19059 Fri, 07/09/2010 - 12:11pm
What the change in the value of the Chinese renminbi, the cost of shipping containers, the 2010 cotton crop, steel prices, labor unrest, shortages and wages and just about everything else in China means—and does not mean—to the home furnishings industry in the U.S.:
A1: The Chinese currency—you say renminbi, I say yuan, let’s call the whole thing off—is going to be allowed to float, rather than be strictly pegged to the U.S. dollar. It may take a while for the impact of this to trickle down to the cost of blenders and towels, but it is going to make those products ultimately more expensive.
A2: This new international monetary policy is going to encourage U.S. exports, particularly to the emerging middle class of China, and could even eventually lead to the reestablishment of some manufacturing back in America.
A3: Shipping container prices are up 200 or 300 percent over a year ago, again depending on who is doing the math. Capacity is way off and goods may be sitting on loading docks in Hong Kong and Shanghai waiting to get shipped.
A4: Cotton prices have skyrocketed due to decreased supply and increased demand. (Remember your high school Economics 101 class?) There are certainly shortages in cotton yarn throughout the world.
A5: Prices of everything else it takes to make home-furnishings products—steel, nickel, silver, wool, wood, polyester and paper, just to name a few—are also up.
A6: Chinese workers want more money, less harsh working conditions and better food in the company cafeteria ... or else.
A7: Costs are going up and somebody is going to have to pay for them.
B1: Strictly pegged is a relative term. Depending on who is doing the math, the value of the yuan has already risen perhaps as much as 20 percent over the past year. So this is not anything new.
B2: Most American companies—outside of Boeing and Kentucky Fried Chicken—don’t know how to export regardless of currency rates. If they did, they would have been shipping stuff like crazy to Europe over the past few years. And the factories are gone, the labor force is no longer skilled in manufacturing and labor costs are still 10 times what they are in Shenzhen.
B3: Container costs have gone up enormously, but they had come down almost as much over the past two years. I didn’t see a lot of vendors giving refunds on lower shipping rates, did you? That said, freight companies are going to load those $4,000 containers before they bother with the $2,500 ones. You get what you paid for.
B4: Cotton is another commodity that went down a lot and is now going up a lot. It’s gotten pretty pricey, but it’s only really back to prerecession levels. The 2010 cotton crop comes in this fall and that should help alleviate some of the pressure.
B5: See B4. Yes, prices are up. No, they are not up by some of the percentages you are being told. But there’s also no more slack in margins either.
B6: See American workers in the first half of the 20th century. Same thing, different language. But don’t forget, wages in China are still a fraction of what they are in the U.S.
B7: Costs are going up and somebody is going to have to pay for them.
Will that be cash or credit card?