European sales for Guangdong-based coffee machine company HiBrew have tapered off after a sterling run last year when pent-up global demand drove up purchases of Chinese consumer goods. To get more latest china business news, you can visit shine news official website.
Sales have fallen 30% to 40% so far this year, a sharp contrast to the 70% growth in business last year, according to General Manager Zeng Qiuping.
Rising living costs in the U.S. and Europe as well as importers waiting for potential U.S.-China tariff cuts contributed to the downturn, Zeng said. But he is optimistic the current lull is just a blip and overseas demand will return.While HiBrew doesn’t sell much to the U.S., Zeng said fellow exporters tell him orders from the U.S. have also diminished.
Separately, freight costs are starting to fall now after surging to record levels during the pandemic, signaling that demand for logistics needed for deliveries is coming off the boil, analysts say.That’s good news for exporters and importers, but there’s another red flag.
While traders previously had to cope with supply chain congestions and upheavals, they may now need to grapple with falling demand especially in developed economies. These dynamics point to recessionary pressure, analysts warned.Indeed, spot ocean freight rates between China and the U.S. east and west coast have fallen, said Shabsie Levy, founder of Shifl, a digital supply chain platform.
He attributed the declines to falling consumer demand in the U.S. and said many U.S. retailers are sitting on excess inventory.
Ocean freight rates are intrinsically connected to the retail industry as ocean freight make up over half of all imports into the country, he added.Falling retail demand has pulled down ocean spot freight rates and continues to do so,” Levy said. “I would not call this reduction in demand a recession yet, but things seem to be heading towards troubled waters.”
“On an anecdotal level, some customers are experiencing a drop in sales especially in certain high value items and less essential items.”During the pandemic, shipping costs surged as a result of supply chain disruptions and lockdowns.
Spot ocean freight rates between China and the U.S. were nearly 3.5 times higher between January 2020 and May this year, Shifl said.The higher logistics costs have either been absorbed by manufacturers or passed onto consumers, driving up inflation.
But now, new import orders from the U.S. have slowed and businesses like Samsung U.S., the seventh-largest importer into the U.S., has halved its planned inventory order for July, according to Shifl data.The second-largest American importer, Target also announced its intentions to cut inventory orders because of ballooning inventory, according to Shifl.
Even after Shanghai’s lockdown was lifted, shippers received a lukewarm response from importers, Levy said. The Drewry’s composite World Container Index, which tracks freight costs of 40-foot container on major routes, has fallen over 30% since September.
Costs of containers across major routes — such as Shanghai to New York, and Shanghai to Rotterdam —have dropped by up to 24% compared to last year. “The U.S. distribution system is stuffed with stuff. Business inventories in April were up nearly 18% from a year ago,” Marc Levinson, an independent economist, said on LinkedIn.
“The reason for the excess inventory? Simply enough, consumers have stopped spending with abandon. As shopping habits revert to pre-pandemic norms, inflation decimates buying power, and home sales stall, the demand for consumer goods is stalling as well.”