The graph below summarizes the data behind the quote.  As you can see, after four months of free fall in the number of manufacturers shipping to American customers, there were increases from February to March (~2%), and again from March to April (~8%).

Unfortunately, the news isn’t all good, as noted by the Wall Street Journal and BusinessWeek.  Consider the following:

• Though the March-April increase surpassed last year’s March-April increase, data released by Chinese authorities suggest that, on a seasonally adjusted basis, April was worse than March for the world’s largest exporting economy.
• Risk for those engaged in global trade remains high: the percentage of significant manufacturers on the Panjiva Watch List edged up from 30% in March to 31% in April.
• Similarly, the percentage of significant buyers having done business with a Panjiva Watch List supplier in the preceding three months edged up from 40% in March to 41% in April.

Clearly, global trade is still vulnerable to shocks.  But it’s nice, finally, to be able to report a bit of good news.

Some methodological notes for the data junkies:

• Manufacturers that have suffered a 50% or greater decline in volume shipped to American customers in the most recent three month period, versus the same period a year ago, are on the Panjiva Watch List
• “Significant manufacturers” are companies that have sent 10 or more shipments to American customers within the last year.  As of the end of April, there were 86,740 significant manufacturers.
• “Significant buyers” are companies that have received 10 or more shipments from overseas manufacturers within the last year.  As of the end of April, there were 72,447 significant buyers.

“The free fall in global trade seems to have halted,” said Josh Green, the chief executive of Panjiva…

 http://www.nytimes.com/2009/05/29/business/economy/29norris.html?_r=1&ref=business

Specifically, I’m excited to tell you about Panjiva SinoScreen — a diagnostic tool that will help you quickly and inexpensively assess the health of your Chinese supply chain.  The Panjiva SinoScreen report will provide you with an assessment of 20 Chinese suppliers, based on Panjiva‘s analysis of import data and Sinosure‘s analysis of credit data.  Why two data sets?  No one data set is perfect, so triangulation using multiple data sources increases the likelihood that you’ll reach an accurate conclusion about which of your suppliers stand the best chance of surviving the downturn.

Between now and May 31st, Panjiva SinoScreen is available for a one-time fee of $5,000.  Check out a sample of Panjiva SinoScreen.

To order your customized Panjiva SinoScreen report, contact us at +1 212 763 2125, or fill out this short form.

Five months ago, I wrote about the parallels between China’s product safety crisis and America’s financial crisis.  Today, there’s not much discussion about the safety of Chinese exports.  Wouldn’t it be nice if, five months from now, no one’s worried about the safety of U.S. Treasuries?

• Global economy will shrink for first time since World War II
• Global trade will shrink for the first time since 1982

If 2009 turns out the way that the World Bank predicts, it will be the year which illustrates both the success and failure of 20th century globalization.  The success was in stitching the world’s economies together, so that a rising tide would lift all boats.  The failure was either of imagination of or of will.  Either we couldn’t conceive that all boats might sink at once — or we couldn’t muster the political will to create a mechanism for effectively responding to a global economic meltdown.  Politicians will likely claim it was the former, but I think it was the latter.

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:

1. Identify the “New China” (i.e., look to new countries)
2. China is the New China (i.e., look at new regions within China)
3. Leverage your suppliers’ networks (i.e., authorize subcontracting)

Would welcome your thoughts, here or over at IndustryWeek.

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.

* One notes that Indian suppliers are refusing to take orders from American companies because they’re worried the American companies won’t be able to pay.  (This, by the way, is consistent with what we’ve been hearing from suppliers.)

* The second highlights concerns that buyers have (or should have) about the effect of the financial crisis on suppliers…  Will they survive?  Will they cut corners?

So suppliers are concerned about buyers, and buyers are concerned about suppliers…  I.e., everybody’s worried about everybody, and rightfully so.  Given this state of affairs, what steps should solid buyers take?

1) Be prepared to prove to your suppliers that you’re solid.  References from your customers and your bankers may be able to help in this regard.

2) As Jason from SpendMatters suggests, be vigilant in monitoring your suppliers.  Check out a previous Panjiva post on how to look into a supplier’s financial health.

Position yourself to have maximum leverage once things settle down

As you and your peers delay orders – and cut order sizes – factories that have been living on the edge will go under. Once things do settle down, everyone will be making urgent requests of those factories that are still standing. (Delayed orders will turn into orders that need to be filled asap!) These factories will not be able to make everyone happy. Make sure you’re a priority at that critical moment. The more orders you place during the lean times – and the bigger your order is at the moment things settle down – the more important you’ll be to your factory when it counts. If you’re spreading your orders over a large number of factories, consider consolidating your orders with a smaller number of factories in the months ahead.

Identify backup factories

If a key factory goes under – or can’t meet your needs when everyone jumps back in with urgent requests – you need a back-up plan. Look within and outside your network for factories that have the same capabilities as your existing factories. For each and every factory that you use, you can and should have a back-up factory in mind.

Bottom line: planning now will save lots of headaches later.

One of our customers basically predicted The Great Squeeze several months ago.  He argued that consumer spending was destined to slow down (clearly, he was right).  That’s bad in and of itself, of course, but — even worse — he predicted that this slowdown in consumer spending would occur just when the cost of inputs was on the rise.  Indeed, we’re hearing this from lots of our customers these days: the cost of manufacturing is going up, particularly if you’re manufacturing in China (as most are).  Why are manufacturing costs going up, even as the global economy cools down?  First, wage rates are going up, particularly in Southern China, as more and more companies choose to manufacture there and the competition for labor goes up.  Second, Chinese authorities are putting in place new regulations — and enforcing old regulations — that increase the cost of doing business in China.  (These regulations are valuable, because they protect workers and the environment.  However, that doesn’t change the fact that they increase the cost of doing business.)  Declining consumer spending and rising cost of goods — this is a recipe for a sharp decline in profitability for those caught in the middle.

Of course, there’s more to the story.  Evan Clark, in Thursday’s Women’s Wear Daily, highlighted the impact that the credit crunch is having on retail.  Indeed, just as companies are facing declining profitability, they are going to have an incredibly difficult time getting the credit they need to pull through.  Lower consumer spending, rising cost of goods, and limited availability of credit — this is The Great Squeeze.

The key to surviving The Great Squeeze is narrowing your focus.  If you are trying to serve a broad set of customers with a broad set of products, you are going to struggle.  You are going to struggle to stay close enough to your customers to know exactly what they’re going to spend money on.  And you are going to struggle to stay on top of your supply chain and keep costs down.  On the other hand, if you focus on a narrow range of customers, you will know better than anyone else what they will spend money on.  And, if you narrow your product range, you can put all of your efforts into keeping costs down on a manageable number of products — either by improving your manufacturing processes, or by finding lower cost suppliers in new regions.

Narrowing your focus is scary, because you’re putting all your eggs in one basket.  However, today, the only alternative to narrowing your focus is conducting business as usual — in other words, surrendering to The Great Squeeze.