Covid-19: Small vs Big Importers

“Social distancing” is making an impact on all businesses across the country.  This change in behavior is another major disruption caused by Covid-19.  How else is the virus affecting YOUR business? More to the point: are smaller importers affected the same way as larger corporations are?

Last week, we reviewed the impacts of the coronavirus on global travel and the China supply chain. This week, we’ll examine how smaller companies have been impacted by the China supply chain compared to sourcing giants like Apple.

Interestingly, this is a situation where size, power and efficiency can work against you. Sometimes it pays to be small.  Let me explain.

Very large companies like Apple and Walmart have huge clout, immense buying power and they demand – and generally benefit from – great efficiencies.  This means that they expect:

• Timeliness: Just-in-time deliveries into their warehouses (and so do not need to carry a lot of inventory). Inventory for large corporations averages around 60 days, but for Apple it is as low as 9 days!
• Speed: Large companies demand – and get -fast turn-around time from order placement to shipment.
• No obstacles: They are able to demand the production of complex products that tap into far-ranging and complicated supply chains. (See this article on the iPhone being made everywhere. It is assembled in China but less than 8% is added value there.)
• Special treatment: Their size usually enables them to apply for – and often get – waivers from new tariffs.

But when Covid-19 hit, the unexpected happened, and the more efficient, the harder you got hit and, paradoxically, the less efficient you became:

• The goods no longer arrived just in time, they sometimes arrived very late, and the inventory ran out. This has become an issue for efficient large retailers as well since demand from consumers suddenly surged.
• The supply chain slowed down dramatically, and those who relied the most on its speed and efficiency got hit hardest.
• Complex products that require parts from multiple locations in numerous countries were the worst affected.
• To make up for delays, suddenly large orders had to be shipped in the most expensive way: by air.  (Many airlines made up for lack of passengers by increasingly using their planes for cargo.)

Smaller importers tend to behave differently:

• Size: They try to leverage their smaller volume for maximum effect (meeting MOQs, getting better prices) and they don’t mind carrying inventory.  (It is not unusual for small importers to have 6-10 months of inventory on hand.)
• Speed: They don’t count as much on a quick supply chain and try to place their orders early.
• Obstacles: They try to avoid them and so have less exposure to very complex products sourced across multiple locations.

As a result, many were less impacted by the disruption. On the other hand, small importers are not as successful in securing tariff waivers – but this may change.

Double trouble:  The China supply chain got hit by two global events in a row: the Tariffs and Covid-19. An interesting rumor is surfacing though. Trump could lift the unilateral tariffs as a stimulus to the US economy.  This would amount to a “tax cut on trade and consumers” according to the Wall Street Journal. Medical products (Masks etc.), for instance, are targeted.Who knows? There could be a silver lining.  And if the tariffs are not lifted, maybe now would be a good time to apply for waivers.

No borders for bad news:  Some argue that the solution may be to source goods elsewhere, like Vietnam or Bangladesh. But, putting aside the fact that it is difficult, expensive and time consuming to move a supply chain, the virus has now spread everywhere, whereas China seems to be getting back on its feet.

Large companies have advantages, no doubt about it.  But when the unexpected happens, it pays to be nimble.

 

By Jocelyn Trigueros