U.S. importers face decisions on sourcing
Thomas Russell -- Furniture Today, November 5, 2010
“The factories we have aligned with were very low duty factories,” he said. “You would rather not pay 7%, but it doesn’t dramatically alter the value of the product.”
HIGH POINT - While Chinese manufacturers are the ones assigned antidumping duties on wood bedroom furniture, importers of record have to pay the price when the product arrives on U.S. shores.
This forces importers to make a decision: Do they pay the duties and continue sourcing from China? Or do they shift to other source countries such as Vietnam, Indonesia or Malaysia?
It boils down to an analysis of several factors at potential source factories: production methods, quality control, available capacity and competitive pricing.
For some importers, China remains the best bet for bedroom furniture, so they continue to source most of their lines there. In doing so, they have had to seek out the lowest- duty factories, often ones assigned a rate of 7.24% or less.
This narrows the choice somewhat, but not a lot - for the 2009 shipment year, for example, more than 100 factories are at 7.24% or lower.
Some importers stick with China because they are aligned with factories there that either have an ownership stake in the import companies, or are sole-source providers for those importers.
Hooker Furniture imports nearly all of its bedroom from China, said Paul Toms, chairman, president and CEO. Despite the duties, he believes China still offers a high-quality and high-value product.
"The factories we have aligned with were very low duty factories," he said. "You would rather not pay 7%, but it doesn't dramatically alter the value of the product."
Other benefits he sees with China are the quality and productivity of its work force and the company's established infrastructure.
"The factories are generally well equipped, and the ports and highways and electricity grid - the things you need to support business - were better than most countries," said Toms.
For other importers, the issue boils down to the biggest risk factor in the antidumping case: retroactive duties that are determined by the U.S. Department of Commerce each year during an annual audit process known as the administrative review. If the DOC thinks a higher rate is warranted than the initial cash deposit rate established in 2005, importers would have to pay the retroactive rates that apply to the time of the initial shipments.
If a plant initially had a 7% deposit rate for 2009, for example, but later was deemed to warrant a 20% duty, the importer of record would pay the difference.
Because of this uncertainty, many importers have shifted away from China.
Vietnam has become the most popular alternative, in large part because some of the same Taiwanese owners of factories in China have established a cluster of furniture plants in the Ho Chi Minh City area in southern Vietnam. Malaysia and Indonesia also are growing in popularity as bedroom furniture sources.
Before the antidumping issue surfaced, Progressive Furniture sourced 80% of its bedroom from China. By 2009, that dropped to about 10%, said Dan Kendrick, president, and today it's down to zero. Instead, Progressive buys about half its bedroom mix from Mexico, 30% from Indonesia and 10% each from Vietnam and Malaysia.
"From a strategic standpoint, it has forced us into countries we wouldn't have looked for," he said. "I would say initially, we started to retreat from China due to the uncertainty of what the percentage (duty rate) would be year to year due to the administrative review. Instead of looking to find a new factory (in China) and go through that process, we went to Vietnam and Malaysia."
A number of sources said they have been hit with retroactive duties as importers of record. They said the costs can run from six figures into the millions of dollars.
One company that was potentially on the hook for retroactive duties was the former case goods importer Kemp Enterprises. It closed in early 2007 after one of its main source factories received a high retroactive duty on its 2004-2005 shipments.
"For me it meant closing a company and starting a new company," said Bill Kemp, managing partner in the new BK Home Furniture and a former president of Kemp Enterprises. Looking back, he believes that the financial hit could have put the original company under.
He estimated the retroactive duties ranged from $5 million to $7 million. Since the new company was a startup that had no financial ties to the old company, it was not responsible for paying the retroactive duty.
The new company sources its bedroom mix from Indonesia and Mexico, rather than China, allowing it to avoid both current duty rates and future retroactive duties.
"We started a new company with a new strategy and that was to source from other than China," Kemp said, noting that the company's Indonesian bedrooms retail at $799 to $1,499 for bed, dresser and mirror, while sets from Mexico retail from $799 to $1,199.
One advantage of sourcing from Mexico is that the groups also have relatively short lead times to the U.S. market, Kemp said.
Ron O'Dell, CEO of case goods importer TM International, said his company still gets some product out of China, but also is now sourcing bedroom from Vietnam and Malaysia. He said that freight from those countries may be higher than from parts of China, but added that the final cost of the finished goods is still be cheaper and offsets those higher shipping costs.
Sourcing from countries other than China avoids the uncertainty of the antidumping duty situation, he added. "How can you operate your business when you don't know what the cost of goods is retroactively?"
For some importers from China, the antidumping duty question has become moot. These include companies that source from Chinese factories that have achieved a 0% duty rate, and also don't face any threat of retroactive duties. Such factories include two of China's largest manufacturers of furniture for export, Lacquer Craft and Markor.
Lacquer Craft distributes in the U.S. largely through importers Legacy Classic Furniture and Universal, which are ultimately owned by Chinabased Samson Holding, which also owns Lacquer Craft.
Dan Kendrick, Progressive Furniture
A.R.T. Furniture is an independent importer that sources only from Markor. Ed Grund, CEO of A.R.T., said retailers "can deal with us and not worry about" the antidumping issue.
Grund said he still believes the antidumping case hasn't been in the best interest of the industry or the consumer.
"I am a big supporter of free trade and letting the consumer win," he said. More consumers today can afford to buy Chinese-made bedroom groups than could have purchased U.S.-made product of similar quality 10 or 15 years ago, he said, because the domestic goods were priced much higher.
"The customer has far more choices and value for their money today compared to a decade ago," said Grund. "That is all because of sourcing from overseas."
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Duty Collection in Flux
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ITC member scrutinizes settlement agreements
Jan 18, 2011 -
Why antidumping duties stand
Jan 7, 2011 -
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