One of the biggest risks to folding carton buyers is that a single link in their supply chain will break. Today, companies that rely heavily on vendors in China are facing late shipments, unreliable schedules, and astronomical shipping costs.
Here’s a look at how China has become a weak link in the supply chain, along with suggestions on how to overcome the risks and protect your company’s interests.
5 Ways China is a Weak Supply Chain Link for the Folding Carton Industry
1 – Internal supply chain problems in China
No country is immune to logistics problems from the pandemic. Yet China is even more vulnerable to sudden swings than other countries.
Internal zero-Covid lockdowns are far stricter than anywhere else in the world. Because state-owned companies account for about 60% of GDP, shutdowns happen suddenly across all industries.
2 – Issues with Shipping
Shipping costs have become astronomical, says the Federal Reserve Bank of St. Louis.
“If we look at the cost of shipping a container from China, say, to the U.S. West Coast, costs have increased more than 12 times, from around $1300 in February of 2020 to close to $16,000 in the latest readings. This cost actually peaked at around $20,000 in September of 2021.”
Not only that, once a product makes it to the ship, vessels are seven days late on average.
Here on the receiving end of the chain, there are Labor negotiations between the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU). As of this writing, the PMA and ILWU reached a tentative agreement. Nevertheless, Logistics Management says that logistics disruptions will continue.
“One of those reasons, the letter observed, is the timing related to the upcoming peak shipping season, with current cargo flows expected to remain at all-time high levels and subsequently result in further supply chain stress and ongoing inflation, with these issues expected to remain intact through the end of 2022.”
As a result, east coast ports are busier than ever trying to pick up the slack on imports. Plus, disrupted rail freight and trucking services here in the US continue to delay imports of finished products from reaching their intended destinations.
3 – The Shipping Surge from Re-Opening Economies
As manufacturing output increases post-pandemic, shippers’ turnaround is expected to grow to ten days or more. US and European receiving ports, already swamped, are vulnerable to shocks from this expected shipping surge.
4 – Diplomatic Tensions and Sanctions
The diplomatic relationship between the US and China is tense. A recent example of this is China’s military drills in response to House Speaker Nancy Pelosi’s visit to Taiwan.
Another issue is the disputed territorial claims in the South China Sea. The US and China are at odds over China’s militarization of the region, their land reclamation efforts, and freedom of navigation.
The risk is that military activity could lead to an incident resulting in economic sanctions. Like the response to Russia’s invasion of Ukraine, a single sanction could cut off China as a supplier overnight.
5 – Tariffs and the Trade War with China
While tariffs are winding down, there is no assurance they won’t be extended, or new ones imposed on any given product or sector.
For example, when the US imposed tariffs on washing machines and solar panels, China retaliated with a 179% tariff on US sorghum exports, which instantly halted US sorghum exports.
How to Fix Foreign Supply Chain Issues
It’s clear that the international supply chain with China has many fragile, unpredictable links.
The trend is towards shorter supply chains and a reduction in exposure to Asian manufacturing. In its latest manufacturing industry outlook, Deloitte had this to say about how companies are defending against supply chain disruption:
“Rising wages and transportation costs globally make nearshoring or onshoring more competitive at the same time that organizations look to avoid a repeat of 2020-21. Twenty-four percent of manufacturing executives surveyed are considering moving operations closer to end customers in different regions in 2022. Some manufacturers already in the process of localizing supplier networks in response to tariffs may redouble efforts.”
According to Geoffrey Pick, President of Clear Print Commercial Printing & Packaging,
“Supply chain troubles with China are bringing us new clients who must ensure timely delivery of their folding carton. Buyers are finding our pricing is competitive with their overseas vendors. Furthermore, since the COVID, which originated in China, many, if not most customers, now prefer to “Buy American.” Some companies are asking us to print words such as, “Packaged in America” with a small image of the American flag on their cartons.”
For more information on how to strengthen your folding carton and packaging supply chain, without the risks of international outsourcing, read more about Clear Print’s folding carton capability or contact Geoffrey Pick.