When former President Trump was in power, his slogan was America first and bringing manufacturing back to the US. It was a good slogan for it gave some hope to people whose companies had move production from the US to China, but it was backed with little in government policies. It was more slogans and pointing to one offs, than really bringing manufacturing back. The proof is is how is China doing?
In an article by Keith Bradsher of the New York Times News Service, China has prospered during much of the COVID pandemic as the world’s factory. Demand does not appear to be slowing as Western economies reopen.
China’s General Administration of Customs reported the country’s exports in June was up 32.2% compared with the same month of a year ago. The increase came despite Yantian Port in Shenzhen being closed down for a month because of COVID and medical supplies exports have leveled off.
Louis Kuijs, head of Asia economics in the Hong Kong office of Oxford Economics noted a third of the increase in value of Chinese exports might reflect rising prices. Chinese factories are passing own their own higher costs to foreign consumers. By raising prices, the Chinese can preserve their profit margins.
Port and shipping delays are also driving the prices up as cost of shipping a 40 foot cargo container across the Pacific has increased from between $4,000 to $5,000 to as high as $18,000.
At the large ports, the number of containers continue to back up partly because of demand and partly because some were shut down due to COVID, however no one really knows when the companies will catch up to the backlog. Simon Heaney, senior manager for container research at Drewry Maritime Research said the hope is the Chinese New Year when factories typically close for several weeks. The problem is the Chinese New Year starts in late January.
Linking to dividend paying stocks, logistics is part of every company and the issue is not just the supplies but can the company pass higher costs to consumers? If not profit margins fall or people will look to alternatives. It is a fine line which profitable companies over the years have demonstrated they can manage. How does your companies you invested in raise prices and continuing to earn good margins?
There are more questions than answers, till the next time – to raising questions.