrification, intelligentization, and lightweighting are driving product upgrades.

(2) Energy storage: On the generation side, it smooths output fluctuations and facilitates renewable energy integration; on the grid side, it shifts load between peak and off-peak periods, reducing the peak-to-valley difference; and on the demand side, it enables arbitrage through time-of-use pricing, lowering electricity costs. As a result, it is poised for widespread adoption.

(3) Chemical Industry: Renewable energy sources such as photovoltaic and wind power, along with new‑energy vehicles—including electric cars and hydrogen‑fuel‑cell vehicles—on the consumer end, are poised for robust growth, driving the entire new‑energy industry chain.

(4) New materials products: Demand is growing rapidly, including auxiliary materials such as photovoltaic encapsulant films in the PV industry chain, glass fiber—the primary material for wind turbine blades—and battery materials used in power batteries for new-energy vehicles.

In short, the widespread controversy surrounding power restrictions and production cuts ultimately stems from their impact on the “central nervous system” of economic development and daily life. However, as logistics professionals, we must remain confident that the government’s bold move—cutting off the old while refraining from patching up the gaps—once again underscores its unwavering commitment to phasing out outdated capacity, driving industrial transformation and upgrading, and advancing toward emerging, energy‑efficient, intelligent manufacturing.

For the logistics and supply chain industry and its enterprises, this presents both challenges and opportunities. The challenges lie in short-term order declines and the costs associated with automation and investments in new energy technologies. However, in the long run, only those logistics and supply chain firms that can keep pace with and effectively support industrial upgrading will emerge as winners over the next 15 years.

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