By Richie Lin       Photo : Pixabay

In the past 40 years, the developed countries led by USA outsourced the manufacturing of their products to Asian countries such as Japan, South Korea, China, Taiwan, Vietnam and Thailand. This outsourcing strategy boosted China to become the factory of the world combined with the unparalleled power driven by governmental initiatives, substantial labor forces, and foreign investments and technology. It created a most complete supply chain in one single country in the history. No matter what kind of products you want to buy, you can always find a full-fledged supply chain in China, especially in Guangdong, Jiangsu and Shanghai. People in developed world such as USA and European countries are all depending on China to provide their daily products such as clothes, shoes, houseware, furniture, and mechanical products. However, the Sino-American trade war walked hand in hand with port congestions and space shortage to create supply chain break-down from 2020 till the second quarter of 2022. This supply chain break-down is the culmination of driving the USA and European companies to switch to the nearshoring strategy. Nearshoring means companies transferring their manufacturing sites or warehouses near their customers. They can reduce the uncertainty of transit time from Asian countries when shipping lines slow down the speed of vessels and use the blank sailings to reduce the operating costs. If manufacturers really want to have better performance on delivering products as timely their customers wish, they will need nearshoring production sites or warehouses to provide materials timely. Therefore, we recommend manufacturers to set up overseas bounded or non-bounded warehouses near their customers whereas they are in USA, China, European Union, or Southeast Asian countries. The advantage of bounded warehouse is that manufacturers don’t have to pay duty and VAT at once when products arrive at the bounded warehouse. By storing limited inventory in the overseas warehouses, customers can speed up the supply chain to handle the prompt orders from their end-users. It is difficult to apply loans from banks to build up new warehouses because current interest rate has reached 4.5~5% under FED’s pressure to suppress the inflations. Since there are no enough warehouse spaces in the market, warehouse charges are pushed up eventually. In order to control the inventory level reasonably, the JIT (Just In Time) theory will be used again when most of companies decide their purchasing and production plans. If companies really want have better performance on JIT strategy, they will need nearshoring production sites or warehouses to provide materials timely. However, the warehouse charges are higher than before, buyers will use bargain power to urge sellers to set up warehouses locally to build up inventory for JIT orders. Medium and small companies don’t have as many as resources like huge global companies but they can rent the warehouses of third-party logistics companies to establish short term inventory without investing huge money on the assets of lands and constructions. Even though demands of end users are still low comparatively, there are more and more request form buyers to establish JIT (Just in Time) supply chain for the prompt orders. Medium and small companies can use warehouses of third-party logistics companies to establish short term inventory without investing huge money on the assets of lands and constructions.

Appreciate if you could share TGL Blog among your friends who are interested in first-hand market information of supply chain and updated economic incidents.