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Entering New Asian Sourcing Markets

Industry Insights / admin / Asia, India, sourcing, Vietnam

While upsetting the start of 2020, the coronavirus has highlighted the importance of having a diversified sourcing strategy. It is true that many companies were already casting their net outside of China to identify suitable suppliers as part of a broader strategy to ‘de-risk their supply chains’. Most recently, US businesses have found themselves looking for other sourcing jurisdictions as a means of mitigating the penal tariffs imposed by the Trump administration in 2019. Although these have now abated as part of the ‘Phase One’ deal, certain categories are still subject to additional tariffs and where this is not the case, US companies have taken the hint to look beyond China for some of the product ranges. Asian sourcing is now integral to buying from this part of the world.

Asian Sourcing Markets.

China, with its scale, will remain an important part of any sourcing strategy but it is likely that a ‘China plus’ (China plus one other jurisdiction) or ‘China plus plus’ (China plus more than one other sourcing jurisdiction).will be the strategy of choice for companies leveraging the benefits from the Asian sourcing sector for the foreseeable future. Over the past decade, alongside China, Asian nations with an abundance of low-cost labour have looked to export manufacturing as a means of growing their economies and creating wealth for their workers. Vietnam, Bangladesh, India, Indonesia, Cambodia, Laos and to a less extent Thailand can all be added to this list.

We have therefore been speaking to our teams based around Asia, to gather some insight into what considerations companies should review when entering new markets and engaging with new suppliers. It is certainly true that the Chinese manufacturing base has, over the last 15 years, developed an understanding of what it means to export goods to certain markets and have been able to tailor their services to align, in some cases seamlessly to their clients’ needs.

Insight

Our perspective comes mainly from a Vietnam/India sourcing context but does take into account other markets across the region. We have also looked to identify points that are common to most Asian markets rather than list market specific issues. These are as follows:

1.Do not underestimate culture & language.

Dealing with a Chinese supplier is wholly different from dealing with an Indian or a Vietnamese supplier. Whether it is an interpretation of an email, timelines, quality-assurance standards etc., make sure you are clear in communication and be rigorous in validating any information provided.

2.Cost should not be King.

Cost is germane to any purchasing decision and margin is often still the main metric that buyers are judged against. Often to make Asian sourcing work and new suppliers to be onboarded, a longer-term view needs to be adopted. This may mean entering into a trial phase to understand the factory’s capability under production conditions. It may mean that the cost is similar or even higher than the price point of your incumbent supplier. Possibly, see if you can get a Bill of Materials(cost breakdown) to further understand any cost drivers and/or anomalies.

3.Understand the complete supply chain.

China’s manufacturing sector is vast compared with some of its Asian neighbours. There are still some 300 million migrant workers in China. You look at Vietnam as the ‘workshop’ of the World and the total population is only 97 million. The point being that with scale comes the large supplier network, infrastructure, market competition and raw material availability. Therefore, you should understand the different aspects of the supply chain. Is the raw material locally sourced or from overseas? What does the labour pool look like? What are the cost implications of this? Are there additional lead times? There may be manufacturing limitations in a particular market; for example, the cost of a PU finish on metal worked products in Vietnam is expensive. Ultimately, this will all play into the commercial opportunity. It is important to do your due diligence.

4.Over-manage production & quality.

As with any new production, it is important to over-manage the production process and quality piece to ensure you are getting the visibility you need. Keep people on the ground to monitor the production and conduct the inspections as the products come off the line. That visibility is key.

5.Logistics.

Although there has been a significant uptick in investment in had infrastructure across the Asian region, make sure you understand which ports your products would be shipped to, how they get there and any possible bottlenecks. For example, certain ports may only have one shipment per week to your local market.

6.Be patient.

Do not expect the same type of relationship and information flow compared with factories that already know how you operate. There is likely going to be a learning curve as the supplier develops an understanding of your product. In some cases, you may not get to the price points you require initially, but, as above, this needs to be looked at over a medium-term horizon to develop viable suppliers in alternative markets.

Summary

There is no doubt that a broad Asian sourcing strategy will help mitigate risk and provide opportunities across the region. Entering new markets does come with challenges but as long as this is done correctly, then there are considerable benefits to your business.

At ET2C, we are well placed to help manage your China suppliers but also help you penetrate new sourcing markets and leverage the benefits using our on the ground expertise. Should have any queries on Asia sourcing, or more specifically Vietnam sourcing and India sourcing, please contact us at contact@et2cint.com.

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Asia Sourcing in Flux – Coronavirus, Asia & Beyond

Industry Insights / admin / Asia, coronavirus, sourcing

Introduction

The eyes of the world are watching the daily updates as the virus spreads. Context has left the building (seasonal influenza appears to be more infectious and more deadly at the time of writing). Just like with SARs, there is fear and hysteria. The WHO have now been let into ‘ground zero’ to help manage the contagion and the Chinese Government are putting more resources into managing the outbreak. Talk of containment are more frequent.

However, China is largely ‘on pause’. Mass quarantining on an unprecedented scale has been implemented across the planet’s most populous nation. 760 million people are in effective lockdown, with movements to and from apartment blocks being controlled and, in some locations, each household is limited to one family member leaving every couple of days. Places where people congregate are being avoided. In major cities, offices are quiet as staff work remotely at home. Restaurants, bars, shopping malls are ghostly silent. Schools have been suspended. Travel restrictions, both internationally and domestically have left transport hubs idling. China’s central bank is even going disinfect and store used banknotes before re-circulating them. Uncertainty prevails with no known end in sight, just the constant update to the numbers; cases confirmed, deaths and recoveries.

Asia Sourcing

What does this mean for China sourcing? What does this mean for Asia Sourcing more broadly? The Chinese manufacturing sector had already been hit in 2019 by Trump’s tariffs and this outbreak has further deepened the impact on factories across China.

From a China sourcing perspective, the current picture is one of confusion, with local municipal authorities implementing their own preventative measures. This requires each factory to submit detailed records of where workers have been, potential quarantines and additional preventative measures on the factory floor. The net result is that although large swathes of China’s manufacturing belt have ‘officially’ been opened from the 10th February, factories have not been granted permission to open at a local level or, if they have, they are still waiting for non-local workers to either return or complete a 14 day quarantine period.

The impact on the Chinese workforce.

Other than Hubei Province – on complete lockdown – you will need to understand the individual circumstances of each factory. How many non-local workers do they have as a mix of the entire workforce? When will permission to open be granted? What will be the capacity and output when they open? Are there any bottlenecks further down the supply chain with the supplier’s suppliers?

Beyond the factories, transporting goods to warehouses and through the Ports will likewise be problematic. There will be inevitable disruption as Carriers have removed capacity, and as output picks up it will take time to adjust to bring capacity back (and potentially address a surge in outbound shipments).

Asia manufacturing will undoubtedly also be impacted. China’s size and scale has cast a shadow across its South East Asian neighbours. For example, components that are usually shipped from China to Vietnam’s factories will be delayed. Chinese managers, who are often commonplace in factories beyond China, will be stuck due to travel restrictions imposed in some countries. There is therefore no doubt that the ripples of this outbreak are not solely limited within China’s borders but will be felt across the world from the factories of Asia right through to retailers and Brands.

Our Insight

Although this was certainly not part of our predictions for 2020, we have been speaking to our factories and partners across China to get some insight on what this will mean. Clearly there are still a lot of unknowns but China and its workers want to get back to work. They need to.

1. Impact on Shipments

As a broad estimate, we are seeing this adding between 2-4 weeks to shipments post CNY. You need to understand what the impact is at a factory level and when the situation can begin to ‘normalise’.

2. Stock Levels

Given the disruption, it is essential to try and ensure that you have priority when it comes to capacity. Add volume to upcoming orders, and quickly, to both confirm capacity and to replenish stock levels given the potential inbound delays. It may also help to place stand alone replenishment orders that can quickly be produced and shipped out.

3. Development Cycles

It may be that development cycles have been impacted and critical paths have missed certain milestones. Look at how you can fast-track these to make up time, or by using technology (for example, photos rather than waiting for couriers to ship to your home country).

4. Other Countries

Although it always takes time to onboard suppliers, it may be that there are opportunities in other markets across the Asia sourcing spectrum. India and Vietnam are good options.

5. Surge

Just like after SARs, when there was a bump in economic activity, it is likely that there will be a surge in both orders and shipments coming out of China once factories have worked through the preventative measures that are needed on site. In particular, this may impact freight rates in the short term. Make sure you are leveraging any relationships you have with your carriers in this regard to secure ship dates as well as good pricing.

Summary

The impact of this outbreak has been unprecedented, having been amplified by the timing around the CNY holidays and the movement of some 700 million people. We are constantly working with our suppliers in China to get timely and accurate updates to our clients.

At ET2C, we are always looking to find solutions for our clients. Should you have any queries on China sourcing or more broadly Asia sourcing and new opportunities, please contact us at contact@et2cint.com.

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Sustainable Packaging – Top 3 trends in 2020

Industry Insights / admin / Packaging, Recycling, Sustainability

An Evolution over the last decade.

There has been a growing movement towards sustainable packaging over the past 10 years. This has been spurred on by increasing awareness of the damage and impacts the output of consumerism is having on the planet. Plastic features highly across media outlets with images of sea life sharing their habitats with plastic bags, microplastics, etc. Governments have certainly played their part too, by banning plastic straws in certain markets for example.

Certainly, the focus on environmentally friendly packaging had a slow start over the first half of the decade. There was a lack of understanding around what it meant at a corporate level. Even though corporate sustainability goals existed, they were more centered around energy, water, transportation. We have since seen sustainable packaging become a more prominent component of retailers, brands and wholesalers corporate sustainability goals alongside an increased awareness on the end of the use of packaging.

The New Era of Sustainable Thinking

Around the period 2015 -2017, we saw the development of more and more recycling programs and new standardized labeling systems that set out and explain the recycling instructions to the consumer. Brands started to learn what the impact was on their value proposition. For example, many organisations, both in the private and public sectors, created plastic ban programs to reduce the waste of plastics and other materials that were having a detrimental impact on the environment.

In the past couple of years, this interest (particularly at a consumer level) in sustainability has surged. The concept of the Circular Economy has gained significant momentum and this has focused considerable attention also on sustainable packaging. With a more engaged consumer, it has resulted in a tipping point for many retailers and brands to remain relevant. A huge variety of innovative packaging solutions has been designed to reduce the environmental impact and meet customer demand for sustainable and eco-friendly options.

Sustainable Packaging Trends in 2020

Although everyone today talks about sustainability, finding sustainable solutions and providing them to clients is still challenging for many companies. However, ‘necessity is the mother of invention’ and many have searched for innovative solutions that could support the cause.

In this article we briefly listed the main sustainable packaging trends for 2020, highlighting both opportunities and challenges.

1. Design for recycling/reuse

Waste hierarchy is a tool for the evaluation of processes that protects the environment alongside resource and energy consumption from most favorable to least favorable actions. The hierarchy establishes preferred program priorities based on sustainability, using the common methodology when talking about sustainability. These are the ‘3Rs’ of Sustainability; Reuse – Reduce – Recycle.

Recycling

While waste management has become more and more important for governments and companies, growing attention has been paid to Recycling as well. As mentioned, sustainable packaging is still very challenging for most of the companies. In fact, in order to be recycled, post-consumer packaging has to fulfill a long list of requirements (e.g., separability, cleanliness, labeling, and coloration) – even to the point that different variation of plastics may need to be separated for a recycling plant to use the waste material effectively. It is not so obvious to many that manufacturers trying to fulfill those requirements may have to use more material and energy when they produce the packaging than they have done up until now. This will impact the price at a time when the consumer has an abundance of product choice.

Additionally, just because a packaging product is designed for recycling, this does not automatically mean that it will be recycled. Designing for recycling is certainly crucial to find sustainable solutions in the short term. However, cultural and educational components are involved and governments have to ensure that recyclability equals recycling. Both the education of the end-user and the availability of recycling systems is key.

Reusing

For the same reason, reuse is even more difficult to envision than recycling, given our current mindset. Manufacturers should therefore consider any additional impact on the material design changes. Also, they have to calculate the additional impact of transporting, washing, sanitizing (possibly even tracking) and refilling those reusable containers.

In conclusion, while companies have to re-think products and packaging, governments and organisations have to work on infrastructures and culture to make these changes truly effective.

2. Replace plastic with bioplastic

Another trend on the rise is the increased use of bioplastics to replace fossil-fuel-based plastics.
Bioplastics are plastic materials produced from renewable biomass sources (such as vegetable fats and oils, corn starch, straw, woodchips, sawdust, recycled food waste, etc.) and their demand has largely increased in the last decade.

The most common types are:

• Starch-based plastics
Thermoplastic starch currently represents the most widely used bioplastic, constituting about 50% of the bioplastics market;
• Cellulose-based plastics
Mainly cellulose esters, (including cellulose acetate and nitrocellulose) and their derivatives, including celluloid;
• Protein-based plastics
Bioplastics that derive from proteins from different sources.

Of course, benefits in using bio-based plastics are obvious. However, to make a realistic estimation of their true benefits, it’s essential to investigate many factors, such as the origin of the components used and the resources needed to cultivate and collect them.

3. The return of paper

Paper is even more frequently suggested as a substitute for plastic packaging than bioplastics (for example, paper cups and bags). However, paper packaging generally requires several times more mass to fulfill the same function as its plastic counterpart.
In fact, paper as an alternative – as with so many ‘environmentally-friendly’ industries – also has an environmental impact. You need approximately 17 trees to produce one ton of paper so replacing plastic with paper could likely create a severe supply problem. If we were to replace all plastics with paper, we must either cut down more forests or find areas for reforestation.
In addition, the paper industry is the third one that most fossil fuels need to. Moreover, it the first one in the industry sector with the greatest need of water and chemical additives to bleach the paper, additives which are highly polluting for the environment.

Major global accreditation systems

To check if the paper belongs to well managed environmentally logging, you can consider the major global accreditation systems:

ISO14001 – international environmental management system
FSC – Forest Stewardship Council – Promotes responsible stewardship of the world’s forest www.fsc.org
Chain of Custody – covers all wood processes from the forest to the consumer
PEFC – Program for the Endorsement of Forest Certification – recognizes sustainable forestry management practices www.pefc.org
EMAS – Eco-Management and Audit System – European Council regulation.

Sustainable Packaging Solutions

AT ET2C, we’re serious about sustainability and its benefit to our existence as well as the ultimate commercial benefits for purpose-driven companies. For this reason, we are investing in sustainability in 2020 continuing to look for options for our clients both on product and packaging. We have FSC certification already and are looking at other standards.
We have recently created a special offering based on alternative and sustainable packaging solutions, particularly for bags and food containers. If you want to know more, download our brochure here and contact us at contact@et2cint.com. We’ll be glad to support your sustainability objectives and their implementation.

Download the NaturePlast Biodegradable Bags brochure here

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Quality Assurance vs Quality Control: a basic guide

Industry Insights / admin / quality assurance, Quality Control

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Quality Assurance vs Quality Control: a basic guideRead More »

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The Benefits of Outsource Manufacturing

Industry Insights / admin / manufacturing, Quality Control, sourcing

With more and more competition cropping up all the time, most businesses are looking for ways to differentiate themselves. Outsourcing your production can be the perfect way to reduce overheads and increase the flexibility of your supply chain. In this article, we will be providing you with an insider’s look into the many benefits associated with outsourced manufacturing, particularly from an Asian perspective.

Why Outsource Manufacturing?

The whole premise of outsource manufacturing was initially built upon a significant reduction in the cost of goods. Rather than having to invest in a manufacturing plant, manage large numbers of factory workers and cover large unwieldy variable monthly overheads – all that would form part of your product cost – it was possible simply to pay a unit cost for a product. When access to mass market third party manufacturing was available, particularly at a time when China became a member of the WTO back on the 11th December 2001, companies had a choice as to whether to retain their own manufacturing plants or reduce overhead and create a more flexible and dynamic supply chain.

Outsourcing to Asia.

Outsourcing to Asia has generated significant margin opportunities due to the comparable, lower, operational costs in these developing Asian economies. Some of the main savings have been historically generated as a result of lower labour wages. Although manufacturing wage gains are fastest in low-cost countries, the savings that can be factored into the cost of goods are still significant.

Some examples of average monthly manufacturing wages by country and the annual wage change over the past couple of years:

China, approximate monthly average salary, $500/ Wage gain, 6%
Thailand, $450/5%
Indonesia, $380/9%
India, $280/10%
Vietnam, $250/8%
Cambodia, $200/11%
Myanmar, $150,12%.

This is a relatively predictable path for developing economies as growth of the manufacturing sector has a direct impact on blue-collar workers’ salaries, as part of the broader wealth creation piece. Just to reiterate the point, Poland, which is one of the largest manufacturing economies in Eastern Europe, has an average wage of $1,400 per month, and the relative increase is approximately 5%.

Cost still a Key Benefit?

Back in the early 2000s’, the cost savings were significant when production was outsourced to Asia. Is this the case still today? Are there any other benefits of outsourcing your production today?

1. Cost

Cost will always be a factor behind looking to outsource production. Certainly, it has to make commercial sense, and this is the primary driver for looking at Asian manufacturing. Even with China’s cost base having increased significantly in 2019, with tariffs now in place from the US and likely to remain so for the foreseeable future, there are still manufacturing efficiencies and technology capable of helping the ‘China machine’ retain some of its relative competitiveness.

2. Raw Material Availability

With the scale of manufacturing that has risen across Asia for the past three decades, there has also been an evolution in raw material supply channels. In particular, China has developed sophisticated supply chains that lead not only to access of raw material but also sub-components and accessories. In fact, this helps reduce costs as everything can be sourced locally (and often nearby your plant).

3. Flexibility

Finally, outsource-manufacturing has enabled companies to better manage their working capital and reduce significant investment in their own manufacturing plants. It is one of the reasons that in this internet age, a start-up can grow so quickly given the barriers to entry have been markedly reduced, if not removed altogether.

4. Quality

With the right quality strategy, it is possible to deliver excellent quality from Asia. There are a significant number of factories which have developed an excellent understanding of quality requirements for export.

5. Expertise

Using outsource manufacturing can immediately enhance the expertise and capability from a knowledge capital perspective. And this applies to any company as long as it is possible to find the right partner to make your products. Even the simplest products have to go through a range of different manufacturing processes and essentially buying this expertise greatly reduces any potential learning curve. It has also greatly reduced any barriers to entry.

Summary

There is no doubt that outsource manufacturing is an integral part of any Brand, Retailer or Wholesalers’ supply chain strategy. One only needs to look at one of the largest brands in the world, Apple Inc, who use Foxconn as part of their iPhone manufacturing strategy. Undoubtedly, it is essential to understand the risks of manufacturing your products overseas. It does not come without risks and understanding these, creating some form of ‘upstream’ presence and ensuring you have visibility at all stages of the production, will make sure that these are effectively managed.

At ET2C, we are capable of walking you through each aspect of the manufacturing process. For more, please contact us at contact@et2cint.com.

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Sourcing Trends: Our Predictions for 2020

Industry Insights / admin / business, sourcing, Tariffs

Sourcing Trends – What happened last year?

Sourcing Trends 2019. The past year has presented a range of challenges. Traditional ‘bricks and mortar’ retail models have struggled to connect with their customers in a new digital world. On an economic level, there has also been weakness in certain currencies that has impacted the cost of goods Ex-Asia for markets such as Australia. Maybe most pointedly, 2019 has also seen an increase in protectionism coming to the fore.

The headline of this protectionism has clearly been the US/China ‘Trade War’ and the impact this has had on sourcing strategies – and not just for US companies. The escalation in tariffs on Chinese products throughout the year caught many by surprise. Particularly, how quickly they were implemented without any real policy guidance but rather cajoled on by the President’s unpredictability.

At the start of 2020, we have therefore been sitting around our crystal ball to set out our predictions for the sourcing trends over the coming 12 months. What will the consumer want? What will be the impact on the outsource manufacturing sector? Which markets will be most relevant? Any new technologies? Clearly, these are only our insights and thoughts, no one can really predict the future!

Predictions

1. US Tariffs

Although it is fair to say that there has been a slight de-escalation in tensions between the US and China towards the end of 2019, we expect the ‘Phase One’ deal to be more of a place-holder. The main terms of any trade deal, namely IP protection, currency manipulation and market access, have largely been brushed under the carpet at this stage to help both leaders.

Prediction: We therefore expect tariffs to remain in force largely for 2020 on Chinese goods to the US. Probably, they won’t be at the level of the phase 4 tranche that was never implemented back on December 15th. Most likely, they will remain in place until the agreement on the ‘Phase Two’. This will lead to a continued ‘de-risking’ by US companies over the medium term.

2. US Tariffs (part 2)

Trump has already pointed the finger at other countries when it comes to what he sees as unfair trade practices. India has already retaliated against the US removal of trade privileges under GSP midway through 2019.

Prediction: Expect other Asian countries (possibly Vietnam) to be caught in the US-President’s vow to readdress any unfair trade practices.

3. RMB/USD Exchange Rate.

Given the warming (or perhaps de-frosting) of the US/China relationship, there will likely be a gradual appreciation of the RMB towards the rates earlier in 2019.

Prediction: Expect the RMB weakness, which was used as a tool to counter the impact of US tariffs to be largely rolled back as negotiations continue on a positive track to 6.7 RMB to the Greenback towards Q4 in 2020.

4. Ex-China Sourcing

Although China will continue to be an important market, companies will continue to look outside of China for select ranges or product categories to ensure that they have market diversification. Surely, this will be a key sourcing trend for this year.

Prediction: Other Asian markets to continue to take relative market share from Chinese manufacturers. Scale and capacity to be increasingly important and therefore the main beneficiaries are likely to be India, Vietnam, and Indonesia. Certainly, their markets will be important but on a much more targeted (product/market) basis.

5. Radical Supply Chain Transparency

A key element of a sustainable supply chain and providing the consumer with complete transparency of factories, raw material origins, ethics and even carbon footprint will continue to be sourcing trends that should not be ignored. It is becoming an increasing component of any buying decision.

Prediction: Retailers (particularly in the fashion sector) will provide more visibility, also by using new technologies. For example, they will use Blockchain platforms to provide complete traceability of the product purchased at retail.

6. New Competitors/Capacity Constraints

Companies will need to be more careful about supplier selection as well as ensure all legal protections are in place at the start of any relationship. In fact, the rise of platforms like Amazon, will enable factories to develop their own ranges and compete in your markets.

Prediction: Suppliers competing in sales markets with cheaper substitute products via Amazon and other platforms, effectively cannibalizing capacity and competing for the same consumers. Also, domestic sales markets taking up capacity again.

7. Rise of Innovative Materials

For sure, companies will continue to develop and invest in sustainable and innovative materials as part of the sustainability demand.

Prediction: Part of this innovation will inlcude plastics and packaging for sure. Also, a new type of biodegradable plastic will become more available to the mass market and new packaging solutions to enter the Asian market (for example, for shoe boxes).

8. England to win Euro 2020

Who knows, we won a world cup back in 1966, and it’s about time we win a European Championship!

Summary

International Trade is closely aligned to global growth and the movement of goods across borders. The ‘impending recession’ that economists pointed to back in 2019, with the arrival of the inverted yield curve, has seemingly been avoided and 2020 will hopefully bring greater certainty for retailers and manufacturers alike. Therefore, an air of predictability would be a welcome tonic and help companies manage any sourcing trends in 2020.

At ET2C, we are always looking to the future to ensure that we are providing our clients with the most relevant services and products. Please contact us at contact@et2cint.com.

HAPPY NEW YEAR of the RAT.

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Vietnam Garden Products: Top 5 Insights for Growth

Industry Insights / admin / Pottery, sourcing, Vietnam

Vietnam Garden Products — Garden Products Essential Insights & Opportunities

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Vietnam Garden Products: Top 5 Insights for GrowthRead More »

Vietnam Garden Products: Top 5 Insights for Growth Read More »

Choosing Between Air and Sea Shipping from China

Industry Insights / admin / China, shipment, sourcing

The invention of containerisation has been a game-changer for international trade feeding the beast of Consumerism this past century. Originating in the British coal mining industry of the late 18th Century to address the necessity to break bulk, which was a fairly time consuming and inefficient process, the first container system was implemented in Poland in 1919 by the engineer, Stanisław Rodowicz.

Containers are now commonplace and integral to the movement of goods and commodities across the world’s oceans. One of the main considerations when sourcing from China (or any other Asian country) is how to ship your products in the most cost-effective and efficient way. In this piece, we will be reviewing the implications of how to ship your goods.

How to Measure Costs

Sea Shipping

Clearly, shipping by ocean freight is the first option that companies consider when moving goods from Asian to their markets. In fact, ocean freight is approximately 90% of all outbound shipping ex China, primarily due to the cost-effectiveness.

When factoring the most financially astute options, consider that the expense should also factor in timing and local charges. And obviously also quantity, weight and volume (CBM).

There are three types of container for ocean freight:

20 foot (ft) container (approx 28CBM)
40 foot (approx (62 CBM)
40 ft HQ (65 CBM)

Freight on Board

It is really important to understand at the outset for any production, or order placed, on an FOB basis (Freight on Board) what the CBM will be and the implications of how you plan to ship the goods. First thing, avoid shipping ‘air’/empty space, as this will directly impact the unit cost of your products. Also, from a transit perspective, it can lead to damaged goods in certain instances. For example, the goods could move within the container on rough seas. For this reason, the factory should make sure that they load the container effectively to minimise any movement of packaging. Clearly, this is something a sourcing partner on the ground can assist with.

In case the order doesn’t feel a container to the full, you have a couple of choices. You can:

Ship by LCL (less container load)
Consolidate with other shipments
Ship by Air (if time is short).

The best option would be to consolidate other production runs, which will require assistance from your freight forwarding company. Although there will be additional local charges incurred by the factories, which you will need to likely manage and additional costs on your invoice from the freight forwarder, this would likely be the most cost-effective option. The LCL option would mean your goods being palletised and added to another container. More touchpoints and waiting for other goods to be added will lead to higher per-unit costs and longer lead times in getting the goods from their country of origin to your warehouse.

Air Shipping

Air shipment is the most expensive method of transport. However, it enables goods to arrive within a much shorter time into your warehouse. Calculated on the higher of CBM (volume) and weight, it can be advantageous for smaller products. In fact, in this case the per unit cost will not be prohibitively higher relative to ocean freight costs. This is particularly true with higher-margin products that are better placed to absorb the airfreight costs.

Current Considerations

This is all in an age of Consumerism that is driving changing patterns in how companies purchase their products. Companies are mostly looking to benefit from more frequent orders but lower volumes to minimise working capital tied up with factories whilst leveraging the greater flexibility that smaller production runs present, particularly relevant within the fashion sector. Working closely with your freight forwarder and your local sourcing partners is therefore increasingly important to ensure that you are shipping your goods in the most efficient way.

New Sulphur Regulations: IMO 2020

It is also worth mentioning that cost structures for container shipping will be changing in 2020 (if you have not already had uplifts). This is due to the new Sulphur regulations that come into force in 2020. This is certainly a win for the environment and requires significant investment by the carriers across their fleets. The approximate cost of a 20ft from China to the United Kingdom (at the time of writing is) is $700 and a 40ft is just under $1,000, plus additional surcharges.

Risk Management

Whatever mode of freight you are considering when it comes to shipping goods from China or more broadly Asia, make sure that you have the necessary insurance (Goods-in-Transit insurance) to protect against any damage or loss. Containers, as robust as they are, are loaded onto carriers and pass through thousands of miles of open ocean. During these journeys, there will be knocks, rough seas and in some instances lost containers. In fact, hundreds of containers are lost every year at sea, which is now also presenting an environmental issue as highlighted by the first of its kind ‘Shipping containers at sea, an unacknowledged drift report’.

Also, liaise with your freight forwarding company and any local sourcing partner when it comes to a certain type of product. For example, when shipping wooden products from humid climates to colder temperatures. In this case, make sure they have the relevant anti-humidity or anti-mould safeguards in place. A container should be sealed and the seal number past to you as the consignee for checking on arrival. It should be untampered on arrival and should there be any evidence of tampering. Then you need to make sure that the Freight Forwarder is made aware before the container is opened.

Summary

There are numerous factors to consider when it comes to shipping goods from China and other Asian countries. A good supplier will assist and guide you when it comes to CBMs, container loading, etc. Whether you are thinking of sea shipping from China or air freight, make sure you are leveraging the advice of your Freight forwarder or your local sourcing partner who are best placed to help you. At ET2C, we have our own experienced logistics department to help our clients with all their shipping needs, liaising directly with your freight forwarder at origin to ensure that not only the containers are correctly loaded and sealed but to make certain that the shipping documentation meets all your needs to import from Asia. For more, please contact us at contact@et2cint.com.

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Your Go-To Guide for Supplier Risk Mitigation

Industry Insights / admin / business, Industry, risk mitigation, suppliers

The internet has been an incredible enabler when it comes to sourcing new factories. In a few clicks, you can find a whole smorgasbord of suppliers ‘able’ to manufacture and deliver what you need. However, understanding the risks when outsourcing production and the risk mitigation strategies to address these is integral to avoiding any potential pitfalls. Asia, in particular, presents a greater challenge due to a more complex business environment that is overlaid with more marked cultural, language and regulatory differences.

With two decades of experience operating in Asia, we have honed our approach to vetting and onboarding suppliers to deliver on time and against specification. Below we have pulled together some key points to help with this end of the process.

Vetting a Supplier

Selecting the right supplier is critical. It will determine the success or failure of the production.

When selecting a supplier, you should ultimately be sure that your interests are shared, or at least aligned. Success for you needs to mean success for your supplier. There is simply no point in today’s environment with short-termism and lop-sided relationships in which the supplier is suffering on price, payment terms, short delivery times etc. There will only be one ultimate loser, and that is invariably the buyer. When first identifying the right supplier for your needs, make you address the points below:

1. Understand their business

Take an ‘under-the-hood’ approach, which means developing an understanding of the facility (how many production lines, people, seasonality, size, turnover etc.), their history, other clients (third party references if possible) and where their expertise lies.

2. Ask for their registration documents

We do this as a matter of course. Although often in a foreign language, be sure that the supplier is who they say they are and not an imposter! For example, an export agent and not the ultimate manufacturer as this may lead to additional costs and possible contractual complexities in the case of any disputes.

3. Check any quality certifications

As independent verification of standards, these are useful but make sure that these are still within the validity period, they are verifiable by the governing bodies (not fakes) and are evident on any visits.

4. Visit the site and meet the management

Sounds simple, but we have seen many businesses pay suppliers without visiting the site and spending long enough with the management team. Understand their product expertise and manufacturing capability and what drives the management team (for example, is ethics important).

A lot of these can be addressed by having some kind of local presence on the ground, with staff who can speak the language and visit the factory to make sure that all is in order. We have seen factories change the signs on the side of the building as soon as the potential client leaves! Not a good omen.

Onboarding a Supplier

This is where we see a number of companies making mistakes when implementing a direct sourcing strategy. Any risk mitigation strategy has to be underpinned by law. This is complex where legal systems are less robust or less developed than in the West. Some key points to consider in this regard:

a. Legal Jurisdiction

In some Countries it is difficult to enforce a contract that has been breached. For example, it is not easy to enforce a purchase agreement against a Chinese factory governed by US law. And even when there is enforceability present, some legal systems are less than effective when it comes to claiming for any breach of contract. Make sure you take legal advice in this regard*.

b. Non-Disclosure Agreements

These are commonly used to ensure that there is protection against any company IP being shared or used. However, the best protection is to make sure that any NDA covers off Non-use, Non-disclosure and non-circumvention. These are commonly referred to as NNN agreements.

c. Communication Requirements

At the outset, be clear as to the expectations. Set up a critical path with key milestones and agree with your supplier what is expected of them as part of the management of the information flow. For example, make sure that there is a clear specification sheet that provides product details, colourways, packaging requirements etc. This eliminates the risk of timing issues or mistakes executing the product quality.

Making sure that you understand the formal relationship that you are entering into and the fact that in a lot of cases it is a very alien business environment will put you in good stead. In addition, a lot of companies use commercial levers (like payment terms) to provide protection should something go wrong. Working with a company that has experience on the ground can help you manage such risks.

Summary

Over the years, we have been told and likewise heard of some production runs gone badly wrong. Being able to develop a relationship will define how easy it is to work with an overseas supplier. In Asia, relationships are of particular importance and leveraging this can help you benefit from the broad manufacturing base. Look at your suppliers as ‘Partners’, who can actually help you deliver the products you want, help drive innovation and sync with your own procurement technology rather than look simply over a short term horizon.

In the main, having some kind of local presence will only help enhance these relationships whether it be your own office, a sourcing company or some other third party presence. If you were manufacturing 30miles up the road from your head-office, you’d be visiting the facility on a regular basis. The same principle should stand true if the equivalent spend is put to work 6,000 miles away.

At ET2C, we provide our clients with the transparency needed to best manage their suppliers across Asia and help with any risk mitigation strategy. For more information on how we can help you, please contact us at contact@et2cint.com.

*None of the comments in this article should be construed as legal advice. Should you have any queries, you should seek legal advice relevant to your own individual circumstances

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Top 3 Questions to choose the Best Asia Sourcing Company

Industry Insights / admin / Asia, Industry, manufacturing, sourcing

Even with the rise of the internet and platforms, such as Alibaba, dramatically reducing distances and opening up markets, when it comes to identifying the best sourcing partner in Asia, it is always a good idea to ask yourself some pertinent questions. This will ensure that you select the BEST Asia Sourcing Company for your business. To help, we have researched and selected the TOP questions you should consider when looking for the right partner.

Question #1: How established is your sourcing partner?

This is probably one of the most important questions to consider for a few reasons. First of all, understanding current and past clients, as well as the evolution of the business, will aid any decision. This is particularly true where you are able to get third-party client references that underpin any views considered. If you find a company that has been in good standing in the region for over a decade, chances are you have a good contender for helping your business source manufacturers in Asia.

Of course, with longevity comes, a level of experience and expertise. Operationally, the necessary familiarity of sourcing throughout Asia despite volatile and increasingly fluid geopolitical climates. Companies like ET2C, for example, with over 20 years of experience throughout Asia as well as other countries, have consistently been a frontrunner for clients’ Asian sourcing needs.

Question #2: What are the company’s ethical standards?

In general, this is an important element when choosing to do business with any company. Moreover, this becomes essential when working overseas. There, local laws may allow or create a climate for unethical business practices and non-compliance. Ask key-questions to establish that you are dealing with a sourcing company that provides the following:

What are their views on ethical practices within their supplier base?
Do they have their own Code of Conduct when it comes to dealing with the supplier base?
Do they have any process around bribery and corruption?

Undoubtedly, there are some excellent factories across Asia that are producing high-quality products in a fair and ethical way. It is up to your Asia sourcing company to make sure that you are selecting the correct suppliers. Furthermore, it is paramount for you to get the level of visibility required. Examples like the terrible collapse of Rana Plaza in Bangladesh some years ago are a reminder of where certain companies have lost control of their supply chains and are indirectly profiteering from unethical business practices.

A common theme that is consumer-led over the past few years has been the rise and rise of Sustainability. In particular, what this means for companies engaged in product manufacture. With ongoing concerns about the environment, fair practices and material waste, a sourcing company in Asia should be aware of the impact this movement has on supplier selection, product development, and quality standards.

Question #3: Who are the People?

Particularly true of any company operating out in Asia, relationships and people matter. Having clear sight of who you are dealing with will be a key part of any successful relationship. It sounds simple. In an ideal world, it would be but based on our research it is something that should not be underestimated.

You need to get an ‘under the hood’ perspective who the founders are, who your contact is and what they understand about your business. At the end of the day, you want a team in place that not only understands your key drivers but is one that is willing to do everything in their power to deliver the product, leverage in-house expertise and provide a high level of visibility. The best sourcing Asia company will have a team that really cares. Briefly, make sure that the team is aligned with needs. This will pay off over the course of the relationship.

Trust, integrity, and accountability are core values that are reliant on the team in place. In Asia, you can identify these elements as a key success factor. Often market research (asking third parties such as logistics, specialist quality labs about reputation) and client references (word of mouth) can be the best way of getting this level of insight.

Find the Best Asia Sourcing Company.

Don’t skip any of these important questions if you really want to find the BEST Asia Sourcing Company. Having a great partner in manufacturing that understands your needs, is people-oriented and provides a high level of visibility in everything that it does will make a tremendous difference to your sourcing requirements.

At ET2C we are always looking to understand our clients and deliver flexible solutions to address their needs across Asia. For more information, please contact us at contact@et2cint.com.

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