Friday, September 03, 2010
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"Global Sourcing"
Analysis: Global sourcing in the spotlight again
A slew of upcoming economic data is expected to provide definitive proof of what many observers have suspected for a month or more: Europe's economies are returning to growth. America is admittedly further behind, but the mood is lightening there, too.
Eurozone industrial production, for instance, rose by 0.9% month on month in August, according to figures released recently, while July's performance was revised significantly upwards to show a gain of 0.2%.
"Even flat production in September would result in expansion of 1.8% quarter on quarter in the third quarter," says Dr. Howard Archer, chief European and UK economist at analysts IHS Global Insight.
The inevitable result will be a renewed focus on global sourcing, as razor-thin post-recession margins conspire with weak demand to keep prices low. Profits, in short, will come through cost reduction rather than pricing power.
But even as trade and economic output statistics point to newly resurgent Asian economies, the spectre at the feast remains the unpredictability of freight rates.
At the time of writing, for example, the Baltic Dry Index hovers close to 3,000 -- down from over 4,100 in June, but well up from levels close to 900 last December.
Container shipping prices don't mimic the Baltic Dry exactly, but Far Eastern container rates have tripled since June, points out Jon Wood, a director of Big Misters Shipping Company of Felixstowe, a UK container port.
This week, for instance, rate cards report that a standard 40-foot container costs between $3,000-$3,300 to ship between any major Chinese port and the major 'direct drop' ports of Europe -- Antwerp, Bremerhaven, Le Havre, Felixstowe or Hamburg.
Significantly, those rates include all surcharges. Back in the dark days of February and March, when shipping lines were famously charging -- literally -- almost nothing to ship containers, critics were keen to point out how the imposition of sudden and opaque surcharges was distorting the traditional basis of international trade.
"We were being asked to pay charges even when importing on a pre-paid CIF basis," says Antony Davenport, a director of Sheffield, UK based Lewis Manufacturing Services, an importer of wire and castings.
Pacific-based shipping lines are getting in on the act, too. The Transpacific Stabilization Agreement (TSA), a group that represents ocean container carriers shipping from Asia to North America, has already imposed 'peak season' surcharges of $400 per 40-foot container, purportedly to address 'higher cargo handling, equipment positioning and contingency planning costs during periods of peak cargo volume.'
And a flurry of recent press releases leave readers in no doubt as to the TSA's agenda. "TSA Members Adopt Recommended Minimum Rates for 2009 10 Contracts"; "TSA Lines Pursue Further Revenue Improvement in 2009"; and "TSA Revenue Program Seeks to Reverse Huge Carrier Losses" make the group's positioning crystal clear.
Will such tactics stick? Big Misters' Wood is sceptical. Despite the recent rises, he is expecting rates to stabilize at about half their present levels. Rather than a resumption of growth, he sees present volume levels as being inflated by Christmas-related stock-building, with steep drops on the cards in the New Year.
Is he right? Only time will tell. But in the meantime, the uncertainties don't make the job of overseas sourcing any easier.
Procurement Tag - Global Sourcing
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