Summary
As US importers and manufacturers reexamine their outsourcing strategies in China and Southeast Asia they must consider closely the ever-changing landscape related to international shipping prior to taking any significant action. Obviously product characteristics, raw material requirements, manufacturing processes, and end user markets will play a vital role in any sourcing strategies. However, with increases in transportation primarily in fuel surcharges and increasing labor costs in China this discussion has taken on a new priority.
Analysis
Some of the action importers can be taking is completing another formal landed-cost analysis with their transportation providers. When considering available capacity among carriers both current and future and lower demand forecasts, very competitive pricing should be in reach. For example, in reading the recent article from Inc magazine, the costs associated with a standard 40' ocean container (FEUs) from Shanghai to the West Coast seem fairly high. Perhaps this was done to accentuate the point, but it is not completely accurate as to where the general market is on the eastbound trans-Pacific trade. The comparison is made comparing small to medium-sized importers and their buying power with the likes of big box importers. These much larger importers with significant volume (+1000 FEUs) will tend to contract direct with ocean carriers due to their greater purchasing power. This leaves the relatively smaller importers the option of tendering their business to freight forwarders who again buy capacity in much larger quantities thereby also passing these savings onto their customers. These same freight forwarders with a local presence at origin can also provide additional value by helping to keep foreign suppliers and vendors more compliant in regards to order accuracy, timeliness and quality. The infrastructure in China both within major industrial areas and port operations has vastly improved making it easy to get containers from the shipper's location, loaded onboard the vessel and with consistent timely departures. From a regulatory and documentation standpoint this region is also fairly straight forward compared with some alternative sourcing locations where these procedures and processes may be more difficult to transfer.
Asia is also fast becoming a consumer market in itself with intra-Asia business and related transportation activities showing some of the strongest growth in comparison to other trades. These new markets will also provide future growth and revenue opportunities for US companies with their products already being produced in close proximity to these new markets.
With increases in transportation costs primarily through the impact of rising fuel prices, it is tempting to consider sourcing locations much closer to US consumers. Mexico and Canada will certainly benefit from this shift in strategy, but they bring with them other challenges related to infrastructure, compliance, transportation costs, available labor, etc. With inland fuel surcharges over-the-road within North America at approximately 40%, much of the initial savings is quickly evaporated. Central and South America present their own infrastructure and capacity challenges and the transportation costs may not necessarily present a significant savings. In fact all-water routes from Asia to the East Coast are becoming increasingly popular over the West Coast not only to diversify away from more congested ports but to limit the exposure to much longer inland hauls.
These are just some of the considerations that managers are facing, making the decision to source closer to home a more complex one involving several different scenarios. No doubt there will be some correction going forward for certain importers and products, but China and the surrounding region remains an attractive sourcing location for many reasons.
