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Transportation obstacles urge US companies to withdraw from China | Jobs

Transportation obstacles urge US companies to withdraw from China | Jobs

Washington (AP) — Game maker Eric Poses made a worst-case card game last year, bitterly mentioning how the coronavirus overturned normal life.

He didn’t know.

With an unpredictable twist on the pose, his game itself will be caught up in the latest fallout from the health crisis: an unprocessed global supply chain that has delayed shipments around the world and skyrocketed freight rates.

The worst-case scenario created in China should have reached the distribution center of US retailer Target in early June. Instead, the game got stuck in the Port of Seattle for a few weeks and didn’t arrive until mid-July.

“It’s killing me,” said Poses, who launched All Things Equal, a toy company based in Miami Beach, Florida, in 1997 and sells games from the trunk of a car. “You do everything right. You produce on time. You are crazy about your product.”

And … an unexpected disaster.

Like other importers, Poses faces the worst of supply problems that are expected to continue into 2022, including rising prices, overwhelming ports, and shortages of ships, trains and trucks. Save the decision he made five years ago: moving his game and toy production from the United States to China. Now he thinks it might make sense to return production to Mexico, at least not in the United States, to protect him from the risk of relying on factories across the ocean in China. increase.

“I’m going to make a smaller margin, if that means less anxiety,” he said.

Other American companies do similar calculations. Fifty-two percent of US manufacturing executives surveyed by consulting firm Kearney say they have begun to buy more supplies in the US in response to the COVID-related supply turmoil. 47% said they plan to reduce their reliance on supplies and factories from a single country. 41% specifically stated that they would like to reduce their dependence on China.

And not only because of virus-related bottlenecks in transportation, but also in itself. Companies are also worried that they will be in trouble in the US-China trade war, the world’s two largest economies.

The dispute began when President Donald Trump imposed a tax on $ 360 billion worth of Chinese imports to protest Beijing’s fighting efforts to surpass US technological dominance.

However, Joe Biden leader Xi Jinping is also a successor of playing cards of China, it does not appear to be in a hurry in search of peace.

“The whole relationship is in bad shape,” said Rosemary Coates, a longtime consultant for a company that wants to set up a factory in China.

In the United States, there are sharp trade practices in China, including cyber theft, crackdowns on civil liberties in Hong Kong, crackdowns on Muslims in the Xinjiang Uighur Autonomous Region, and bipartisan frustration with neighbor bullying in South and Southeast Asia.

“Are we in the 21st century edition of the Cold War? Yes,” said Michael Taylor, a trade lawyer who is a partner of King & Sporting. “The end is not the annihilation of nuclear weapons. The end is now economic domination.”

For decades, companies have built up profits by moving manufacturing to China and other low-wage countries and exporting their products to the United States. We also keep costs down by keeping inventory to a minimum. With a “just-in-time” approach, the factory purchases materials only when necessary to meet the order.

However, it is dangerous to rely on a distant factory and leave inventory exposed. In March 2011, an automobile parts factory in northwestern Japan was damaged by the earthquake and tsunami. As a result, there is a shortage of parts and a shortage of temporarily idle car factories around the world, including the United States. This makes us realize that long supply chains are vulnerable to disruption.

Then there was the Trump trade war. After Trump imposed strict tariffs on goods from China, importers restructured their supply chains and scrambled to find alternatives to Chinese factories.

But they had never seen what COVID-19 gave to global commerce.

The company sold off its inventory and canceled orders from its suppliers as the country was closed in February and March last year and families evacuated to their homes. And in fact, the economy has collapsed. In the United States, gross domestic product, the broadest measure of economic production, declined at an annual rate of 31.2% from April to June 2020. This is the worst quarter of the record up to 1947.

Then something unexpected happened.

Lewis Black, CEO of Almonty Industries, which mines rare metal tungsten, said: “On the one hand, we were out of stock, the manufacturing floor was shut down, and on the other hand, people were spending crazy.”

Growth has skyrocketed, especially as vaccines have restarted the economy and allowed families to return outside, boosted by stagnant consumer demand. The US economy has expanded and continued to move at an astonishing rate of 33.8% per annum from July to September 2020, with a recent healthy growth rate of 6.5% per annum from April to June this year. Was recorded.

Suddenly, companies were overwhelmed by orders they couldn’t meet.

“They had a oops moment,” Black said.

“This is a typical case of overreacting at the front end and having to catch up,” said Tom Delhi, CEO of the Supply Management Association, an association of purchasing managers. “No one really foresaw the strength of the surge in demand …. the supply just couldn’t keep up.”

As companies rushed to meet the surge in demand, raw material costs soared. Oil prices have risen by more than 70% over the past year, and aluminum has risen by 55%. The price of tin has doubled. According to the spot market on the plastic exchange, the price of blow-molded plastics in high-density polyethylene (common in products such as bottles, fuel tanks and industrial drums) has skyrocketed by 157%.

Fares have skyrocketed as companies try to book shipping containers. The Baltic Dry Index, which measures shipping costs, has skyrocketed by more than 700% since mid-May 2020.

It was difficult to put the product on the container ship. But that wasn’t the end of the problem. The port was overwhelmed when the cargo arrived.

“They couldn’t get in and out of the ship,” said Richard Gottlieb, CEO of consultancy Global Toy Experts. “They were backed up. Do you know the horrifying experience that the plane landed and there was no open gate? That’s what happened to the container.”

As a result, supply chain disruptions have paralyzed many businesses.

Consider Elmer Schultz Services, a Philadelphia company that repairs and maintains kitchen equipment for restaurants and other clients. The availability of parts has been significantly delayed. It took 7 to 10 days to get the backordered parts. Now it takes 3-4 weeks.

Kirby Maron, chairman of Elmer Schultz and the Association of Commercial Food Equipment Services, an industry group, said:

Glitch made things worse. A huge container ship from Evergiven was stranded on the Suez Canal in March for a week, disrupting transportation between Asia and Europe. The salt pans near Shenzhen, China’s manufacturing center, the fourth busiest port in the world, were closed for a month due to the resurgence of COVID cases in late May.

“When you give up your own production and let someone make it for you — hopefully you can make more money, but you can make more money The reason we can do it is because there are more risks, “said trade lawyer Taylor. “And the risks are supply disruptions, labor issues, quality control, and theft of your intellectual property.”

Importers sought to calculate how much of the higher cost could be passed on to their customers. At Mindscope Products near Los Angeles, we want to prevent owner George Valanchi from raising the price he charges to retailers of his toys, such as radio-controlled cars and Javalin Jack’s talking pumpkins.

“It’s difficult,” he said.

He said raising prices is easier online. He has raised the online price of Mindscope’s radio-controlled cars from $ 19.99 to $ 22.99 and plans to raise it to another $ 24.99 next year.

Companies that have resisted the transfer of production overseas are now enjoying their advantages. They don’t have to wait for the product to cross the sea — or understand whether they can pass the import tax that hit them at the US border to their customers.

“The guys who survived the difficult times when their competitors had huge profit margins now look smarter than everyone thought,” Taylor said.

Located in Wichita, Kansas, Make-A-Fort is one of the lucky or visionary ones. Co-founder Kent Johnson has decided to manufacture his company’s products (playable in an easy-to-assemble cardboard fortress) in the United States. He didn’t like the long lead times needed to manufacture abroad. He wanted more control over the quality of the product and wanted to be able to visit the assembly line on a regular basis.

And he wanted to continue working in America.

“We started it at a disadvantage,” he said. “We were a little lucky. We don’t have much supply chain.”

He said freight rates have risen significantly in the United States, but it’s still quite different from the explosive costs of container shipping.

Mursix Corp manufactures precision metal parts for the automotive and healthcare industries. Is plagued by rising steel costs and shipping bottlenecks.

Andy Dieringer, Supply Chain Director, Yorktown, Indiana, said: Currently, it takes 9-11 weeks to ship from China.

As a result, the company is looking for a new supplier in Mexico, said Susan Murray Carlock, co-owner and vice president of business development. “I was able to see that I could get there by next year,” she said, perhaps by the second quarter of 2020.

But leaving China is not easy. The cost there remains low. In addition, our specialized suppliers are concentrated in our manufacturing centers in China, making it easy for factories to get parts when they need them.

For example, in All Things Equal, Poses laments: “I couldn’t find a factory in North America that could make games at a competitive price, but I’m still trying!”

“There are countless parts that aren’t manufactured in the United States, they’re low-cost parts, and the industry is vertically integrated, so they probably won’t be manufactured in the United States,” said consultant Coates. Secretary General of the Reshoring Institute, a non-profit organization that helps companies manufacture in the United States.

It can also be risky. Companies can be forced to leave equipment behind, increasing the likelihood that trained Chinese workers will crank out competing products using abandoned molds and machine tools.

“Pulling yourself out of China is complicated, and often very expensive,” Coates said.

However, as awareness of the risks of relying on supplies that have to cross vast oceans increases, especially during times of tension between the United States and China, US companies are looking for more accessible alternatives.After all, consulting firm McKinsey has discovered that major supply chain disruptions are becoming more common.

McKinsey partner Katie George said:

Once rare, supply chain failures that lasted more than a month now occur every 3.7 years, McKinsey said in a report. In some industries, you can lose nearly a year of revenue. “

Transportation obstacles urge US companies to withdraw from China | Jobs

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Daisie Hobson

Daisie Hobson is a Director at the Reshoring Institute and an engineer with many years of experience in manufacturing and project management.

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