Obstacles to Transportation Push US Businesses to Withdraw from China | New
WASHINGTON – Game creator Eric Poses made a worst-case card game last year, bitterly mentioning how the coronavirus has disrupted normal life.
With an unpredictable turn of the pose, her game itself is caught in the latest fallout from the health crisis.
The worst-case scenario created in China should have reached the distribution center of US retailer Target in early June. Instead, the game was stuck in the Port of Seattle for a few weeks and didn’t arrive until mid-July.
“You’re doing everything right,” said Poses, who founded All Things Equal, a toy company based in Miami Beach, Fla., In 1997. You’re crazy about your product.
And… an unexpected disaster.
Like other importers, Poses faces some of the worst supply issues, including rising prices, overwhelming ports, shortages of ships, trains and trucks, which could last until 2022. Shifting production from the states -United to China. He thinks it makes sense to send production back to Mexico, at least not to the United States, to protect it from the risks of depending on factories in Chinese oceans.
“I’ll make a smaller margin,” he said, “if that means less anxiety.”
Other American companies make similar calculations. Fifty-two percent of U.S. industry executives surveyed by consulting firm Kearney say they have started purchasing more supplies from the United States in response to the COVID-related supply crisis. 41% specifically indicated that they wanted to reduce their dependence on China. Companies are also worried about falling into a trade war between the United States and China.
The dispute dates back to President Donald Trump’s decision to tax $ 360 billion on Chinese imports to protest Beijing’s aggressive efforts to challenge US technological control. Joe Biden, Trump’s successor, does not seem in a rush for peace.
For decades, companies have racked up profits by shifting manufacturing to China and other low-wage countries. We also reduce costs by keeping stocks to a minimum.
However, it is dangerous to rely on a remote factory and leave the stock exposed.
Under pressure from Trump’s trade war, importers rushed to find alternatives to factories in China.
Businesses have reduced inventories and canceled orders as the country was closed in February and March last year and families were evacuated to their homes. And, in fact, the economy collapsed. In the United States, the economy collapsed at a record annual rate of 31.2% from April to June 2020.
Then something unexpected happened.
Lewis Black, CEO of Almonty Industries, which extracts tungsten, a rare metal, said: “On the one hand, we were out of stock, the fabrication shop was closed and, on the other hand, the people were spending crazy.
Growth jumped, spurred by stagnant consumer demand. From July to September 2020, the US economy grew and continued to grow at an astonishing rate of 33.8% per year.
Suddenly, businesses were overwhelmed with orders they couldn’t fill.
Commodity prices have skyrocketed due to the conflict between increasing demand and decreasing supply. Oil prices have increased 70% in the past year and aluminum has increased 55%. The Baltic Dry Index, which measures shipping costs, has climbed over 700% since mid-May 2020. Loading product onto a container ship was difficult and expensive. After that, the port struggled to handle the inbound cargo.
The resulting supply chain disruption crippled many businesses.
Firms that resisted transferring production overseas are now reaping the benefits. They don’t have to wait for the product to cross the sea – or figure out if they can pass the import tax that hits them at the US border on to their customers.
Located in Wichita, Kansas, Make-A-Fort is one of the luckiest or visionaries. Co-founder Kent Johnson decided to make his company’s products (playable in an easy-to-assemble cardboard fortress) in the United States. He did not like the long lead times for manufacturing abroad. He wanted more control over the quality of the product and wanted to be able to visit the assembly line regularly.
And he wanted to continue working in America.
“We started with a disadvantage,” he said. “We were a bit lucky. “
But leaving China is not easy. The cost remains low there. In addition, our specialist suppliers are concentrated in our manufacturing centers in China, making it easy for factories to obtain parts when they need them.
Still, US companies are looking for more accessible alternatives as they become more aware of the risks of depending on supplies that must cross vast oceans, especially during times of tension between the United States and China. After all, major supply chain disruptions are increasingly common.
Katie George, partner at McKinsey & Company consulting firm, said:
Once rare, McKinsey has found that supply chain disruptions lasting more than a month occur every 3.7 years. A 100-day crisis (which occurs every 5-7 years) can devour the equivalent of a year of income in some industries.