Manufacturers are Shifting Supply Chains Away from China

With the uncertainty and unprecedented changes brought about from COVID-19, manufacturers are re-evaluating their global supply chains.

A 2020 PwC survey found that 16% of U.S. companies operating in China were already planning to adjust production and/or supply either domestically within China and partially outside of China – or completely out of China.

But the virus has pushed this trend even further and in a recent analysis by PwC of U.S. Mexico, China and other Asian low-cost countries (LCC) finds that other more attractive supply-chain options for fulfillment outside of China are now on the table. The analysis was based on numerous factors, including landed cost, risk, and fulfillment lead times.

The study estimates that U.S. manufacturers who choose to shift production from China could cut operating costs, on average, by an additional 23% if they near-shored to Mexico, and by 24% if they shifted to another Asian low-cost country (LCC). “We believe these and other alternatives could – on top of these cost savings – also add resiliency and improve customer experience,” Pwc says.

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Source: Material Handling & Logistics

Electronics supply chains are stuck between a pandemic and a trade war. Where do they go from here?

This year has been an uphill battle for the electronics sector. A March McKinsey study cautioned that electronics companies could stock out by April due to coronavirus-driven factory shutdowns in China and extended lead times.

The shutdowns in China impacted “about a month to 45-day cycle,” Richard Barnett, chief marketing officer at Supplyframe, told Supply Chain Dive. “And [production capacity] is coming back to maybe 5% to 10% lower than year over year, seasonally adjusted.”

The industry rapidly turned to suppliers in other Asian countries and doubled down on existing diversification strategies put in place during the U.S.-China trade war. But the moves did not eliminate or mitigate risk altogether. Fifty-three percent of respondents in a survey of 217 electronics industry leaders, released in May by Supplyframe, said new product launches have been delayed or canceled due to the pandemic, and 37% said their component costs have increased.

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Source: Supply Chain Dive

Oil and gas fueling South China Sea tensions

Vietnam’s crucial offshore energy industry is being squeezed as US-China tensions rise in the South China Sea.

According to reports, China is pressing for the termination of a Vietnamese offshore development with Rosneft Vietnam, a joint Russia-Vietnam venture that recently canceled its contract for London-based Noble Corp’s semi-submersible exploration rig.

Noble announced the cancellation in a fleet notice without explicitly naming the company, while saying it would still be paid for the contract. The notice came just days before US Secretary of State Mike Pompeo claimed China’s wide-ranging claims in the disputed maritime region were “illegal.”

Hanoi reportedly told state oil firm PetroVietnam to cancel the rig contract due to Chinese pressure, according to BBC’s Vietnamese Service. Rosneft Vietnam had reportedly been concerned since 2018 that its Lan Do “red orchid” project in block 06.1 lies within China’s sweeping “nine-dash line” claim to the sea and that drilling there could upset Beijing.

“Before direct aggression offshore, by diplomacy, China sent a note to Rosneft Vietnam’s parent company, Rosneft Corporation,” the Vietnam Energy Review’s Editorial and Review Council’s Nguyen Le Minh told the BBC Vietnamese last week.

Asia-North Europe market share set to ebb and flow between the alliances

More evidence has emerged on how differently the three main container shipping alliances on the Asia-North Europe trade are to manage capacity for the remainder of the year.

According to new data from SeaIntelligence today, the 2M and Ocean alliances had been quick off the mark early in the year to make drastic capacity cuts in weeks five and six. The 2M partners reduced capacity by over 50%, compared with that week in 2019, while the Ocean Alliance reduced capacity by around 45%, year on year.

THE Alliance reduced capacity by 29% in week five and by 38% in week six, but has since maintained a relatively stable capacity offering.

However, over the next two months, while the 2M partners will see year-on year-capacity reduced by 24% and THE Alliance’s offering will be cut back by 24%-27%, the Ocean Alliance will reduce capacity by a far modest 14%-18%.

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Source: The Load Star

June productivity rebound suggests a return to growth, but it’s bumpy ahead

Economic figures for June indicate that the global economy appears to have turned the corner from the hit from Covid-19, with trade and production volumes trending up on both sides of the Pacific Basin.

However, recovery is expected to be bumpy in the coming months as the surge in Covid-19 infections in multiple economies impacts economic activity.

US manufacturing officially returned to growth in June, with the Institute of Supply Management’s purchase managers’ index (PMI) breaking through the 50-point mark that denotes economic expansion. It hit 52.6, which was 9.5% up on May.

Coming after a 3.2% gain in May, the stronger improvement in June suggests the US economy has turned the corner from a low point in April, which had seen the lowest PMI reading since April 2009.

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Source: The Load Star