Panjiva Blog: Blogging Global Trade

Can Panjiva Trends give us a sense of who will win Super Bowl 44?  Not a chance.

But, just for fun, we took a look at shipments that included the word “Saints” and shipments that included the word “Colts.”  In December, there were 24 “Saints” shipments and 3 “Colts” shipments.

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Earlier this week, Apparel Magazine featured our thoughts on the recently announced Wal-Mart / Li & Fung deal.  I’m reprinting the piece below, with Apparel Magazine’s permission.  Would love to hear your perspective.  josh@panjiva.com

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A Skeptic’s View of the Wal-Mart/Li & Fung Deal

There’s a lot of praise for both Wal-Mart and Li & Fung in the wake of Thursday’s announcement that the two inked a sourcing deal worth up to $2 billion annually. Indeed Li & Fung should be congratulated for expanding a relationship with a huge client. And Wal-Mart deserves high marks for identifying a low-risk way to test a new approach to global sourcing, at a time when new approaches are clearly needed. But is this deal actually going to create significant value? I’m a skeptic.

Problem #1: Li & Fung’s lack of scale advantage

Typically, the best argument for working with Li & Fung is the sourcing giant’s ability to reduce your cost base. Think you have leverage over your suppliers? Chances are that Li & Fung has more, because Li & Fung is bigger than you. Unless, of course, you’re Wal-Mart. Wal-Mart is world famous for getting the world’s best prices from its suppliers — no surprise, given its unrivaled scale. Can Li & Fung really get better prices than Wal-Mart can? Unless the answer to this question is yes, Li & Fung will be hard-pressed to reduce Wal-Mart’s overall cost base. Specifically, Li & Fung will have to find a way to run the sourcing process more efficiently than Wal-Mart, which is of course legendary for its efficiency.

Problem #2: Wal-Mart’s focus on transparency

Earlier this year, Wal-Mart announced an ambitious initiative to promote environmentally sustainable practices in its supply chain. In time, Wal-Mart will provide more transparency to consumers about the environmental impact of their purchases. To do this, Wal-Mart will require more transparency from its suppliers about the environmental impact of their operations. However, it’s unlikely that more transparency will be the result of the Li & Fung deal — which will create a layer of separation between Wal-Mart and many of its suppliers. Unless Li & Fung can take steps to ensure that the flow of information to Wal-Mart grows, rather than shrinks, as a result of this deal, Wal-Mart’s efforts to promote transparency will be frustrated.

Problem #3: Technology culture clash

For years, Wal-Mart has been aggressive in using technology to build and sustain competitive advantage. Just as Wal-Mart’s scale exceeds that of Li & Fung, Wal-Mart’s embrace of technology almost certainly exceeds that of Li & Fung. (To be fair to Li & Fung, Wal-Mart’s embrace of technology likely exceeds that of every would-be partner.) Can these two companies with different approaches to technology find a way to work together seamlessly? We’re about to find out.

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For Li & Fung, this deal is the latest in a series of a high profile successes. Over the last several years, Li & Fung has convinced a variety of big name companies to hand over significant aspects of their sourcing operations.

Not surprisingly then, there are those who argue that the Li & Fung model is the future of global trade. Given Li & Fung’s scale and expertise, why won’t more and more companies trust their sourcing to Li & Fung? Meanwhile, there are others who argue that the Li & Fung model will be unsustainable as buyers and suppliers increasingly insist on direct interaction. Who’s right? Interestingly, the outcome of Wal-Mart’s experiment with Li & Fung may point us to the answer.

Therefore the stakes of this experiment are quite high for Li & Fung. My advice to Li & Fung (a company that’s done quite well for 100 years without the benefit of my advice)? Take advantage of your expanded relationship with Wal-Mart to cultivate new assets: specifically, a bias toward transparency and an enhanced commitment to technology. Otherwise, I suspect you’ll prove skeptics like me right.

What about the stakes for Wal-Mart? Well, even at $2 billion, the sourcing deal with Li & Fung represents only about 2% of Wal-Mart’s private label business. Therefore, the stakes for Wal-Mart are relatively low. Meanwhile, if the experiment goes well, Wal-Mart has the option to buy the operations that Li & Fung is building. Bottom line: whether or not this deal with a key supplier ultimately creates value, Wal-Mart will be in good shape. Is anyone surprised?

Josh Green is co-founder and CEO of Panjiva, an intelligence platform for sourcing executives.

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In November, we launched Panjiva Trends, which gives you insight into the trajectory of U.S. imports of various products.  We’ve made changes in response to your feedback (thank you!), and today we’re excited to announce new functionality that will make global trade data even more accessible…  We’ve launched a free Global Trade Widget that anyone can incorporate into their website.

With Panjiva’s Global Trade Widget, you can highlight macroeconomic trends by tracking all shipments to the U.S. or drill down into the specific performance of one product.  Check out the bottom of this post for examples of the widget in action.  Data is updated monthly — and automatically, of course.

To get a customized version of the widget for your blog or website, use our super simple tool to generate the HTML code that you can insert into your blog.  And send us your feedback!  contact+widget@panjiva.com

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The word from the Panjiva research team: December was a surprisingly good month in the world of global trade.  Specifically, there was a 3% increase in the number of global manufacturers shipping to the U.S. market, as well as a 2% increase in the number of U.S. companies receiving waterborne shipments from global manufacturers. Traditionally, these numbers decline from November to December (-5% in 2008 and -1% in 2007).

To add to the good news:

• The percentage of significant manufacturers on the Panjiva Watch List declined from 25% to 23%
• Similarly, the percentage of significant buyers having done business with a Panjiva Watch List supplier in the preceding three months declined slightly from 35% to 33%.
• The number of waterborne shipments coming into the U.S. saw a 2% year-over-year increase in December — the first year-over-year increase since we began tracking year-over-year increases 18 months ago.

That said, year-over-year comparisons are going to be a bit misleading in the next few months — because, at this time last year, global trade was in free fall.  And the absolute level of global trade activity is still well below where we were before the 2009 recession.  So reports of a robust or sustained recovery are probably premature.  Nevertheless, it’s great to head into 2010 with the numbers heading in a positive direction.

Methodological notes for the data junkies:

• Manufacturers that have suffered a 50% or greater decline in volume shipped to American customers in the most recent three month period, versus the same period a year ago, are on the Panjiva Watch List.
• “Significant manufacturers” are companies that have sent 10 or more shipments to American customers within the last year.  As of the end of December, there were 86,794 significant manufacturers.
• “Significant buyers” are U.S. companies that have received 10 or more shipments from overseas manufacturers within the last year.  As of the end of December, there were 74,963 significant buyers.

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2009 has been a roller coaster year for those engaged in global trade.  We began the year in economic free fall and are ending the year with uncertainty about whether we’re recovering.  What will 2010 look like?  There are about as many opinions as there are economists.  I’ll stay away from guessing where the macroeconomy’s headed, but below are a few thoughts on what the global sourcing community can expect in 2010.

#1) You’ll have to do more with less

Just about every company has experienced layoffs, and sourcing teams across industries have gotten considerably smaller.  However, the responsibilities of the sourcing department have not shrunk commensurately.  Quite the opposite, in fact: sourcing departments have in most cases been tasked with doing more than ever before.  Unfortunately, this has created considerable stress for those fortunate enough to hold onto their jobs.  Fortunately, this stress is fostering quite a bit of innovation, as people are forced to do more with less.  Even if the economy recovers in 2010, companies are going to be hesitant to scale teams up again, meaning that sourcing departments will need to continue doing more with less.

#2) Risk management will continue to top your agenda

With the implosion of supply chains in 2009, sourcing executives found themselves struggling to develop sensible approaches to risk management.  In truth, these efforts were long overdue.  For years, companies had focused too much on managing sourcing costs, and too little on managing sourcing risks.  Most executives I talk to are still not satisfied with their risk management infrastructure — and are aware that there are a wide variety of sourcing risks regardless of the trajectory of the macroeconomy — so risk management will continue to be an area where companies invest in 2010.

#3) Product safety will be back in the headlines

Speaking of risk, remember all those headlines about tainted imports (toxic petfood, tainted toothpaste, lead-painted toys, etc.)?  They largely disappeared in 2009, but not because we solved the import safety problem — but, rather, because the press had bigger stories to cover.  As the economy stabilizes, we can expect to see a renewed focus on product safety.  The recent Zhu Zhu Pet scare is likely a harbinger of this return to a pre-2009 environment.

#4) Socially responsible sourcing will regain momentum

Prior to the Great Recession, the global sourcing community was making significant progress in creating, promulgating, and enforcing socially responsible manufacturing practices.  In 2009, social responsibility seemed to fall off the radar screen, as companies focused on survival.  (There were notable exceptions — see Walmart’s announcement of a Sustainable Products Index.)  Again, as the economy stabilizes, we’ll see a return to a pre-2009 environment, with companies looking to impress consumers with socially responsible behavior.

#5) Sourcing outside of China will again be en vogue

In 2008, a great many sourcing executives were talking about the need to source beyond China.  Prices were rising in coastal China, and who wants to have all their eggs in one basket?  But, here again, the Great Recession intervened, and in 2009 companies scrambled to push enough business to their existing factories to keep those factories viable — diversification of sources was off the table.  However, I am again hearing executives talk about the dangers of being too beholden to China — and the need to have a “China+1″ sourcing strategy.

So that’s what we expect to see in 2010.  A mix of a 2009 hangover and a return to a 2008 state of mind.  What do you expect to see?  Would love to hear your thoughts here or via email: josh+crystalball@panjiva.com.

Happy Holidays!

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The word from the Panjiva research team: there was a not particularly surprising decline in global trade activity in November.

The bad news: from October to November, there was a 1% decline in the number of global manufacturers shipping to the U.S. market, as well as a 1% decline in the number of U.S. companies receiving waterborne shipments from global manufacturers.

The good news: the percentage of significant manufacturers on the Panjiva Watch List declined slightly from 26% to 25%; similarly, the percentage of significant buyers having done business with a Panjiva Watch List supplier in the preceding three months declined slightly from 36% to 35%.

The ominous news: there was a 9% decline in the actual number of shipments to the U.S. market. This echoes last year’s October-November decline of 7%.  Of course, last winter — from November through February — an expected seasonal decline transformed into a precipitous fall-off as the global economy hit the skids.  Let’s cross our fingers that the beginning of 2010 doesn’t feel the same as the beginning of 2009.

Methodological notes for the data junkies:

• Manufacturers that have suffered a 50% or greater decline in volume shipped to American customers in the most recent three month period, versus the same period a year ago, are on the Panjiva Watch List.
• “Significant manufacturers” are companies that have sent 10 or more shipments to American customers within the last year.  As of the end of November, there were 85,916 significant manufacturers.
• “Significant buyers” are U.S. companies that have received 10 or more shipments from overseas manufacturers within the last year.  As of the end of November, there were 74,022 significant buyers.

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Starting at minute 21…

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Today we’re excited to announce the launch of Panjiva Trends, which will give you insight into the trajectory of U.S. imports of various products.  Type in any product, and you will see how U.S. imports of that product have been trending over the last few years — up through the end of the most recent month.  You will also see which countries are shipping more of the product compared to last year and which countries are shipping less.  Panjiva Trends will be free for the next month; all that we ask if that you tell us how we can make it more useful to you.

In anticipation of the launch of Trends, our research team took a look at which products are trending positive this holiday season, and which products are trending negative.

The winners:  Snuggie, Zhu Zhu Pet, Toy Story, Chocolate Truffles, Hand Magnifier, Hand Sanitizer, Booklight, and Coal.

The losers:  Batman, Digital Picture Frame, Hannah Montana, Bratz, and High School Musical.

Notes for the data junkies… 

• Panjiva Trends is based on waterborne shipments to the United States, so items coming in by air are not captured.
• Our algorithms have structured the data drawn from the unstructured descriptions of the shipments, so you can use Boolean operators in your searches.

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The word from Panjiva’s research team: there was a slight uptick in global trade activity during October. Specifically, from September to October, there was a 3% increase in the number of global manufacturers shipping to the U.S. market. Similarly, there was a 2% increase in the number of U.S. companies receiving waterborne shipments from global manufacturers.

Those hoping for a major holiday bounce are likely to be disappointed by this new data; on the other hand, it’s good to see that last month’s slide did not continue.  A few notes:

• Last year, we also saw a slight uptick from September to October.
• The percentage of significant manufacturers on the Panjiva Watch List declined slightly from 27% to 26%.
• Similarly, the percentage of significant buyers having done business with a Panjiva Watch List supplier in the preceding three months declined slightly from 37% to 36%.

Methodological notes for the data junkies:

• Manufacturers that have suffered a 50% or greater decline in volume shipped to American customers in the most recent three month period, versus the same period a year ago, are on the Panjiva Watch List.
• “Significant manufacturers” are companies that have sent 10 or more shipments to American customers within the last year.  As of the end of October, there were 86,254 significant manufacturers.
• “Significant buyers” are U.S. companies that have received 10 or more shipments from overseas manufacturers within the last year.  As of the end of August, there were 73,987 significant buyers.

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Over the weekend, CIT filed for bankruptcy. This is the latest chapter in a saga that has significantly reduced the availability of capital for a wide variety of businesses.  The general consensus seems to be that the bankruptcy isn’t going to make things much worse than they already are, and insiders point out that strong businesses should be able to get capital from sources other than CIT.

A couple of months ago, Panjiva’s clients began asking if we could help them identify which companies are exposed to CIT risk.  Sure enough, we were able to use our data to spot companies that have a relationship with CIT.  Below, you can see how we’ve built this into Panjiva’s intelligence platform.  Note the “CIT Relationship” refinement on the left.

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