Supply Lines: Kissing frogs

Supply Lines

Even before the coronavirus pandemic caused massive disruptions for global supply chains, Becky Cannon was trying to diversify her business. Caught in the middle of the U.S.-China tariff war, the small-business owner started exploring possible alternatives to the Chinese suppliers she's worked with for years.

But during a sourcing trip to Thailand and Vietnam earlier this year, she experienced first-hand that such a move is much more difficult and costly than some politicians make it sound.

"You have to kiss a lot of frogs to find a good supplier," said Cannon, founder and president of Green Sprouts Inc., which makes natural baby products including swim diapers and straw cups made from plants.

Cannon's extra effort and expense are a microcosm of the larger changes companies are making to survive.

President Donald Trump on Monday reiterated a plan to encourage American companies to rely more on domestic production than Chinese workers. Bank of America estimated in a recent report that it would cost $1 trillion over five years to shift out of China all foreign manufacturing not aimed at domestic consumption — a "significant, but not prohibitive" amount of investment.

Green Sprouts, based in Asheville, North Carolina, designs and packages the products but all the manufacturing is done in China. Virtually every item the company imports is currently facing extra tariffs, adding pressure to its margins. Eventually that could lead to higher prices for consumers.

Emi Kubota and daughter Naomi wearing Green Sprouts masks. Source: Green Sprouts

Around one-third of its business is in sun hats, which in normal times face a 12% tariff but are now subject to an additional 25% import tax because of the trade war. With a tariff bill of about $1 million last year, it's only a matter of time until Cannon and her team have to raise prices. So far, they've refrained from doing so but that's likely to change next year.

"We don't want to increase our prices," she said. "That's kind of our brand: We're affordable… But we have to make money."

Changing suppliers now would not only add costs and logistical stress to the already uncertain business environment; most importantly, such a move can't be done overnight. It's a lot of work to build trusted relationships with new partners, Cannon said, so much so that she mulled: "maybe we just pay the difference and deal with it."

While she and her daughter, Emi Kubota, the firm's vice president, are somewhat worried the China tariffs will stay in place well past this year — even if a new administration takes over — Green Sprouts adjusted quickly and seized new markets that opened up as a result of the pandemic.

They're now selling reusable face masks for children and hand sanitizer with biodegradable glitter, produced in Mexico.

Jenny Leonard in Washington

Charted Territory

Singapore's non-oil domestic exports rose 6% in July from the same time last year, beating analyst estimates for a second month as the trade-reliant nation looks to emerge from a trough during the pandemic. Electronics, a critical sector especially for key Asia export markets, advanced 2.8% year-on-year from a low base in 2019. 

Today's Must Reads

  • Tightening grip | The U.S. announced further restrictions on Huawei aimed at cutting the Chinese company's access to commercially available chips. China, meanwhile, boosted purchases of American crude oil.
  • Brexit talks | U.K. and European Union officials have the next seven weeks to find something that has eluded them since March: an agreement over their future relationship.
  • Trading friends | Israel aims to open a commercial mission in its eventual embassy in the United Arab Emirates to help lift its exports to the country to as much as $500 million after their landmark agreement to normalize ties.
  • People supply | Canadian immigration plummeted by almost two-thirds in the second quarter as border restrictions remained in effect, threatening one of the country's main drivers of economic growth.
  • Targeting wine | China started an anti-dumping investigation into Australian wine, the latest measure to target the nation's exports as relations between the two states deteriorate.
  • Frozen out | The Cold Chain Association of China's southern coastal city of Guangzhou ordered all member companies to suspend imports of frozen meat and seafood from coronavirus-hit areas.
  • Farm-to-table tracing | Unilever is planning to use new geo-location technology to make its palm-oil supply chains more transparent and tackle a farm-to-table traceability problem that has plagued the industry for decades.

On the Bloomberg Terminal

  • Good guide | Metal consumption moves closely in line with world GDP growth. As a result, metals prices can provide a high-frequency guide to the ups and downs. The fit is so strong that Bloomberg Economics uses the S&P GSCI Metals Price Index in our global GDP nowcast.
  • Take the bus | The number of people using public transport — a proxy for economic activity — presents a mixed picture on the state of the global economy. Data from Moovit — which collates daily usage of public transportation in major cities — shows most countries are showing some improvement but none are close to pre-virus levels of activity.
  • Use the AHOY function to track global commodities trade flows.
  • Click HERE for automated stories about supply chains.
  • See BNEF for BloombergNEF's analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
  • Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

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