Promo Sourcing Experts See Positive Signs for Industry’s Supply Chain Coming Out of China

Manufacturing activity in China appears to be strengthening – a positive supply chain indicator for the North American promotional products market, industry sourcing experts say.

The majority of products sold in the domestic promotional industry are made in China, which accounts for about 30% of the total global manufacturing output.

Amid COVID restrictions and then outbreaks, along with what some analysts say has been weaker demand, factory activity declined in China in recent months. Still, two just-released surveys indicate that China’s manufacturing sector could again be gaining steam.

Surveys: Factory Activity Improving

China’s official Manufacturing Purchasing Managers’ Index (PMI) showed that the sector expanded in January for the first time since September. PMI rose to 50.1, up from December’s 47. Readings above 50 indicate expansion in the sector.

The news wasn’t quite as good from the private sector survey, Caixin/S&P Global Manufacturing Purchasing Managers’ Index, but it still showed an upward trend. The Caixin/S&P PMI was 49.2 – still in the contraction zone, but a slower rate of contraction than the December reading of 49 indicated.

50.1
The January reading on China’s Official Manufacturing Purchasing Managers’ Indexwhich indicates expansion in the nation’s manufacturing sector.

Reuters reports that the differences in the PMIs could come down to the types of manufacturers surveyed, with the weaker showing on the Caixin suggesting smaller firms and exporters aren’t faring as well as larger ones. Still, the report adds that economists feel the “worst of the economic slump that followed the abandonment of zero-COVID in early December(s) seems to have passed, because the associated wave of COVID-19 infections had been unexpectedly fast.” That could be a harbinger of even better days ahead.

Notably, the January improvements occurred despite customary annual work/infrastructure slowdowns due to workers being off for Chinese New Year. The momentum grew even as China faced an outbreak of COVID-19 infections that occurred, as Reuters alludes to, after China lifted its zero-tolerance policy on the virus in December. That policy often resulted in the swift and sweeping implementation of shutdowns of cities, areas, factories, port-related infrastructure and more if even a few cases of COVID were detected.

Positives for Promo

This fledging societal reopening may be one important factor in China’s strengthening manufacturing activity. Efficient production and exportation of goods out of China helps domestic promotional products suppliers (and distributors that source directly) get product landed and warehoused here quicker, a component of keeping inventory levels robust and getting end-buyers the products they want when they want them.

Supplier sourcing pros have told ASI Media that they’re in a much better position on service and inventory headed into 2023 than they were at the outset of 2022, but have also previously raised concerns that fast-spreading COVID infections in China during post-zero – COVID reopening could potentially hamper supply lines.

While nothing is set in stone and issues related to potential COVID spread and adequate labor levels could still cause disruption, indicators from the manufacturing surveys and suppliers’ personal experiences thus far suggest those feared roadblocks have thankfully not yet manifested.

“Many factories have returned to work,” says Jing Rong, vice president of global supply chain and compliance at Top 40 supplier HPG (asi/61966). “The infection peak that many thought would happen due to the Chinese New Year has not happened, which is very good news. At this time, I do not see any supply chain issues on the horizon for the promo industry.”

“We are already starting to see bookings with the forwarders for freight to start moving mid-Februaryso it seems everything is off to a smooth start.” Teresa Fang, alphabrother

Teresa Fang notes that many factories won’t get back up to full production for another week or so due to waiting for full worker staffs to return following Chinese New Year. But even so, there are encouraging indicators from supply chain partners, says Fang, vice president of supply chain at Top 40 supplier alphabroder (asi/34063).

“We are already starting to see bookings with the forwarders for freight to start moving mid-February, so it seems everything is off to a smooth start,” Fang tells ASI Media.

Jeffrey Nanus says he’s “cautiously optimistic, as so far it appears the supply chain issues have brightened.”

“Most of our factories have not reported major delays,” reports Nanus, who is CEO of AAA Innovations (asi/30023), a New Jersey-based supplier that specializes in eco-friendly hard goods. “We have placed large additional orders for immediate delivery and our factories are reporting normal delivery times.”

To the final point: Nanus notes that the transport delays due to limited containers/cargo space, port congestion and more that plagued supply lines in 2021 and part of 2022 appear to have abated – at least for the moment.

“The ocean cargo situation is dramatically better,” he says. “We just had six containers arrive into New York harbor in 33 days from Ningbo, China – exactly on time – and offloaded and delivered to our warehouse in three days.”

Prices for air freight and ocean cargo have also stabilized, Nanus notes. Despite that being good news for product input costs, suppliers have said that other inflationary factors, including escalated labor expenses, will likely mean no decreased supplier pricing on promo items in 2023.

Another thing to keep an eye on is a weakening dollar, says Rong, as that could make it costlier to source materials/products in China as inflation there further drives up costs. Higher material/product costs for suppliers can contribute to increased prices for distributors and ultimately their end-clients.

In recent years, there have been well-documented initiatives in promo and other industries to move at least some production out of China – a geographic sourcing diversification aimed at reducing exposure to potential supply chain disruption. Nevertheless, China remains the world’s – and the promo industry’s – dominant manufacturing power.