Posted by: brandextenders | August 2, 2010

It’s on a slow boat from China!

I remember as a kid when something would take a long time to happen, people in my parent’s generation would say it was like a slow boat from China. The term came from the fact that in those days, when air freight was still a very expensive luxury, it could take forever to get something from there to here. Welcome back to the future!

 In the promotional products industry it used to be rare that companies would import products for a customer on their own. Too much risk, too much money involved and it took too long. As China ramped up production though, especially in coastal cities where it was easy to get product to ports and shipped out, more and more companies put their toes into the importing waters and found it could be lucrative. Then the economy turned sour in the fall of 2008 and the demand for most everything decreased so to save money companies cut their inventories and placed orders less frequently. That in turn decreased the demand for ships to carry the freight and many were taken out of service and dry-docked. Estimates are that ocean shipping companies lost $22 billion in 2009 and so now that the economy seems to be tentatively turning around these companies are trying to determine how to increase capacity while holding down costs.

 As a result, both sellers and buyers of promotional products are going to find prices increasing faster than anticipated. Because of increased production and more factories being built in the interior of China, employers are increasing wages to keep workers on-the-job. The demand for raw materials to produce products is also increasing and that in turn is causing the price of these raw materials to rise as well. And once those desktop accessories, toys and apparel are finished they head to the docks where it is costing substantially more and taking longer to get them to America.

If a factory already has a contract with a freight line chances are their costs are rising, but not nearly as fast as those factories without contracts who must buy what are known as spot rates. According to Drewry, an independent maritime advisor, the cost to ship a 40-foot container from China to America was $871 in 2009. This year, that spot rate has jumped to over $2,600, a five-year high. Not only will you pay more though, your order will take longer to get here than it used to.

 Eager to save fuel costs, ocean shipping lines are implementing what they call “slow steaming.” Ships are reducing their speeds and running 12 to 15 miles per hour, down from 21+ miles an hour and saving lots of money while stretching transit times. Maersk, the world’s biggest ocean cargo line based in Copenhagen swung from a loss last year to a profit in the first quarter of this year partly due to a 9% savings on fuel costs directly related to slow steaming.

 So despite the economy still coughing and sputtering you can expect to start paying more for those cherished promotional products as well as any products you purchase that come from China. Other areas of the world where manufacturing is located are facing similar challenges and at least on the surface it looks like the days of cheap imports are a thing of the past.

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