Canton Fair: A Tipping Point for Global Sourcing?

The 133rd Canton Fair will open in April as China Factory output accelerates, supporting an upturn in China Sourcing but does demand remain subdued?  

Dogged for months by shortages of raw materials, labour instability, a difficult Covid policy, quickening inflation and weakened consumer demand, the world’s industrial engine is still struggling to fire on all cylinders. For many weeks, anticipation has been running hot that China’s reopening would bring a tangible economic lift across Asia and perhaps the rest of the world. That day seems to have finally arrived, with purchasing managers’ indices — especially from China, but also beyond — showing the first glimpses that the World’s second-largest economy will start to lift orders in other corners of the globe.   

The Canton Fair comes at a time when China is reopening to the West post Covid and notably a combination of raw material price softening and low container rates, put the spotlight back on ‘cost’ for buyers where this is now their sole focus in the short to medium term.  The biennial trade fair is one of the high points of global trade events and is expected to welcome over 25,000 exhibitors and buyers from all over the world.   

 

Is Demand Picking Up?  

Although there is an expectation that this Canton Fair will be large (Buyers and importers will no doubt be chomping at the bit to get out and see some product rather than at a distance!),  what are the factors that will dictate the appetite to get out on that plane?   

1.Consumer Confidence , as a general trend, has certainly softened across many markets due to inflationary pressures which have hit discretionary spend.  Every market has its own domestic     economics that need to be assessed. There is however data coming out that points to a less bleak outlook than initially expected (UK is not likely to be in a recession in 2023 as initially thought) and    this could lead to a pick-up in confidence going deeper into the year.  

2. Shipping rates have dropped to Pre Pandemic levels. A year ago container ships were queuing for births in ports to unload their cargoes, shippers were bumping containers and contract rates              were not worth the paper they were written on. Container rates were at an all-time high and shipping companies took full advantage of the market impact (note the amount of blank shippings to              prop up the market) A year on ships are being moth balled and sailings cancelled as demand has plummeted and spots rates dropped to Pre pandemic levels. The recent conference in the USA           Davos by the Sea brought into clear focus the strained relationships and tensions between shippers and shipping line owners. 

3. Inflationary costpressures on Brands, Retailers, Wholesalers and Importers. Pressure on cost has returned in many companies to counter inflationary pressures forcing prices up in front of the              consumer.  As we lived through the turmoil of the pandemic, the overriding issues for supply chain teams was to get product on shelf. As demand softens and inflationary cost pressures build in              companies the focus for sourcing teams has shifted back to a focus on cost.  Will China be a main beneficiary of this?

4. The Reopening of Chinahas been rapid, and appears to be have weathered any Covid storm (we did not see any interruptions to factories even post CNY).  It is seen as a potential catalyst to                energise economies across Asia and the wider world back into growth.  China factory output  has expanded at the fastest pace in more than a decade.  The sudden access to this market could              not come any sooner.

 

5. Inventory Levels are still high across some sectors. This is impacting buying decisions as companies look to manage higher stock levels due to large buys in 2021/22 and weaker demand.  It is key that this stock is sold through to set companies up for the remainder of the year.

 

Summary

The Canton Fair appears to be aligned to the reopening of China, and the expectation has to be that many people are anticipating travelling out to Guangzhou and further afield within China to see suppliers for the first time in 3 years.

The need to drive cost benefit to the bottom line is supported by vastly reduced shipping costs compared with the past 18 months and China is still well placed to off cost advantages.   The Year of the Rabbit may just be as prosperous and lucky as intended!

For more information on the Canton Fair, China and other sourcing markets please drop us a line at contact@et2cint.com.

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