Despite Covid upheavals and the
Section 301 tariffs, sourcing costs in China have remained surprisingly flat in
comparison to SE Asia.
With reports that the post-lockdown boom for retail is fading,
the sector is under increasing pressure, according to ‘Southeast Asia and
Supply Chains’ published by freight forwarding company Flexport. Retailers
trying to diversify supply chain risks and recover stability are finding that
continued trade turmoil is complicating predictions and leaving many scrambling
just to keep up.
“Where production cost was once almost the only
concern, the events of the past 18 months have emphasised that supply chain
shocks can happen anywhere, anytime, and that resilience and risk
diversification need to be larger considerations in planning business
operations,” according to Flexport.
The company’s new Southeast Asia Sectoral Cost Index
(SEASCI), which uses US import shipment data to compare wholesale prices within
and across countries in SE Asia as well as China, found in the key sectors of
apparel, furniture, and electronics, importers are showing decreased tolerance
for production cost variation, perhaps linked to the current environment of
high logistics costs.
The United States’ Section 301 tariffs on a wide range
of Chinese-made goods had a significant impact on China’s exports to the United
States following their gradual roll-out beginning in 2018.
According to the report, China’s share of total
imports into the US plunged by 3% in 2019 as the full suite of tariffs took
effect, the largest drop in at least 30 years. A surge in demand from US
consumers in 2020 brought China back to market share growth, but the total
value of US imports from China remains lower than before the tariffs took
effect. At the same time US imports from Southeast Asia rose, as manufacturers
adjusted their supply chains to minimise the tariffs’ effects on their
businesses.
Vietnam particularly benefited: after years of
incremental growth, Vietnam’s exports to the US almost doubled in just two
years from 2018 to 2020.
In addition, the report found that on a quarterly
basis, in 2021 average prices have been relatively stable across key sectors,
and that there is a decreased tolerance for multi-sourcing when there are
significant price differences. Furniture prices have been particularly stable,
while there has been more variation in apparel and electronics.
Many importers seem to be willing to accept divergence in price by about 20% on
either side, which may reflect the fact that other factors—like tariffs and
logistics costs—also play a role in the total cost of an import.
With
shorter-term manufacturing agreements based on seasonal products, apparel costs
are more sensitive than other industries. However, costs in China have remained
stable throughout, while costs in Indonesia, Malaysia, Thailand, and Vietnam
have deviated across the board.
In general, China and Southeast Asian countries
responded very successfully to
the initial outbreak of Covid-19, with good results not only for the health of
their
citizens but for the health of their production and exports, according to
Flexport.
However, the report notes that newcomers to Southeast
Asia who are used to Chinese business practices may need to adjust to different
regulatory regimes. While many of these countries have worked hard to attract
foreign investors, they do not have the decades of experience in working with
international clientele that China does, and some parts of the export process
may be slower and more cumbersome.
By Just Style