It’s been a busy few weeks at Panjiva. We launched coverage of all industries, released new data showing the effect of the economic downturn on the global supply chain, and began working with a great new customer — The Home Depot®. Thought I’d share some snippets from the press coverage we’ve received:
“Josh Green, chief executive of Panjiva, said the number of Chinese suppliers shipping to US customers in December was 10 per cent lower than in December 2007.”
“The second dimension of the merchandise problem could affect product availability in stores, said Josh Green, CEO of Panjiva, a firm that advises leading U.S. retailers such as Home Depot on supply chain risks.”
“[W]e took a look at the suppliers that were still active as of the end of 2008… [C]ompanies [that] suffered a 50% or greater decline in the volume shipped to their American customers.. are on Panjiva’s Watch List, as they are in the greatest danger of going under.”
“Panjiva is not just innovative, it’s revolutionary.”
Supply Chain Management Review
“However, there’s good news for supply chain managers who are willing to confront risk head-on. While risk can never be eliminated, it can be significantly reduced through the intelligent application of information.”
“Green said of the firms he tracks, the number of global suppliers shipping to the U.S. dropped 13 percent in December compared with October 2007.”
“And sleuthing for answers has become a whole lot easier. Companies such as Panjiva provide tools which allow companies to identify overseas shippers, products and destinations.”
A watered-down “Buy America” provision will be part of the U.S. stimulus package. Yesterday, on Meet The Press, senior White House adviser David Axelrod took pains to note that the provision respects U.S. treaty obligations.
The text backs up Axelrod’s assertion. Practically speaking, then, the “Buy America” provision will not have much of an effect on how the stimulus money gets spent. Because it would be more or less impossible to enforce favoritism for domestic suppliers without violating treaty obligations.
Nevertheless, Chinese authorities are not pleased. As a Xinhua news agency editorial put it, “[F]acing a global financial crisis, trade protectionism is not a solution, but a poison to the solution.”
So we’ve got measures that don’t provide any protection for American companies — but that are raising fears that America is turning protectionist. In other words, protectionism without the protection.
One of my colleagues characterized this as the worst of all worlds, but I wouldn’t go that far. Real protectionism would be worse, and I suspect Chinese authorities are firing a rhetorical shot across the U.S. bow, to ensure that the U.S. understands there will be consuequences if we go any further down the protectionist path.
On Monday, Bloomberg reported that lots of Chinese toy suppliers went out of business in 2008. Not surprising, given the various product safety incidents of the last few years, as well as the general economic downturn. The real question is, what lies ahead for toy suppliers, and the companies that work with them?
To answer this question, the Panjiva research team took a look at shipments whose commodity description included the word “toys.”
- From October of 2007 to October of 2008, we saw a 10% decline in the number of companies sending “toys” shipments to American customers.
- From November of 2007 to November of 2008, we saw a 13% decline in the number of companies sending “toys” shipments to American customers.
- From December of 2007 to December of 2008, we saw a 25% decline in the number of companies sending “toys” shipments to American customers.
Obviously, this is not an encouraging trend. In the months ahead, we’ll be keeping an eye on those companies that are still active.
In the meantime, if you want to browse through the 13,000+ companies that have shipped toys to the United States, check out Panjiva’s search results for “toys.”
In today’s New York Times, there’s an interesting article by Keith Bradsher about workers in China that are struggling to find jobs as exports falter. Citing information from an industry association, Bradsher writes that “many plants have deferred reopening for up to three weeks for lack of orders from the United States and Europe.”
Will “deferred reopenings” turn into permanent closures? We’ll see in the months ahead. In the meantime, the Panjiva research team took a look at how Chinese factories fared through the end of 2008.
- From December of 2007 to December of 2008, we found that there was a 10% decline in the number of Chinese companies (Hong Kong and Mainland) shipping to American customers.
- From November of 2008 to December of 2008, in just a single month, there was a 6% decline in the number of Chinese companies shipping to American customers.
My hunch is that the worst is yet to come.
On Monday, we released data showing the extent to which the economic downturn is decimating the global supply base. Specifically, our analysis showed that there are fewer suppliers actively serving the U.S. market, and, of those that are active, many have suffered an alarming decline in the volume shipped to U.S. customers.
We’ve received questions about whether this is a China-only phenomenon. The short answer is no. Some statistics:
World: We saw a 72% drop-off in the number of active apparel suppliers from July to October. Of those that remain active, 40% are on Panjiva’s Watch List, as a result of suffering a huge decline in the volume shipped to U.S. customers in the most recent three month period.
CHINA: The comparable statistics for Chinese suppliers look much the same. We saw a 69% drop-off in the number of active apparel suppliers from July to October. Of those that remain active, 45% are on Panjiva’s Watch List.
Bottom line: the data suggest that this is not a China-only problem, but nor have Chinese suppliers been spared the pain that the global supply base is feeling.
Check out a related article over at MarketWatch.
Two interesting articles by James Morrissey:
1) The first notes that Chinese authorities are providing assistance to struggling factories — and that this assistance is leading some to call for action against China when quotas disappear at the end of this year.
2) The second notes that the Bush Administration sees no reason to keep quotas in place for China — since China has not yet filled its 2008 quota.
Of course, the economic meltdown is behind both of these stories — it’s why China hasn’t shipped enough to fill its quota (no one’s buying!), and why Chinese authorities feel the need to provide assistance to factories (no one’s buying!).
In the weeks ahead, the Panjiva team will be researching just how bad things are for factories around the world. More soon.
Over at IndustryWeek, you’ll find Panjiva’s thoughts about how to respond to price increases in China.
Given all the trouble that Chinese factories are having, are price increases really still a problem? So far, yes. Declining demand is leading to factory closures (see previous post), NOT downward pressure on wages.
Our IndustryWeek piece evaluates three strategies for responding to cost increases:
- Identify the “New China” (i.e., look to new countries)
- China is the New China (i.e., look at new regions within China)
- Leverage your suppliers’ networks (i.e., authorize subcontracting)
Would welcome your thoughts, here or over at IndustryWeek.
Another article in the New York Times about factory closures in China. According to government statistics, 67,000 Chinese factories closed in the first half of the year. 11,000 per month. And that was BEFORE the global economic meltdown.
It’s scary enough that all of these factories are closing. It’s even scarier that these closures are happening without any warning.
See a previous post about how you can spot risk in time to do something about it.
David Barboza reports that the Chinese government has unveiled a massive economic stimulus package. US$586 billion will be spent in the next two years on a wide variety of infrastructure projects. Will this effort:
A) Help Chinese authorities cope with unrest that is resulting from widespread factory closures?
B) Provide infrastructure that will make China’s manufacturing sector even stronger in the decades ahead?
C) Bolster Chinese consumer spending — including spending on imported goods, thereby providing a boost to the global economy?
D) All of the above?
I’m going with D. This is a brilliant move, and one that suggests, among other things, that China is growing more comfortable with its role as a leader in the global economy.
As David Barboza reported over the weekend in The New York Times, Chinese authorities are expanding their melamine investigation. Melamine is the toxic chemical that should not be making its way into the food supply chain — but that nevertheless has been. By now, some may be tuning out news about food (and product) safety scandals. Not sourcing executives… Managing risk — particularly food and product safety risk — has risen to the top of the agenda of most sourcing executives. The same is true for government regulators, both here in the U.S. and abroad.
What is perhaps most interesting, though, is that there really aren’t a lot of good ideas on how to effectively manage this category of risk. I was struck by this comment from a professor at NYU, who was quoted in Barboza’s article:
“’A year ago, everybody should have been in a complete panic about it and done something then,’ said Marion Nestle, a professor of food studies and public health at New York University and the author of ‘Pet Food Politics: The Chihuahua in the Coal Mine.’ ‘Someone should have required that melamine not be in any food product.’”
Professor Nestle seems to be assuming that simply requiring that melamine be excluded from the supply chain would have solved the problem. Not so — and particularly not so in China. The number of participants in the food supply chain — just in China — is huge. How would you communicate new requirements to all these participants, let alone enforce these requirements?
Putting the right regulations on the books is perhaps a necessary step, but a much more comprehensive approach to solving the problem is required. As noted above, regulation must be coupled with communication and enforcement. In addition, key players (government regulators, inspection agencies, private sector leaders) must agree on standards and provide for transparency about who is abiding by these standards. This last piece creates positive incentives for good behavior — an important complement to punishments for bad behavior.