Most companies are looking to shift production out of China

DHL survey finds almost three-quarters of supply chain professionals from across multiple industries and regions are looking at relocating manufacturing, due to various factors including the ongoing trade dispute with the US, but some are still falling short on contingency planning.

Almost three-quarters of supply chain professionals from across multiple industries and regions are looking to relocate or shift production out of China due to various factors including the ongoing US-China the trade dispute, according to a new survey by DHL.

But companies are still falling short when it comes to forward-looking contingency planning to mitigate the risks posed by the US-China trade war, according to DHL’s supply chain risk management software platform, Resilience 360.

This is one of several significant findings from a survey it undertook based on the responses of 267 supply chain professionals from across multiple industries and regions – including life sciences & healthcare, technology, automotive & mobility, engineering & manufacturing, consumer, retail, energy, chemicals, aerospace, and transportation & logistics.

Setting the context of the survey, DHL Resilience 360 noted that over the past two years, the US and China have locked horns in an escalating trade conflict that has resulted in multiple rounds of tariffs on a broad range of goods. To date, the US has applied tariffs on US$362 billion (€328.6 billion) worth of Chinese goods while China has issued around roughly $110 billion (€99.8 billion) in retaliatory tariffs on US imports.

The survey found that while more than two-thirds of the total respondents have been impacted by the dispute, as many as one-quarter cited that they had not drawn up emergency measures.

In particular, more than 47% of respondents from the engineering & manufacturing and 40% of automotive & mobility sectors declared that they had no special measures prepared at all, despite being industries heavily targeted in the trade war. More than one-third of respondents also stated that they were currently not planning to take any actions but intend to continue monitoring the situation closely over the next six months.

When asked what actions firms were taking to mitigate the impact of the trade war on their supply chain operations in China, nearly two-thirds of respondents stated that they were adopting short-term measures and applying for tariff exemptions for Chinese imports, seeking source components or assembly outside of China, or identifying alternative suppliers.

While almost three-quarters (73%) of supply chain professionals are looking to relocate or shift production out of China due to various factors, around 27% of respondents are not. Those that are considering such options are driven by the need to avoid tariff costs (36.1%), followed by market access and regulatory restrictions (21.1%), rising labour costs (19.7%), and increasing domestic competition from Chinese firms (8.2%), the survey found.

India and Vietnam are the preferred destinations for 11% of respondents each when looking to shift production or move manufacturing operations outside of China. Other major areas that were identified include the European Union (7.7%), Mexico (6.7%), US (6.5%, Malaysia (6.1%), Thailand (5.8%), Indonesia (5.5%), Cambodia (3.2%) and Japan (2.5%).

For multinational companies with supply chain operations in China, more than half of the respondents view regulatory uncertainty and restrictions as being the largest non-tariff barrier (35.7%); followed by customs clearance delays (24%); increased inspections such as environmental, product review, or security audits (18.7%); and business licensing and administrative barriers (11.3%).

As for the outlook, the Resilience 360 report noted: “The up-and-down nature of the US-China trade negotiations suggests that the prospect of reaching a comprehensive trade deal is becoming increasingly more difficult to predict heading into the 2020 US Presidential Election.

Source: Lloyd’s