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In this episode…
The coronavirus pandemic has caused a number of difficulties for importers with Chinese or Asian suppliers. Lack of visibility over suppliers, lockdowns, increased supply chain risks, sea freight delays and very high costs requiring very advanced booking, a global electronic component shortage, and a USD/RMB exchange rate that isn’t ideal right now, are the topics under discussion in this episode.
If these are affecting you, Renaud’s views will be interesting!
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🎧 5 Challenges Importers Face When Preparing For 2022 🎧
Show Notes
✅ Introduction.
✅ Summary of the 5 difficulties we’ll discuss. Covid-19, shipping, electronic component shortages, the USD/RMB exchange rate, and why it’s too late to ship for Christmas 2021 now and why importers need to hurry up and ship for CNY.
✅ Difficulty 1. Time (Shipping in time for Christmas and CNY). Unfortunately August is too late to place orders and receive them in time for Christmas, especially these days, however, there might still be time to ship and beat CNY (Feb 1 in 2022) if you do it very soon (August), but October/November will almost certainly be too late.
✅ Difficulty 2. Covid-19 (How Covid is still disrupting manufacturing and importers). Importers are blocked from visiting China due to long quarantine periods in hotels, assuming they are even granted a visa. Trade shows like the Canton fair won’t be happening in 2021 or, probably, 2022. Inspectors and auditors have difficulty accessing certain countries or areas due to lockdowns and travel restrictions. Thailand is basically closed, South Vietnam is locked down right now, and India will be seen as high risk. Buyers can’t meet suppliers face-to-face and not being able to control your projects in person regularly increases risks. In China, visiting factories is usually still possible, but depending on the area there could be a lot of red tape that makes it difficult such as taking time out to get PCR tests which are often required for visits to certain areas.
Importers may be able to check via zoom, but if you or your auditor/inspector can’t go to a factory and check in person this increases risks of poor quality which is an unwelcome effect of Covid. The zero-covid approach of some Asian countries will mean disruption caused by lockdowns, testing, etc, lasts into 2022 unless they adapt.
✅ Difficulty 3. Shipping (crazy high costs and delays). Covid hit, shipping companies were pessimistic with their annual plans, there was an online shopping boom which caused the little capacity to be swallowed up, air cargo was vastly reduced. This has led to container prices being 5 or 6 times higher which eats into the margin of the importer buying FOB and the reduced global shipping capacity leading to very long lead times to book a container and get goods onto a ship (sometimes over 1.5 months). As this carries on the costs and lead times are increasing and could continue. Some Chinese suppliers are warning customers to book now in August to receive goods in time for CNY in early February. The cash cycle is much longer for importers, too. They have to risk paying out for goods and shipping without receiving anything to sell for a long time, so this could be very damaging for smaller businesses.
✅ Difficulty 4. Shortage of electronic components. Chips and PCB parts are a real problem right now and it affects most industries as so many products have electronics today. Prices have shot up and refurbished or even fake components are being sold! Building new manufacturing is a large investment and can’t be done extremely quickly. Numerous new product developments have been suspended as it’s too hard to redesign and retest new products to bypass a missing part, and this goes for manufacturing, too. Many importers are just having to wait and this will probably continue into 2022.
✅ Difficulty 5. USD/RMB exchange rate. The exchange rate between the USD and RMB lead to a lot of lost margin in the past year as the RMB appreciated from around 7.2 to the dollar to around 6.2. It appears to be stable at around 6.4 at the moment since July 2021. It’s also a geopolitical issue, if the West complains about the rate it may depreciate somewhat. Importers in the West may benefit by opening an RMB account to pay suppliers and you can hedge by buying RMB in advance to reduce exposure to rate movements in the wrong direction. Suppliers may provide a better price, too.
✅ Wrapping up
Related content…
- China’s Factories Are On A Wartime Footing Due To Covid. How Does This Affect You?
- China’s Shipping Bottlenecks June 2021 – What It All Means For You
- How Did Sea Freight End Up In Such An Expensive Mess In 2021? [Podcast]
- Strategies For Reducing Lead Times From Suppliers In China [Podcast]
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