Exporters cautious amid logistics snags

Exporters based in Hong Kong remain cautious when looking ahead to 2022 as supply chain snags continue to weigh on prospects, leading a switch from a “just-in-time” mindset to “just-in-case”, allowing more time for delivery and a build-up of buffer inventory to compensate for production delays.

The Hong Kong Trade Development Council (HKTDC) on Thursday forecast that Hong Kong exports will grow 8% in value in 2022, down from the 25% expansion experienced in 2021. An uneven recovery, lingering threats from the COVID-19 pandemic, global supply chain disruptions and logistics bottlenecks, as well as rising concerns over inflation, are expected to restrain growth, HKTDC Director of Research Nicholas Kwan said.

New products, new markets

On the bright side, the Regional Comprehensive Economic Partnership (RCEP) agreement takes effect on 1 January 2022. “With its phased tariff elimination, the RCEP is set to further develop and integrate regional supply chains, as well as encourage production specialisation in Asia. This will provide a fresh impetus for Hong Kong to fortify its role as an international trading hub,” Mr Kwan said.

In the most recent HKTDC Export Index survey, more local exporters (87%, up 20.4 percentage points from the previous quarter) said the pandemic had negatively affected their business. Soaring transport costs (60.2%), disruptions to logistics and distribution (53.2%) as well as difficulties in sourcing raw materials/parts and components (41.4%, up 16.8 percentage points) were cited as major impacts. More than 70% of Hong Kong exporters said they expect 2022 sales will decrease (42.6%) or be just on par (29.1%) with sales this year. Considering business strategies in 2022, almost half of the exporters surveyed (46.4%) indicated they planned to develop other product categories, with some opting to develop domestic markets in Mainland China (33.8%) or diversify sales to other overseas markets (30.5%).

COVID-19 biggest threat

In the first 10 months of 2021, Hong Kong exports surged 26.7% year-on-year, albeit from a low base. “The remarkable growth outshone the global average, demonstrating the resilience of the city’s export sector. Nonetheless, lingering pandemic and market uncertainties are likely to cast a shadow on the local export performance in the coming year,” Mr Kwan said.
The impact of COVID-19 (32.5%) remains local exporters’ top concern, followed by a stuttering economic recovery (15.7%) and borders remaining closed (11.6%), he added.

‘Just-in-time’ becomes ‘just-in-case’

Mr Kwan said COVID-19-related delays in shipments and issues related to port closures and congestion have adversely impacted global supply chains in many areas. While 71.3% of respondents reported delivery delays, 39.8% experienced production schedule disruption and 38.4% passed extra shipping costs on to customers. Many exporters (62.4%) expect logistics costs to continue rising in the first quarter of 2022, with 39.8% anticipating an increase in the range of 10-30%.

He said manufacturers may reserve more buffer time for production in the pandemic recovery period. “Take the automobile industry as an example, where companies are switching from a ‘just-in-time’ strategy, with semiconductor chips, parts and components only delivered as needed, to embracing a ‘just-in-case’ strategy where they stock up on inventory to combat logistics bottlenecks.”

Toy exporters bearish

Meanwhile, the HKTDC Export Index dropped 1.8 points to 37.2 in the final quarter of 2021, “indicating that growing market uncertainties triggered by COVID-19 variants may continue to undermine local exporters’ confidence in the near term,” said HKTDC Assistant Principal Economist (Greater China) Alice Tsang.

Machinery (44.1, up 0.3 points) was the most promising sector, jewellery (40.7. up 0.8) and clothing (39.6, up 3.5) improved, while toys, down 19.0 points to 25.0, was the least optimistic sector. Exporters were equally cautious on major markets. Mild growth was expected in the Association of Southeast Asian Nations (ASEAN) bloc (45.8, up 1.3) and Japan (48.7, up 0.8), while the mainland market remained stable (47.6, down 0.2) and the United States fell 1.4 points to 42.9.

The Procurement Index and the Employment Index were more or less the same as the previous quarter, at 36.9 and 44.0 respectively. The Trade Value Index (57.0) remained in expansionary territory.

A total of 500 local traders from six major industry sectors including clothing, electronics, jewellery, machinery, timepieces and toys were interviewed for the HKTDC Export Index survey in mid-November. Readings above 50 indicate a positive sentiment, while below 50 is negative.

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