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Retail Sourcing Report Facts & Insight

Q4 2015

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RETAIL SOURCING REPORT

CBX Software’s Retail Sourcing Report provides research and analysis

aimed at informing global sourcing and buying decisions for retailers, brands

and other sourcing professionals. Each issue includes a snapshot of key

information impacting global sourcing, such as economic conditions in

sourcing countries, container shipping prices, currency exchange rates and

commodity costs. We also cover hot topics ourselves and include insight

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Q4 2015 Retail Sourcing Report

2

Content RETAIL SOURCING REPORT ............................................................................................................................ 0

FORWARD ..................................................................................................................................................... 1

PURCHASING MANAGER’S INDEX ............................................................................................................ 3

MAJOR ECONOMIC INDICATORS .............................................................................................................. 4

GLOBAL COMPETITIVENESS INDEX ......................................................................................................... 5

CHINA WAGE TREND SNAPSHOT .............................................................................................................. 6

GLOBAL LOW COST SOURCING COUNTRY WAGE SNAPSHOT ........................................................... 7

CONTAINER FREIGHT RATES FOR MAJOR ROUTES ............................................................................. 8

CURRENCY EXCHANGE RATES ................................................................................................................. 9

GLOBAL COMMODITY RATES .................................................................................................................. 10

CRUDE OIL ................................................................................................................................................. 10 RUBBER ..................................................................................................................................................... 10 METAL ........................................................................................................................................................ 10 WOOD ........................................................................................................................................................ 11 WOOL, HIDES, COTTON ............................................................................................................................... 11 PLASTICS AND FIBERS ................................................................................................................................. 12

GLOBAL TRADE REGULATIONS .............................................................................................................. 12

EU AND VIETNAM SIGN FREE TRADE AGREEMENT ........................................................................................ 12 TPA - US TRADE BILL OPENS SOURCING OPPORTUNITIES ........................................................................... 13

QUALITY FOCUS ........................................................................................................................................ 14

HOW TO SELECT AN IT SYSTEM FOR QUALITY CONTROL ............................................................................... 14

ABOUT CBX SOFTWARE ........................................................................................................................... 15


3

Purchasing Manager’s Index

To help understand industry and economic conditions in a country, the PMI Index tracks variables such as

output, new orders, stock levels, employment and prices across private companies in the manufacturing,

construction, retail and service sectors.

A reading below 50 indicates contraction from the previous month, while a reading above 50 indicates

growth. Currently 22 countries and regions conduct the PMI survey and compilation, based on an

internationally standardized methodology.

This update looks at a selection of emerging economies and key sourcing countries, providing indicators

for recent months (based on data provided by Markit).

Analysis: Q3 was one of the weakest periods of global manufacturing growth in 2 years. At least 5 of the

top 10 global manufacturing markets contracted, including Brazil, China, Hong Kong and South Korea.

China’s manufacturing is decelerating faster than anticipated, which is having a worldwide impact. Notable

exceptions to the downward manufacturing trend include Europe, which saw manufacturing grow at the

fastest pace in 4 years.

Country Jul 2015

Aug 2015

Sep 2015

Summary of Indicators

Brazil 47.2 45.8 47.0

Brazil saw softer reductions in output and new orders during September. Underlying domestic issues suggest the economic struggles will continue.

China 47.8 47.3 47.2 Output reduced as China’s manufacturing growth reached a 78 month low based on weak export demand and stronger government fiscal policy.

Czech Republic

57.5 56.6 55.5 Czech manufacturing continued to expand at a healthy pace in September with production remaining strong in the coming months.

Egypt 49.2 51.2 - Business activity in Egypt’s private sector shrank in Q3 with declines in output, new orders and employment and a modest recovery late in Aug/Sept.

India 52.7 52.3 51.2 Despite falling input costs, PMI reached a seven month low in September as manufacturers saw output growth fall against a decrease in new orders.

Indonesia 47.3 48.4 47.4 Conditions across Indonesia’s manufacturing sector continued to deteriorate in September, with both output and new orders contracting at sharper rates.

Mexico 52.9

52.4

52.1 Sluggish conditions continued across Mexico’s manufacturing sector in September, pointing to slower growth than at the beginning of the year.

Poland 54.5 51.1 50.9 The economy remained stuck as output and new orders both rose marginally and new export business declined for the first time since October 2014.

Russia 48.3 47.9 49.1 Russia’s manufacturing sector recorded a modest, yet marginal decline during September as output and new orders both recorded negligible growth.

South Africa

48.9 49.3 - The country’s manufacturing sector continued to experience underlying weakness through Q3, with fears of recession looming on the current trend.

South Korea

47.6 47.9 49.2 South Korea experienced deterioration in the manufacturing sector as production, new orders, employment and stocks of purchases all contracted.

Turkey 50.1 49.3 48.8 September signaled a continued downturn in Turkish manufacturing conditions at the end of Q3, with new orders and output falling at a fast rate.

Vietnam 52.6 51.3 49.5 The Vietnamese manufacturing sector posted contractions in both new

orders and production in September as demand in the region fell.

Sources: Markit Economics


4

Major Economic Indicators

This section looks at major economic indicators from key “low-cost” sourcing destinations, also pulling out

highlights and sourcing trends in these countries.

Selected highlights:

Bangladesh – Apparel exports to the US rebounded in 1H 2015, but less than regional contenders

Cambodia – Garment unions agreed to petition for a minimum wage increase from US$ 128 to $168

India – The Indian Rupee depreciated to a 2 year low against the USD, negatively impacting exporters

Indonesia – Thousands of workers were laid off in textile heavy West Java in 1H 2015, on slumping sales

Pakistan – Exports of textiles & garments continued, dropping 11.7% yoy to US$1.03 billion in July

Philippines – FDI inflows reached an all-time high of US$6.2 billion in 2014, up 65.9% yoy

Thailand – Exports fell by 7.9% yoy to US$18.2 in June, the sixth consecutive month with a y-o-y decline

Turkey – FDI dropped 9.6% yoy to US$6.3 billion in 1H15, with the textile sector seeing strong growth

Vietnam – The EU and Vietnam agreed in principle on a Free Trade Agreement on August 4

CPI (% yoy growth)

Jan 2015

Feb 2015

Mar 2015

Apr 2015

May 2015

Jun 2015

Jul 2015

Bangladesh 6.0 6.1 6.3 6.3 6.2 6.3 6.4

Cambodia 0.4 1.6 1.1 1.3 1.0 0.7 -

India 5.2 5.4 5.2 4.9 5.0 5.4 3.8

Indonesia 7.0 6.3 6.4 6.8 7.1 7.3 -

Pakistan 3.9 3.2 2.5 2.1 3.2 3.2 1.8

Philippines 2.4 2.5 2.4 2.2 1.6 1.2 -

Thailand -0.4 -0.5 -0.6 -1.0 -1.3 -1.1 -

Turkey 7.2 7.6 7.6 7.9 8.1 7.2 6.8

Vietnam 0.9 0.3 0.9 1.0 1.0 1.0 -

Exports (% yoy growth)

Jan 2015

Feb 2015

Mar 2015

Apr 2015

May 2015

Jun 2015

Jul 2015

Bangladesh 4.8 5.2 7.4 -0.6 4.4 9.1 -12.0

Cambodia - - - - - - -

India -11.2 -15.0 -21.1 -14.8 -20.2 -15.8 -10.3

Indonesia -8.1 -16.0 -10.3 -8.3 -14.4 -12.3 -

Pakistan -0.2 -12.9 -13.4 8.3 11.4 15.6 -16.9

Philippines -0.5 -3.0 2.1 -4.1 -17.4 -3.3 -

Thailand -3.5 -6.1 -4.5 -1.7 -5.0 -7.9 -

Turkey -0.7 -6.3 -14.7 -0.1 -19.0 -7.1 -16.2

Vietnam 14.0 8.4 8.7 2.1 10.4 15.7 -

Imports (% yoy growth)

Jan 2015

Feb 2015

Mar 2015

Apr 2015

May 2015

Jun 2015

Jul 2015

Bangladesh -9.8 1.9 -5.3 -12.1 -4.9 3.9 -

Cambodia - - - - - - -

India -11.4 -15.7 -13.4 -7.9 -16.5 -13.4 -10.3

Indonesia -15.6 -16.2 -13.2 -22.3 -21.4 -17.4 -

Pakistan -26.0 -7.6 -3.8 -10.4 -10.4 -3.4 4.0

Philippines -12.4 11.2 -6.8 -12.8 -13.4 22.6 -

Thailand -13.3 1.5 -5.6 -6.8 -20.0 -0.2 -

Turkey -13.7 -7.1 -6.0 -11.1 -14.4 -12.5 -8.7

Vietnam 39.2 21.9 18.1 7.7 16.9 16.3 -


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Sources: Fung Group, various statistical bureaus

Global Competitiveness Index

The Global Competitiveness is a ranking of countries based on their competitiveness across different

measures such as government regulation, labor market efficiency, education, infrastructure and other

measures important to doing business in a country. Below is a selection of emerging economies which are

important sourcing locations. As might be expected, countries which made significant gains in the index

include Bangladesh, Indonesia, the Philippines and Vietnam, while China remained relatively flat.

Global Competitiveness Index: Selected Indicators, 2013-14 (Ranking of 148 countries)

Rank/148 Bangladesh Cambodia China India Indonesia Pakistan Philippines Thailand Turkey Vietnam

Overall competitiveness

110(↑8) 88(↓3) 29(-) 60(↓1) 38(↑12) 133(↓9) 59(↑6) 37(↑1) 44(↓1) 70(↑5)

Institutions 131(↓4) 91(↓18) 47(↑3) 72(↓2) 67(↑5) 123(↓8) 79(↑15) 78(↓1) 56(↑8) 98(↓9)

Intellectual property protection

130(↑1) 99(↓14) 53(↓2) 71(↓8) 55(↑5) 109(↓3) 78(↑9) 102(↓1) 74(↑12) 116(↑7)

Burden of government

regulation 97(↓12) 70(↓28) 14(↑9) 104(↓6) 31(↑17) 82(↓20) 98(↑10) 90(↓1) 72(↑8) 106(↑6)

Strength of investor protection

25(↓1) 69(↓4) 84(↓4) 41(↓2) 41(↓2) 31(↓2) 107(↑3) 13(-) 57(↓5) 134(↓4)

Infrastructure 132(↑2) 101(↑3) 48(-) 85(↓1) 61(↑17) 121(↓5) 96(↑2) 47(↓1) 49(↑2) 82(↑13)

Quality of roads 118(↓5) 80(↓14) 54(-) 84(↑2) 78(↑12) 72(↑1) 87(-) 42(↓3) 44(↓1) 102(↑18)

Quality of railroad 78(↓5) 91(↓10) 20(↑2) 19(↑8) 44(↑7) 75(↓9) 89(↑5) 72(↓7) 52(↑1) 58(↑10)

Quality of port 104(↑17) 81(↓12) 59(-) 70(↑10) 89(↑15) 55(↑5) 116(↑4) 56(-) 63(-) 98(↑15)

Quality of air transport

125(↓5) 90(↓15) 65(↑5) 61(↑7) 68(↑21) 88(↓10) 113(↓1) 34(↓1) 33(↑3) 92(↑2)

Quality of electricity supply

133(↑3) 112(↓7) 67(↓8) 111(↓1) 89(↑4) 135(↓9) 93(↑5) 58(↓14) 77(-) 95(↑18)

Macroeconomic environment

79(↑21) 83(↑8) 10(↑1) 110(↓11) 26(↓1) 145(↓6) 40(↓4) 31(↓4) 76(↓21) 87(↑19)

Health & primary education

104(↓1) 99(↑3) 40(↓5) 102(↓1) 72(↓2) 128(↓11) 96(↑2) 81(↓3) 59(↑4) 67(↓3)

Higher education & training

127(↓1) 116(↓5) 70(↓8) 91(↓5) 64(↑9) 129(↓5) 67(↓3) 66(↓6) 65(↑9) 95(↑1)

Goods market efficiency

89(↑6) 55(↓5) 61(↓2) 85(↓10) 50(↑13) 103(↓6) 82(↑4) 34(↑3) 43(↓5) 74(↑17)

Prevalence of trade barriers

62(↑19) 80(↑8) 76(↑3) 61(↑17) 71(↑4) 92(↑22) 60(↑16) 50(↑21) 97(↑1) 104(↑24)

Trade tariffs, %duty 132(↓3) 105(↑22) 123(↓1) 128(↓2) 65(↓4) 142(↓7) 46(↑7) 83(↓5) 69(-) 92(↓2)

Burden of customs procedures

113(↑11) 101(↓22) 60(↑5) 88(↓4) 74(↓1) 91(↑2) 130(↓4) 80(↑6) 87(↑9) 99(↑15)

Labor market efficiency

124(↓7) 27(↑1) 34(↑7) 99(↓17) 103(↑17) 138(↓8) 100(↑3) 62(↑14) 130(↓6) 56(↓5)

Cooperation in labor-employer

relations 96(↓12) 68(↑7) 60(↓3) 61(↓11) 49(↑12) 105(↓15) 34(↑4) 37(↑4) 82(↑22) 64(↓11)

Flexibility of wage determination

95(↓10) 71(-) 94(↓17) 50(↑11) 106(↑8) 97(↓5) 109(↑8) 111(↓14) 32(↑3) 69(↓24)

Pay and productivity 101(↑4) 32(↓3) 17(↓1) 58(↓15) 29(↑5) 86(↓13) 44(↑13) 31(↓4) 61(↓12) 15(↑3)

Business sophistication

113(↓5) 86(↓12) 45(-) 42(↓2) 37(↑5) 85(↓7) 49(-) 40(↑6) 43(↑4) 98(↑2)

Local supplier quantity

76(↑1) 111(-) 31(↓3) 2(↑8) 51(↑16) 78(↓4) 54(↓5) 23(↑2) 18(↑17) 30(↑8)

Local supplier quality

95(↓14) 113(↓11) 69(↓3) 76(↓7) 66(↓4) 92(↓6) 68(-) 42(↓3) 56(-) 89(↑10)

Site of cluster development

66(↓9) 44(↑4) 24(1) 16(↑13) 29(↑4) 62(-) 55(↓17) 33(↑1) 30(↑13) 68(↓32)

Source: World Economic Forum


6

China Wage Trend Snapshot

At least fourteen provinces and major cities have raised the minimum wage by July this year, despite an ongoing slowdown in the Chinese manufacturing economy. The chart illustrates min wage levels in selected Chinese cities and provinces. Specific regional wage increases are indicated in the below table. While a sharp slowdown in Chinese manufacturing has raised some uncertainty as to wage sustainability, policy makers are expected to intervene to support continued wage growth. Minimum Wage Levels of Selected Cities and Provinces (Yuan)

2014 Minimum Wage Updates (official)

Region Monthly Min Wage (RMB) Effective Date

Anhui 860-1,260 (various regions)

Beijing 1,560 April 2014

Chongqing 1,150 -1,250 (various districts) January 2014

Fujian 3.5% - 17% increase (various regions) August 2014

Gansu 1.200 – 1,350 (various regions)

Guangdong 1,210 – 1,510 (various regions) May 2015

Guizhou 2.7 - 15.2% increase (various regions) June 2014

Hebei 6% - 22% increase (various regions) August 2014

Henan 1,400, 1,250, 1,100 (various regions) July, 2014

Jiangxi 4-16% increase (various regions) August 2014

Jilin 4% - 16% increase (various regions) August 2014

Shaanxi 1,190 – 1,370 (various regions) May 2015

Shandong 1,200, 1,350, 1,500 March 2014

Shanghai 2,020 April 2015

Shenzhen 1,808 February 2014

Sichuan 1,100 – 1,400 (various regions) July 2014

Tianjin 1,850 April 2015

Qinghai Benchmark of 10% plus increase May, 2014

Yunnan 1,070 – 1,420 (various regions) May 2014

Zhejiang 1,220 - 1,650 (various regions) August 2014

Source: Trading Economics


7

Global Low Cost Sourcing Country Wage Snapshot

Below is a snapshot of minimum wages in selected Asian sourcing locations, with the addition of Egypt and

Ethiopia. Wages vary by region or province and indicate either an estimated or actual/official rate. In cases

with a distinct variance, we provide an average. With greater visibility into social conditions in low cost

countries, currency fluctuations, increasing unrest and union pressure, wages in traditional low cost

sourcing countries are on the rise across the board. (Figures in USD/month as of September 1, 2015)

Most of the emerging markets have either committed to increases or are facing heavy union

pressure to increase wages in double digit percentages. In addition to basic wages, workers may

receive attendance and production bonuses, transport, subsidized meals, etc.

Note: Consult Fair Wage Guide to calculate benchmarks for wages in particular countries on an hourly or

piece rate basis and determine a fair wage in those regions.

BANGLADESH CAMBODIA CHINA EGYPT ETHIOPIA

$68 (Dec 2014) $128/month (Nov 2014) $137-$639 (2015 est.) $114 (Mar 2015 est.) $23-$40 (Dec 2014)

Bangladesh raised the minimum wage for garment workers – up by 77%. To 5300 Taka ($68) following a labor dispute that shut factories in the Ashulia industrial zone outside the capital city of Dhaka.

Cambodia officials agreed to raise the minimum wage in its biggest export earning apparel sector to $128 US a month, a 28% increase. Labor unions are still pushing for an increase to as much as $170 per month.

Minimum wages in China are set by local governments and vary widely by region and how wages are calculated (with housing, food, overtime etc.) Wages continue to increase +/-10% / year.

The basic min wage for the public sector rose from EGP246 to EGP870 in March 2015. Currently there is only one national minimum wage; there are no sectorial rates or occupation-based rates.

Many government institutions and public enterprises set their own minimum wages which accounts for variations. Public sector employees are on the low end ($23) while the private sector is higher (+/-$40)

INDIA INDONESIA LAOS MALAYSIA MYANMAR

$40 - $130 (2015 est.) $71-230 (2015 est.) $110 (2015 proposed) US$ 254 (2015 actual) $67 (Sept 1, 2015 )

Indian min. wages vary widely between regions and skill levels, however the central Indian labor ministry has proposed fixing minimum wages at 15,000 Rupees/month ($242) as of late 2014 - a big gap between actual rates.

Indonesia min. wages vary widely depending on the region and skill level. Officials have made commitments on increases but Union officials are pushing for more. For example, the Jakarta approved a $219 min. for 2015, but unions want $285.

Talks are underway in Laos to increase the min. wage, based on rising living costs from a 2011 min. of 626,000 Lao kip ($78) per month to a proposal by labor unions to raise wages to 900,000 Lao kip ($99) in key provinces.

Malaysian officials proposed an increase of the min. wage from RM 900 ($254) to RM 1,100 ($310) to offset rising costs. This excludes foreign workers who make up 70%-80% of textile sector workers. Wages vary widely across the country.

Myanmar has set a minimum wage of 3,600 kyat ($2.80) for an eight-hour work day, mostly impacting garment workers. The decision follows two years of debate between garment factory owners and labor unions,

PHILLIPPINES SRI LANKA THAILAND VIETNAM

$110-220 (2015 est.) $49-72 (2015 est.) $381 (2014 est.) $ 101-142 (2015 est.)

Wages in the Philippines vary widely by region and skill. Garment sector wages range from $6-8 per day. In 2013 minimum wages were replaced with a two-tier system. 1st tier: Minimum floor wage for new hires/ low skilled. 2nd tier: productivity – based system.

Min. wages in Sri Lanka vary by skill and industry. Industrial sector wages range from 6,500-7,500 Sri Lankan Rupees ($49-$56) for unskilled workers to 7,500-9,500 ($56-$72) for skilled workers. Average wages for textile workers are +/- $160.

Actual wages in Thailand increased to 13581 Thai Baht ($416) in the fourth quarter of 2014 from 13386 ($410) in the third quarter of 2014. Manufacturing wages average 12429 ($381) a marginal increase. An official min. wage of $300 per month applies from Jan. 2013

Prime Minister agreed to increase Vietnam’s minimum monthly salary from VND 2.15 mln-VND3.1 mln ($101-$146) depending on location, effective January 1, 2015. Inflation continues to press wages and further hikes are expected through to 2017.

Sources: WageIndicator.org, SAFSA, Wikipedia, Local News Reports


8

Container Freight Rates for Major Routes

The rates below are supplied by Xeneta which relies on actual “crowd sourced” data provided by shippers,

allowing users to cross-reference prices. All indices are reported in USD per Twenty Foot Container. We

report on historical and forward looking rates for key Asia-Europe and Asia-U.S. routes.

Analysis: Spot rates on Asia-European trade lanes rose to $763 in September, following a general rate

increase on September 1. Rates are expected to slide in Q4 though as significant container shipping

capacity will come on stream, with larger vessels that can only serve the Asia-Europe routes. Shipper,

CMA CGM announced an increase of $500 per TEU from September 20 on all Asia-North Europe cargo.

Asia-North America trade lanes are now being similarly affected by the general rate increases and

capacity cuts as the Asia-Europe trade. Trans-Pacific rates fell to a four year low by late Q3, which spells

uncertainty for the coming pre-holiday peak season. Falling exports from China will continue to put the

container shipping industry under pressure in the near future.

Chart Source: www.xeneta.com


9

Currency Exchange Rates

Following are exchange rates and indicators from 30 day to 2 year historical rates for major currencies commonly factored into global sourcing costing estimations. The USD is expected to gain strength as a rate hike approaches in September. Developments in the Greek saga are likely to support higher levels of volatility in the EUR. Chinese policy reforms, including liberalization of the RMB are pressing ahead, which most likely means steady RMB appreciation. EURO / USD:

EURO / RMB:

USD / RMB:

Sources: Oanda.com; News/Analyst Reports

The EUR has recovered moderately against the USD in the past quarter and is holding steady, however the forecast is that with Eurozone deflation, the EUR will head lower.

EUR/USD - % change 2 years -17.28% 1 year -11.24% 6 months 1.84% 3 months 0.56% 30 days 0.84%

The EUR continues to recover in value against the RMB, a trend which began in Q2 and continues into Q4. The RMB is showing signs of stabilizing post recent liberalization of the currency.

EUR/RMB - % change 2 years -14.12% 1 year -7.95% 6 months 8.25% 3 months 5.81% 30 days 0.01%

The USD has gained in value against the RMB significantly in the past quarter, a trend which is continuing into Q4. The RMB is expected to continue weakening as the USD holds, supported by a stronger US economy.

USD/RMB - % change 2 years 3.82% 1 year 3.71% 6 months 4.37% 3 months 4.53% 30 days 0.07%


10

Global Commodity Rates

The IMF’s Chief, Christine Lagarde warned in late September that emerging markets could be hit by a

prolonged period of low commodity prices. Factors impacting the global economy include: falling import

demand in China, falling oil and other commodity prices and exchange rate fluctuations. Oil prices remain

near a low for 2015, based on over-supply, a trend which is expected to continue. The impact of depressed

oil and other commodity prices is far reaching, with big commodity investors like Glencore struggling with

heavy debt as low demand and over-supply continue to have a strong impact globally.

Crude Oil

Rubber

Metal

20

40

60

80

100

120

Oil US$ per barrel

Dated Brent,lightblend 38 API

Dubai,medium,fob Dubai Fateh32 API

West TexasIntermedia 40API, MidlandTexas

50

60

70

80

90

Rubber, Singapore Commodity Exchange, No. 3 Rubber Smoked Sheets, US cents per pound

110120130140150160170

Metals Price Index, 2005 = 100, includes Copper, Aluminum, Iron Ore, Tin, Nickel, Zinc,

Lead, and Uranium Price Indices

0

5000

10000

15000

20000

25000

Metals US$ per metric ton

Zinc Tin AluminumLead Iron CopperNickel

Rubber prices fell to new lows in Q3 on slowing demand from China. Many growers in Vietnam have switched crops, given that a metric ton which sold for US$ 5000 In 2011 went for only $1,580 in September.


11

Wood

Wool, Hides, Cotton

Cotton prices remained relatively flat in Q3 and heading into Q4. Stockpiles are still high, with supply

keeping prices steady. Similar to other commodities, the slowdown in China, along with currency

fluctuations and stock market volatility is impacting cotton demand forecasts. Chinese cotton prices,

artificially supported for years, are only beginning to approach a true market price. Wool prices which

dipped marginally in Q2, recovered in Q3 and are expected to rise through 2015/16 on increasing demand.

0

100

200

300

400

500

600

700

800

900

1000

Wood US$ per cubic meter

Soft logs

Hard logs

Hard Sawn

Soft Sawn

800

850

900

950

1000

1050

1100

Wool, Coarse, Australian Wool Exchange, US cents per kg

900

950

1000

1050

1100

1150

Wool, fine, Australian Wool Exchange, US cents / kilogram

60

70

80

90

100

110

120

Hides, Heavy native steers, wholesale dealer's price, fob Shipping Point, US cents / pound

60

70

80

90

Cotton 'A Index', Middling 1-3/32 inch staple, CIF Liverpool, US cents / lb


12

Plastics and Fibers

A selection of plastic related prices is provided below. These are calculated from offer prices in the

Plasticker Material Exchange, which provide an indication of trends.

Analysis: Synthetic fiber prices dropped by over 20% in Q3, rebounding somewhat heading into Q4.

According to consulting firm PCI Fibers, collapsing oil prices, currency devaluations, and slowing growth in

demand are all responsible for the drop. Some analysts expect demand patterns to reach previous levels,

but given the global economic climate, it is unclear on when this will happen.

Sources of above commodity prices: IMF data, Index Mundi, Plasticker

Global Trade Regulations

This section focuses on global trade related regulatory agreements that impact global sourcing.

EU and Vietnam Sign Free Trade Agreement

The European Union (EU) and Vietnam reached an agreement on Free Trade on August 4, which is only

the second deal of its kind with an ASEAN country, after Singapore. Negotiation for this Free Trade

Agreement (FTA), started in October 2012. The outcome of this FTA will impact other ASEAN countries

negotiating with the EU - including Indonesia, Malaysia, Philippines and Thailand. It also serves as a key

building block towards the EU’s ultimate objective of an overarching region-to-region EU-ASEAN FTA.

The deal will remove nearly all duties on most goods traded between the EU and Vietnam. Their annual

trade is worth about €28bn (£20bn; $30bn). Vietnam exported €22bn of goods to the EU in 2014, including

consumer electronics and textiles. The deal is expected to take effect by early 2018. Vietnam will liberalize

duties for 65% of imports from the EU once the FTA enters into force, with the remainder to be liberalized

over a 10-year period, while the EU duties will be liberalized over a 7-year period. The transition period to

allow Vietnam to adapt to market liberalization is a unique feature of the agreement.

The EU will also eliminate duties for some sensitive products, especially in the textile, apparel and

footwear sectors. EU exports to Vietnam are dominated by electrical machinery, aircraft, vehicles and

0.20

0.40

0.60

0.80

1.00

1.20

1.40

Plastics & Fibers, Regrind/ Flakes (Euros/kg)

Nylon

Polyester

ABS

PVC

PP

PS


13

pharmaceuticals. The deal includes strict

rules of origin for garments, requiring the

use of fabrics made in Vietnam, to prevent

the deal becoming a back door for Chinese

products to flood the EU market.

In addition to the liberalization of trade, the

FTA also addresses non-tariff barriers,

government procurement, state-owned

enterprise competition and transparency

requirements, intellectual property

protection, services sector and investment

liberalization, dispute resolution and CSR

issues.

TPA - US Trade Bill Opens Sourcing Opportunities

Like Europe the US is also looking at extending their influence in Asia and making trade with key partners

easier. On June 29, Congress passed two bills that that are key to US trade policy: the Trade Promotion

Authority (TPA) and the Trade Preferences Extension Act (TPEA). Also known as the “fast-track bill”, the

TPA enhances the Obama administration’s authority to finalize trade deals, while the TPEA renews trade

preferences for developing countries.

Under the TPA legislation, the US Congress may

only vote up or down on finalized trade agreements

within a set period of time without amendments. This

mechanism should fast-track the conclusion of the

Trans-Pacific Partnership (TPP) agreement between

the US and 11 Pacific Rim nations, as well as the

Transatlantic Trade and Investment Partnership

(TTIP) between the US and the EU.

The TPEA extends the African Growth and

Opportunity Act (AGOA) and preferential duty

treatment program for Haiti through 30 September

2025; and extends the Generalized System of

Preferences (GSP) program for 122 countries and territories through 31 December, 2017. Under the

renewed GSP, certain travel goods – ranging from leather handbags to backpacks and luggage – are now

eligible for duty-free privilege. This positive change opens up huge opportunities for countries such as

Cambodia and the Philippines to boost their exports of travel goods to the US market.

Another significant change in the TPEA is the revisions on tariff classifications of recreational performance

outerwear and outdoor performance footwear. With a newly-added classification, recreational performance

outerwear is no longer categorized as mass-market readymade garments in the US Harmonized Tariff

Schedule, which sets the stage for future duty reductions. The tariff classification of outdoor performance

footwear is now also changed from protective footwear to athletic footwear, bringing the import tariff on

outdoor performance footwear down from 37.5% to 20%. To learn more about the specifics of the TPA,

Click Here.

Sources: BBC, Li & Fung, Various news reports


14

Quality Focus

This is a guest post by Renaud Anjoran, a Quality and Manufacturing consultant based in Southern China. His company, Sofeast, provides quality assurance services for importers in China.

How to Select an IT System for Quality Control

Over the course of my years of supporting businesses with their quality control and assurance, I have

talked with people from many different companies that employ an inspection team. The way their quality

department is organized can differ a great deal, but certain elements are the same across 98% of the

companies I have encountered.

The majority of companies use manually controlled tools and processes such as Excel spreadsheets

emails, phones and faxes. Others make use of an existing all-purpose software, such as support ticket

software, repair software or project management software. Some companies have invested in custom

developing their own IT system, while others have adopted a specialized quality inspection IT system.

Whichever technology is used, there are three key areas which need to be managed.

1. The planning

Some importers require their suppliers to book inspections formally (possible for large buyers, but not

realistic for smaller buyers). Others push their suppliers for a date (this is obviously more time-consuming).

Ideally you have standardized conditions for suppliers to respect as well as booking forms and confirmation

emails. In case you subcontract some inspections to a third-party agency, you need to have a way to pass

the information to them and get the confirmed information back in your system.

Finally, you need to allocate your inspectors in the most efficient way possible. Ideally you can have a high

level view, with details per day and per area.

2. The technical information

Many people have told me that “QC inspections are not rocket science”. And I agree. Nevertheless, a

quality manager needs to be able to adjust many parameters:

• What items to group in one lot

• What inspection settings (level, AQL limits…) to choose

• What can be checked in one day of work

• Which inspector can be sent to check what products

• What product information to give inspectors

• How and when to send approved samples, and what they can/cannot be used for as reference

• What checkpoints to apply, with what sampling

• Which equipment should be provided by factories vs. brought by inspectors

• What potential defects to look out for, with what severity

3. Human resources

Inspector expenses can quickly get out of hand. Companies should ensure they have you set up a fair set

of rules with checks in place. Ideally, an IT system would also manage the following issues:

• What are each inspector’s competencies?

• Does each employee do a good job? Can they see a few KPIs relating to their work?

• Is there a minimum level of rotation of inspectors among your supplier base?


15

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