Companies ready to move supply chains from China

Shipping containers on the Hong Kong-based CSCL East China Sea container ship at the Port of Oakland in California. United States President Donald Trump has threatened to expand tariffs to all products imported from China, leading companies to plan p
Shipping containers on the Hong Kong-based CSCL East China Sea container ship at the Port of Oakland in California. United States President Donald Trump has threatened to expand tariffs to all products imported from China, leading companies to plan pre-emptive measures if the cost of bringing in Chinese goods becomes prohibitive.PHOTO: AGENCE FRANCE-PRESSE

Global firms gear up to reorganise their businesses as US-China trade war escalates

BEIJING • Earnings reporting season is under way and analysts are eager to hear from executives about how an escalating trade war between the United States and China is impacting their businesses. A common theme is that they are ready to relocate supply chains if the cost of importing Chinese goods becomes prohibitive.

US President Donald Trump imposed a 10 per cent tariff on US$200 billion (S$276 billion) of Chinese imports last month - following an earlier round of tariffs on US$50 billion of goods - and promised to raise the duty to 25 per cent in January.

He has also threatened to expand the levy to all products imported from China - an amount that totalled US$531 billion in the 12 months to August inclusive, according to the latest data from the US Department of Commerce.

Here is what companies are telling analysts:

AVERY DENNISON

"If there was a broad-based tariff on apparel, I think you could see a bit more of an acceleration of the migration out of China into other regions for apparel sourcing," Mr Mitch Butier, chief executive officer of the California label producer, said during an earnings call on Tuesday. "That will take time. They're just a huge infrastructure within China. That will take some time."

CANADIAN NATIONAL RAILWAY

"Especially light manufacturing, factories move very quickly. A number of them have already moved out of China," Mr Jean-Jacques Ruest, CEO of the Canadian railway company, said during an earnings call on Tuesday.

WELL EQUIPPED TO RELOCATE

When and if we need to move a product line out - in this case, out of China entirely - we're more than capable of doing that. We've got the teams to do it, staffing to do it and we have lots of experience doing it. We do it, in fact, all the time.

MR BRACKEN DARRELL, CEO of Logitech.

"They're going to Vietnam. They're going to Bangladesh. They're going to Indonesia. And the product is still being made.

"It's made or being made in other countries... to field the demand of the people who need the products. So overall, we're very bullish about trade from Asia... but it might be coming from different countries, or different ports of origin."

LOGITECH INTERNATIONAL

"One of the core capabilities of Logitech from a supply chain perspective has always been the ability to move our manufacturing in and out of our own factory," Mr Bracken Darrell, CEO of the Swiss personal computer input device manufacturer, said during an earnings call on Tuesday.

"And that includes in and out of other people's factories if we happen to be contract manufacturing with other people in China. And that's exactly what this is about.

"When and if we need to move a product line out - in this case, out of China entirely - we're more than capable of doing that. We've got the teams to do it, staffing to do it and we have lots of experience doing it. We do it, in fact, all the time."

PHILIPS

"We have various levers to pull to mitigate the impact," Mr Frans van Houten, CEO of the Dutch healthcare and lighting technology company, said during an earnings call on Monday. "One is rearranging our supply chain. That is perhaps the easiest because we have manufacturing facilities in the US, in Europe and in Asia: about one-third, one-third, one-third.

"We are already on a path to create so-called multi-modality factories where we can manufacture stuff from other business units.

"And we were already anticipating that we need to have regional representation in a world that is more polarising. So, in fact, you could say mentally, we were prepared for this."

ACME UNITED

"Only 10 per cent of our products are covered. And those items tend to be folding knives, the Westcott ruler business and some first aid components that go into our first aid kits," Mr Walter Johnsen, CEO of the Connecticut-based maker of cutting, measuring and safety products, said during an earnings call last Friday.

"There is a possibility of sourcing in other places for some of those products, but we currently don't have the quality control teams in some of these countries where we might be sourcing."

VICOR

"The cost going forward may not be inconsequential, given the volume of components currently sourced from China," Mr James Simms, chief financial officer of the Massachusetts manufacturer of power converters, said during an earnings call last Thursday.

"We are seeking non-Chinese alternate vendors. In addition, we have filed requests with the US government for exclusions from tariffs on a limited number of components, for which no alternative vendor exists."

SKECHERS USA

"We do have capacity to move outside of China. We'll be no different, I believe, than anybody else. We'll look for where the best availability is for production quality and price around the world," Mr David Weinberg, chief operating officer of the California footwear company, said during an earnings call last Thursday.

"We've been segregating some production of some styles from country to country, depending on what the necessities are. There are a lot of moving pieces.

"What happens to the Chinese currency? Does that make up a part of the tariff fees? There are all kinds of moving parts. We are increasing our production capacity outside of China just in general, so we think we'll be okay."

THE TILE SHOP

"With the Chinese tariffs, we are looking at moving. Right now, roughly 50 per cent of our product comes out of Asia. My goal is to get that closer to 25 per cent or even lower, and the potential for doing that right now is very good," Mr Robert Rucker, CEO of the Minnesota-based retailer of stone tiles, said during an earnings call last Thursday. "We're not waiting. We're making moves now."

KUEHNE & NAGEL

"Many of our customers producing in China concentrate more and more of their production on the local Chinese market" while they set up mirrored production facilities in neighbouring countries for exports, Mr Detlef Trefzger, CEO of the Swiss freight company, said during an earnings call last Thursday. The shift has been going on for almost a decade, he added.

"I would say this trend is accelerating at the moment, but it's also based on the clear five-year plan of the Chinese government" that "concentrates more and more on the local domestic Chinese market".

WW GRAINGER

"Depending on how the tariff plays out, we have alternative sources already in many places and we may have to find some additional ones," Mr Donald Macpherson, CEO of the Illinois-based distributor of maintenance, repair and operating supplies, said during an earnings call on Oct 16.

"We just look at the total economics, total landing cost and pick the one that's got the best cost for the business. Much of our shifts could come - if it's China, if it's shifted, it could go either to India, to Mexico or to the US, depending on the nature of the product."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on October 25, 2018, with the headline 'Companies ready to move supply chains from China'. Print Edition | Subscribe