State of Trade report cites expected growth in 2015 but not as same pace as a year ago

By Jeff Berman, Group News Editor

March 13, 2015

A wide-ranging survey published byPanjiva, an online search engine with detailed information on global suppliers and manufacturers, in partnership with Sourcing Journal, provides a detailed analysis on global trade patterns and trends focused on various segments of global trade.

Entitled the “State of Trade Survey,” data and feedback was based on responses from 350 global trade professionals.

One of the survey’s main findings was that respondents’ economic outlook heading into 2015 was optimistic but not as optimistic as they were heading into 2014, with 55 percent feeling good about things in 2015, which was down fro 2014’s 64 percent.

The survey explained that the optimism in 2014 was justified, as there was a 4.6 percent increase in U.S.-bound shipments with more than 25 million standard containers worth of goods entering U.S. ports in 2014, according to Panjiva data.

Panjiva CEO Josh Green said in an interview that the main reason for the expected decline in economic optimism in 2015 had to do with it being compared to the levels seen heading into 2014.

“I think it is probably because the holiday season in 2014 was a mixed bag in that things were good but not great,” he said.

The biggest concern for global trade professionals in the survey centered on concerns over rising manufacturing costs in manufacturing “hotspots,” which was followed by volatility in commodity costs.

What’s more, the survey found that more than 80 percent of its respondents indicated they expect manufacturing costs to increase over the next five years with those expecting costs in decrease or stay the same over the same time period both in the 10 percent range.

Green said the expectations for increased costs in the short-to-medium term is due to an inflationary environment, where costs are going up and the sourcing community needs to prepare for that.

“We went through an extended deflationary environment, where the global trade sector was getting used to manufacturing costs declining year after year after year, but things are going to change,” said Green. “Part of the challenge here is managing expectations. If you look at how sourcing professionals have been targeted and compensated over the years it has always been about reducing costs. And in an inflationary environment success is either keeping costs flat or minimizing the growth in costs.”

The China Effect: The survey noted that over the last five years more than 35 percent of U.S. imports have originated in China, with China’s preeminence in global manufacturing unlikely to change as the majority of buying professionals believe that China’s importance is of greater or equal importance compared to a year ago.

And 96 percent of survey respondents maintain that sourcing in China is of equal or greater importance than a year ago, which suggests that production will continue to be centered on China.

“It can be viewed as a bit of a surprise after so many years of hearing the sourcing community talk about alternatives to China,” said Green. “That was driven by fear of rising manufacturing costs and certainly everyone was making noise about finding alternatives to China, but what we found is that by and large they are finding alternatives for at least a portion of their manufacturing. At least in sheer numbers, though, China continues to dominate.”

But China is not entirely alone when it comes to locales gaining traction. The report explained that with the U.S. economy gaining traction, factory interest in serving the U.S. is also growing, with 63 percent of respondents more interested in serving the U.S. market in 2015, compared to 11 percent indicating they are less interested.

As far as U.S.-related obstacles, 38 percent of respondents said that unstable demand is their main concern with the U.S. market; although the U.S. may be benefitting from comparisons to other nations, with growth sluggish in Europe and volatility in China raise questions about how attractive those respective markets will be in the coming years.

Other findings of the survey included:
-how improved manufacturing efficiency beats out new sourcing hotspots as the biggest opportunity for cost savings, with slightly less than 60 percent of respondents citing improving manufacturing efficiency and the balance citing sourcing in new geographies;
-more than 60 percent of respondents expect port delays to impact how they ship goods in 2015;
-43 percent of buyers expect to increase budgets in 2015, with slightly less than 40 percent expecting to keep budgets at current levels and between 15-to-20 percent expecting to decrease budgets;
-62 percent of respondents plan to leverage more technology in 2015, with about one-third planning to use Enterprise Resource Planning (ERP) and 25 percent depending in Product Lifecycle Management systems