TOP N. AMERICAN SHIPPERS 2005 - China and the American importer

By: | at 07:00 PM | Channel(s): International Trade  

The demand for consumer goods has transformed China’s economic landscape. The PRC has become “factory to the world.” Over the past two decades, US retailers have over played a greater role in the design, manufacture and shipping of consumer goods from China. Is a new wrinkle in this relationship in the cards?By George Lauriat, Editor-in-Chief, AJOTOver the past two decades a profound transformation has taken place in sourcing retail consumer imports. The most dramatic features of that transformation in retail sourcing has taken place in only the last six or seven years. Outwardly, it is easy to see that the geographic sourcing of retail goods has shifted from Europe to the Far East, and particularly to China. Imports from China alone have grown from $45.5 billion to over $243 billion since 1995. (One decided drawback to the flood of cheap consumer goods is that the trade deficit with the People’s Republic of China (PRC) rose from nearly $162 billion in 2004 to $243.5 billion in 2005.
Wal-Mart alone is reported to have purchased $18 billion worth of Chinese goods in 2004. That figure likely topped $25 billion last year. From an ocean transportation perspective, this surge in trade has seen container traffic between the Far East and US rise from around 200,000 teus per month in 1999, to a staggering 1-1.2 million teus per month now. It is estimated that the PRC’s container traffic to the US has risen from around 1.24 million teus in 1993 to nearly 7.4 million in 2004 and is believed to have topped the 10 million teu barrier last year. Retailers have been the biggest contributors to the import boom from the Far East. Since 2001, it is estimated that Wal-Mart, the world’s largest box shipper, went from importing 250,000 teus to over 600,00 teus in 2005. Wal-Mart is not alone. Target is estimated to have imported some 291,000 teus and rival J.C. Penney, over 83,000 teus.
To satisfy consumer demand retailers like Wal-Mart, Costco, Target, JC Penny, and specialty retailers such as CVS, Home Depot and Lowes, the import side of the business had to be reinvented. This was not an easy transition for retailers. Most retailers looked inward at the domestic challenges of building their supply chains, rather than looking outward to the problem of sourcing products to fill the shelves. This attitude is understandable. Traditionally, merchant trading houses acted as the go-betweens either finding product through local buyers, or in the case of some of the larger Japanese trading houses like the Marubeni Group, actively seeking participation in the factories producing the goods. Many of the department store-style retailers had their own in-house buyers who made annual buying trips to Asia, meeting with middlemen, or in some cases traveling to the factories themselves to set up deals.
Re-inventing procurementIn the 1980s, Wal-Mart turned the retail world upside down. How Wal-Mart became arguably the world’s largest company is more about how the mega-retailer re-invented procurement than it is about opening new stores.
Wal-Mart wasn’t the first chain store to enter the China market, but rather the first to realize the enormous potential of the PRC factories. Virtually all of the department store chains had been sending buyers into the PRC for years. The real difference in the Wal-Mart approach was that the company viewed the procurement of goods as vital to the strategy of putting low cost goods on the shelf. Wal-Mart opened its own buying office in Hong Kong in 1981, at the time Deng Hsiao-ping was opening China up to global commerce. Wal-Mart caught the China wave and has been riding it ever since.
A short time later the company established Pacific Resources Export Limited (PREL) as their exclusive buying agent. Wal-Mart sold its own Asian buying offices to PREL. In a corporate turn about in 2002, PREL was rolled into Wal-Mart’s own Global Sourcing division.
Wal-Mart’s wasn’t alone in establishing “global sourcing” companies to handle overseas buying and arrange transportation.

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American Journal of Transportation