- March 7, 2022
CBX’s Q1 Sourcing Report Highlights the Ongoing Challenges Retailers and Brands Face
If Q1 is any indicator, global sourcing in 2022 looks a lot like 2021, with high material costs, ongoing supply chain issues and inflated shipping costs. The drivers of these ongoing trends started with Covid-19 but now include the Russia/Ukraine conflict which has driven oil prices to record levels and created instability in global financial markets.
On the plus side, Covid-19 is relatively under control, with vaccination rates improving and the end of lockdowns in most countries freeing up consumer spending and allowing manufacturers to operate at a pre-pandemic capacity. However record inflation, high input costs, geopolitical uncertainty and supply chain disruptions are still big red flags for global sourcing in 2022.
Shipping capacity and inflated container shipping costs are unlikely to ease until late 2022 or into 2023 with spot prices on major trade lanes more than double than a year ago. While Maersk and the other carriers are adding capacity, it is unlikely to ease demand until 2023. In the meantime, Maersk reported record profit of over $16 billion for 2021.
Data from the report indicates that most factories in major sourcing countries are back to work and scrambling to fill orders, albeit with much longer production lead times and delays at ports and other points across the supply chain.
Wages costs in traditionally low-cost sourcing countries were mostly frozen during the pandemic, but we are now seeing reports of significant wage hikes across China, Vietnam, Bangladesh, Cambodia and elsewhere. While workers in these countries are still far from achieving a living wage, these wage increases will add to the cost of global sourcing in 2022 and some of these costs will have to be passed on to the consumer.
Facing record inflation, both the US and the EU will hike interest rates several times through 2022. Both the euro and the dollar are seeing depreciation against the Chinese yuan which threatens the Chinese economy by making exports more expensive. China is battling to control the appreciation of their currency as it balances out internal and external economic growth.
“The reports we are hearing from our customers and their suppliers highlight the uncertainty that is prevalent in global supply chains this year. The feeling is that they just caught their breathe and can see the end of the pandemic but are struggling to manage dramatically higher costs and getting product out on time,” said Eric Linxwiler at CBX Software.
“No question though, the retailers and brands that have invested in optimizing their supply chains through process and technology improvements are faring better and will come out of the current climate in better shape. The investments they have made in centralizing information, supplier collaboration, sustainability and more efficient product development have allowed them to navigate through these challenging few years.”
It is not all doom and gloom though, some positive developments that have arisen from the pandemic are the rise in onshoring and near shoring. Rising costs and supply chain issues have opened the door much wider for American and European retailers and brands to source closer to home and in some cases produce products in their home countries at a comparable cost to sourcing from Asia. In this challenging environment, businesses have no choice but to innovate and become more efficient if they are going to survive and thrive.
To learn how CBX Software can help your retail business thrive and achieve continuous innovation during the ongoing health crisis, please visit: https://www.cbxsoftware.com/.
About CBX Software
CBX Software is the world’s leading Supply Chain Management software provider from concept to delivery – combining people, processes and solutions. CBX helps retailers and brands streamline product development and sourcing all the way through order, production and delivery. Through innovative Sourcing Management, Product Life-cycle Management (PLM Software), and supplier management software technology solutions, CBX empowers the supply chain network by driving collaboration to over 15,000 retail & supplier partners, and 30,000 users in more than 50 countries. For more information, visit www.cbxsoftware.com.