We tend to consider sourcing in a constant state of flux, and right now that may be truer than ever. The sector is seeing a rebalancing of trade, shifts in global merchandise trade flows, capricious currencies and shipping rates at critical lows.
In a robust report sizing up the global sourcing landscape by key issues and countries for its Global Retail Sourcing Report 2016, CBX Software delved into some of the conditions that are going to shape sourcing in the coming year.
Here’s a look—by major market indicator—at what’s going on in the world’s leading low-cost sourcing locales.
New orders, output, PMI
Subdued was the word CBX analysts used to describe manufacturing conditions so far this year with several countries posted sub-50 readings in Markit’s purchasing manager’s index (PMI), which points to contraction.
“Conditions in the global manufacturing sector remained subdued heading into Q2, with small increases in output and new orders,” the report noted.
Production levels were near stagnant in Asia, with nominal increases in China, Taiwan, Indonesia and Japan. Things looked a little better in the Americas with Mexico experiencing output expansion. Europe also saw an uptick.
For comparison’s sake, see below for March PMI’s by country:
- China – 49.7
- India – 52.4
- Indonesia – 50
- Mexico – 53.2
- Turkey – 49.2
- Vietnam – 50.7
In China, manufacturing production and output inched up (from 48 in February) for the first time in a year, but more so in domestic demand that in exports.
Vietnam, which has all eyes on its market considering the pending Trans-Pacific Partnership (TPP), saw modest growth into the second quarter (February PMI was 50.3) with more new orders and increased exports, namely by consumer goods producers.
Imports and exports
In looking at exports and imports across key low-cost sourcing countries, CBX said export figures (as of January 2016) are “relatively soft” heading into Q2 and commodity and input costs are higher thanks to the super dollar.
- Bangladesh – exports grew 8.3% to $19.3 billion, mostly from ready made garments
- Cambodia – exports of garments and footwear in 2015 were up 6.7% to $6.3 billion
- India – India’s exports were down 13.6%, but inflows of foreign investment in fiscal 2015/16 were up nearly 40 percent
- Indonesia – exports were down 20.7% to $10.5 billion
- Pakistan – exports of textiles and garments fell 5.3% to $1 billion
- Vietnam – exports at the end of last year were up 7.9%
Wages are on a general upswing as most emerging markets have either already committed to pay hikes or are under increasing pressure from unions to do so.
“With greater visibility into social conditions in low cost countries, currency fluctuations, increasing unrest and union pressure, wages in traditional low cost sourcing countries are on the rise across the board,” CBX said.
Here’s a look at current average wage rates (per month) as of April 1, 2016.
- Bangladesh – $68
- Cambodia – $140
- China – $137-$639 (based on province)
- Egypt – $114
- Ethiopia – $35-$40
- India – $40-$130
- Indonesia – $92-$230
- Malaysia – $233-$253
- Myanmar – $67
- Philippines – $110-$220
- Thailand – $254
- Vietnam – $107-$156
Container freight rates
Shipping rates are at alarming lows—according to Xeneta, which provides analysis based on shipper data, rates on key Asia-European trade lanes and Asia-North America trade lanes are down more than 60 percent over the past year.
“Factors driving the rate slide include softer consumer demand, a slowdown in Chinese economic growth, overcapacity of shipping and also a trend towards mega container ships,” CBX said.
To ship a 20-foot container from Hong Kong to Hamburg today costs $580, compared to $840 last year. Sending one from Shanghai to Antwerp is down to $590 from $910 last year. A container going from Shanghai to Los Angeles cost $1,580 last year and now costs a lower $1,150.
“While many ships are idling, this has not impacted rates as expected,” according to CBX.
Currency shifts have upset markets in recent months and changes in China have been leading the charge.
“After a strong 2015, in Q2 the U.S. dollar hit its lowest level in five months against a basket of currencies,” CBX said. “At the same time, the EUR has continued to make gains against both the USD and RMB.”
The euro gained nearly 5 percent against the dollar in the first quarter and it’s expected to hold its ground through the year. Against China’s RMB, the euro has seen steady gains—a trend that continued into the second quarter.
China’s yuan is expected to remain relatively stable in the near term with some depreciation over the year, and the dollar is expected to lose some value in the second quarter and into the rest of 2016.