China factories hardly immune to higher costs
By Thomas Russell -- Furniture Today, October 10, 2005
Dongguan, China — U.S. businesses are not alone in grappling with increasing raw materials costs. Chinese furniture makers also have been hit with such increases, and are keeping a close eye on everything from lumber to petroleum costs.
"Right now, we're more concerned about the cost of oil than anything," said Steven Lee, president of dining and occasional furniture manufacturer Winny Overseas Ltd., with a factory in Zhongshan, in Guangdong Province. "The cost of oil affects the cost of everything."
That includes anything from his power bill to shipping and related transportation costs. Since 1997, he said, gasoline costs have risen 400%.
During August, gas also was difficult to obtain in some parts of China. In Dongguan, people reportedly waited in line for hours to pump gas, a situation reminiscent of the gas lines in the United States after the 1973 Arab oil embargo.
The lines and increased costs affect companies' ability to move goods between sister plants and subcontractors in and outside the region. With large distances between plants, that can use up a lot of fuel in a short time.
Other materials costs also have risen. Samuel Liu, a senior vice president of case goods manufacturer Omexey Enterprise Co. in Dongguan, said U.S. lumber prices have been stable over the past year but the prices of rubberwood and other Asian woods have risen 20%.
That could influence his company's increasing reliance on U.S. hardwoods. Unless there is a drastic price hike, he estimates Omexey will use as much as 45% U.S. hardwoods in the next six months, up from 30% in August.
"Every year, the cost of raw materials goes up and down," said Richie Chen, general manager of case goods manufacturer Passwell Wood Corp, noting that situation is particularly true of rubberwood.
Metal and steel costs, however, always seem to go up, not down, he said. He estimated that metal prices today are double what they were just two years ago.
The issue is of importance to U.S. retailers and consumers because it could ultimately raise the price of Chinese-made furniture. Several companies interviewed during last week's premarket in High Point said they anticipate price increases, particularly related to the high price of oil and the effect that has on shipping costs.
Chinese producers said they are trying to minimize such increases through enhanced plant efficiencies. But other factors, such as shipping costs from Asia to the United States, will continue to add to the pressure unless the price of oil drops significantly.
The increased costs don't necessarily make Chinese manufacturers less competitive than those in other countries in Asia. Competitors in those countries face similar increases in raw materials costs.
However, Chinese manufacturers continue to deal with energy shortages, which ultimately could affect how quickly they can ship goods to the United States. For instance, the Chinese government routinely shuts down power several times a month, especially during periods of peak demand between May and September.
In response, some plants close for the day and make up the time earlier or later. Others said they use backup generators to keep their plants running, and operate at non-peak demand times such as 11 p.m. to 8 a.m.
The balancing act no doubt will continue as capacity increases in and outside the furniture industry.
Officials said they would continue to work around the shortages as they add more double shifts and as they await the construction of more power plants in China.
