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Moving Target
July 19,
2012 by in UnCategorized 
By Home Furnishings Business in on July 2012
If you liken U.S. vendors commitment to sourcing in Asia as a marriage, it might need a little couonseling, but dont expect a divorce.
If you look at it as the action in a singles bar, though, a lot of importers are looking for other people to date.
The dance card is getting spare in the furniture industrys quest for low-cost labor. A journey that began way back when in the United States Upper Midwest and Northeast took a long, sustained turn South to North Carolina, South Carolina, Virginia and Mississippi. That was just the beginning.
Mexico came next, then a gradual progress through Asia. Now, the world has gotten a lot smaller in terms of new frontiers for sourcing furniture, especially when it comes to seeking cheap labor.
Africa? Political turmoil in many countries there makes that continent an iffy proposition as an immediate destination. India? While theres potential, it will take a few more pioneers along the lines of a Paul Maitland-Smith to develop the subcontinents full potential as a source for the North American market.
THE LONG HAUL
Government policy, especially in China, rising labor rates in some countries and increased ocean freight costs have taken some bloom off the Asia romance, but the furniture industry is too committed to back out, according to people who handle a lot of shipping for retailers and vendors alike.
I guess I would say that rising material costs and transportation costs happening together have most likely eliminated the butterflies in the stomach type excitement for Asia imports, said Peter Giorgio Jr., president of Global Logistics Solutions, Madison, Conn. But the marriage is far from over. I am certain that most buyers have at least looked at U.S.A. production landed costs versus import landed costs for categories where margin has been compromised recently. I would think that there may exist some opportunities for U.S.A. purchases from those vendors with excess inventory to be advantageous short-term.
But Asia factories and owners are very resourceful and will find new locations where FOB price will continue to be a huge benefit for importers.
The marriage may be losing some of its romance but dont expect a divorce anytime soon, said Patrick Smith, national sales manager at Watkins Shepard.
The biggest (Asian) advantage still lies in reduced production cost and less regulatory issues as compared with western nations, he said. There may be some juggling of production from plants within the Pacific Rim, but China will continue to dominate the manufacturing base until other countries develop the infrastructure to support significant rebalancing.
At Zenith Global Logistics, President Jack Hawn hears customers grouse about higher shipping costs from Asia, but hasnt seen much slow down in sourcing interest there.
I dont see people saying I wont source in Asia because shipping costs increased, he said. They complain about it but that hasnt kept them from sourcing in China or Vietnam.
Zenith, which recently negotiated rates for the next 12 months, is only slightly higher on base rates for shipping containers this year, but right now it sees bunker charges (for fuel cost fluctuations) up $230 per can.
CHINA SHIFTS GEARS
Chinese government policy, an exodus of much bedroom production in the wake of the imposition of antidumping duties, and rising labor costs are driving some fairly dramatic shifts among Asian source countries.
The Chinese government has said theyre looking for higher-paying, cleaner industries, said industry analyst Jerry Epperson, managing director of Mann Armistead & Epperson in Richmond, Va. Those traditional manufacturing sectorstextiles, furniture, toys, apparelare seeing the hand-writing on the wall as far as getting a lot of government support going forward.
For new factories, theyll have to be farther inland, and that doesnt work well for furniture, shipping all that wood to the interior. Thats where things like toys are going, though.
Look for a similar trend in Vietnam.
It is a couple of years behind China in wanting cleaner, higher-paying industries, but thats coming, Epperson said. That will lead to people considering Indonesia, Malaysia more so than they would have five or six years ago.
SWITCHING PARTNERS
And those other countries are stepping up to grab the opportunity, Epperson added, particularly Indonesia and Malaysia.
Theyre building an infrastructure that allows them to be more competitive from a logistical standpoint, he said. You also have to remember that the Indonesians, Malaysians, even the Filipinos, have more raw materials at hand than either China or Vietnam. And India is growing. The numbers are just now beginning to come in, but I think youll see India come on strong.
In upholstery, its still tough to beat the Chinese. I think theyre around 45 percent of wood, and 75 percent of upholstery imports (in the U.S. market).
Also, the rush to Vietnam in reaction to duties on Chinese wood bedroom furniture has helped importers learn more about relocating production quickly.
With bedroom furniture and the high duties imposed, at least for my clients, I saw very little reduction in bedroom furniture imports as all that happened was the origin shifted from China to Vietnam, Giorgio said. The shift of production happened very quickly and overall there was very minimal interruption in the flow.
I see that similarly happening in todays environment of higher overall costs that will force the factories to search out lower overhead origins and continue competitive pricing advantages over USA production. Additionally the huge increases in ocean rates will be short-lived as capacity increases and shippers negotiate lower rates.
The movement to Vietnam that began with the antidumping duties has continued for more categories, said Hawn at Zenith Global.
About a year and a half ago we saw a trend of more people going to Vietnam from China. You had the bedroom tariffs, plus labor shortages, strikes, rising material costs (in China), he said.
Tighter labor supply and increased wages in Vietnam are having an effect, as well.
Were seeing a huge pick-up in Indonesia. Its laborthey moved to Vietnam, and now theyre moving to Indonesia, he said. And Indonesia is blessed with better species of wood than either Vietnam or China.
MANAGING THE FLOW
With the sheer distances involved, it hasnt gotten much easier to manage the flow of goods from Asia. Hooker Furniture, for example attributed a first-quarter decrease in sales in part to out of stock positions after it shifted production of some goods from China to other countries.
Supplier service is a growing issue at Furniture Brands International, too.
The long supply chain is always hard to manageyour mistakes are bigger, your lead times are longer and you need better projections, said Furniture Brands CEO Ralph Scozzafava. The rewards are typically low-cost case goods, but there are some issues there now. Service levels from Asian suppliers have been more challenging. Theres been more movement among source countries in the Asian supply chain; labor increases have had an effect there; and every year you have the Chinese New Year you have to work around.
He said FBIs been in pretty good shape regarding product flow.
We have a supply team in Asia thats very good and thats been in place a long time, but you always have to keep your eye on it, and you always have to make good decisions on how much to get, Scozzafava said. We were talking case goods just now, but its the same with cut-and-sew kitsyou always have that lead time.
Chinas still a great place to get goods, and there are others that are getting better. Vietnams improved a lot, and so has Indonesia.
That said, FBI took steps to make sourcing life a little simpler when it opened its own cut-and-sew facility in Mexico about a year ago, producing mostly for Broyhill and Lane.
Why? First, it shortens the supply chain, Scozzafava said. The products only three or four days away. Second, theres good expertise there.
Epperson also cited activity south of the border.
Mexicos been making some nice gains, he said. FBI, La-Z-Boy and Ethan Allen are showing that cut-and-sew works well there versus Asia. HFB