Panjiva Blog: Blogging Global Trade

A week ago, Panjiva released data showing that the economic downturn is decimating suppliers around the world, and we introduced new tools to help companies cope with the associated risk.  We appreciate the interest so many people have shown (see links to some of the coverage below).  We’ll be back with much more in Q1.  In the meantime, stay tuned for guest posts from a member of Panjiva’s technical advisory board.

Financial Times:

http://www.ft.com/cms/s/o/30c89a2e-c620-11dd-a741-000077bo7658.html

New York Times:

http://www.nytimes.com/external/gigaom/2008/12/08/08gigaom-panjiva-31244.html

Wall Street Journal:

http://blogs.wsj.com/runway/2008/12/08/the-daily-thread-abercrombies-sales-down-luxury-brands-modify-focus-uk-retail-sales-expected-to-drop/

CNN/Fortune:

http://money.cnn.com/news/newsfeeds/gigaom/startups/2008_12_08_panjiva.html

Forbes:

http://www.forbes.com/global/2008/1222/007.html

Gartner:

http://blogs.gartner.com/andrew_white/2008/12/10/%E2%80%9Cthere-is-information-gold-in-them-there-data-hills%E2%80%9D/

ARC Advisory Group:

http://www.arcweb.com/Domains/SCM/Lists/Posts/Post.aspx?List=7ae600da%2D7f89%2D41bb%2D8e5d%2D9838766ca24a&ID=154&RootFolder=%2FDomains%2FSCM%2FLists%2FPosts

About.com:

http://logistics.about.com/b/2008/12/05/finding-the-right-supplier-for-your-business.htm

GigaOm:

http://gigaom.com/2008/12/08/panjiva/

Ars Technica:

http://arstechnica.com/news.ars/post/20081210-downturn-hitting-tech-semiconductor-sector-hard.html

WWD:

http://www.wwd.com/business-news/us-apparel-suppliers-dwindling-1880152?justin=1880152

InformationWeek:

http://www.informationweek.com/news/internet/ebusiness/showArticle.jhtml?articleID=212300220

CIO:

http://www.cio.com/article/469565/Big_Supply_Chain_Troubles_in_China

SpendMatters:

http://www.spendmatters.com/index.cfm/2008/12/11/Supplier-Insight-That-Counts-Panjiva-Aims-High-Part-1

SupplyChainDigest:

http://www.scdigest.com/assets/On_Target/08-12-10-3.php?cid=2135

Logistics Management:

http://www.logisticsmgmt.com/blog/930000493/post/1790037779.html

Supply & Demand Chain Executive:

http://www.sdcexec.com/web/online/SourcingProcurement-News/Panjiva-Analysis-Shows-Economic-Downturn-Decimating-Global-Suppliers/27$10872

SupplyChainNetwork:

http://www.supplychainnetwork.com/?p=419

IT Governance, Risk, and Compliance:

http://itgrc.wordpress.com/2008/12/11/how-risk-management-tools-may-revert-decline-of-global-suppliers/

Enterprise Irregulars:

http://www.enterpriseirregulars.com/EI/34167

Alibaba:

http://news.alibaba.com/article/detail/apparel-news/100028342-1-apparel-industry%2527s-global-supply-chain.html

Home Textiles Today:

http://www.hometextilestoday.com/article/CA6621622.html

IT Professionals Database:

http://www.itpd.eu/panjiva-panning-for-gold-in-numbers

Sea Cargo Air Cargo Logistics:

http://scacli.blogspot.com/2008/12/apparel-industrys-global-supply-chain.html

On Monday, we released data showing the extent to which the economic downturn is decimating the global supply base.  Specifically, our analysis showed that there are fewer suppliers actively serving the U.S. market, and, of those that are active, many have suffered an alarming decline in the volume shipped to U.S. customers.

We’ve received questions about whether this is a China-only phenomenon.  The short answer is no.  Some statistics:

World: We saw a 72% drop-off in the number of active apparel suppliers from July to October.  Of those that remain active, 40% are on Panjiva’s Watch List, as a result of suffering a huge decline in the volume shipped to U.S. customers in the most recent three month period.

CHINA:  The comparable statistics for Chinese suppliers look much the same.  We saw a 69% drop-off in the number of active apparel suppliers from July to October.  Of those that remain active, 45% are on Panjiva’s Watch List.

Bottom line: the data suggest that this is not a China-only problem, but nor have Chinese suppliers been spared the pain that the global supply base is feeling.

Check out a related article over at MarketWatch.

To get a sense of the impact of the economic downturn on global suppliers, the Panjiva research team took a look at the shipment data that we track, clean, and analyze on a continual basis using our proprietary algorithms.  The data suggest that the economic downturn is decimating suppliers.  Consider what we found in the apparel industry, a bellwether of global trade:

• In October 2007, there were 43,653 companies that were actively serving the U.S. market.  (For these purposes, we consider a company “active” if it has shipped to a U.S. customer in the preceding three months.)
• By July 2008, the number of active suppliers had dropped to 22,099.
• By October 2008, the number of active suppliers had dropped to 6,262 — a 70% drop in just three months.
• Of the 6,262 suppliers that were active as of the end of October, 40% suffered a year-over-year drop of 75% or more in volume shipped to their American customers.

To help companies spot suppliers that are at risk of failing, we are establishing the Panjiva Watch List.  This list includes each supplier that has suffered a year-over-year drop of 75% or more in volume shipped to their American customers.

Also, we will continue to track the industry-wide stats.  So that we can quickly communicate whether things are getting better or worse, we are introducing the Panjiva Pain Index – a number that gets higher as things get worse.  The Panjiva Pain Index is calculated by averaging two numbers: the percentage of suppliers previously considered “active” that became “inactive” in the last month, and the percentage of “active” suppliers that are on the Panjiva Watch List.

In August, the Panjiva Pain Index stood at 24.  The percentage of companies that went inactive was 23, and the percentage of companies on the Watch List was 24.

In September, the Panjiva Pain Index stood at 37.  The percentage of companies that went inactive was 32, and the percentage of companies on the Watch List was 41.

In October, the Panjiva Pain Index stood at 43.  The percentage of companies that went inactive was 46, and the percentage of companies on the Watch List was 40.

Questions?  Comments?  Let us know.

Over at IndustryWeek, you’ll find Panjiva’s thoughts about how to respond to price increases in China.

Given all the trouble that Chinese factories are having, are price increases really still a problem?  So far, yes.  Declining demand is leading to factory closures (see previous post), NOT downward pressure on wages.

Our IndustryWeek piece evaluates three strategies for responding to cost increases:

1. Identify the “New China” (i.e., look to new countries)
2. China is the New China (i.e., look at new regions within China)
3. Leverage your suppliers’ networks (i.e., authorize subcontracting)

Would welcome your thoughts, here or over at IndustryWeek.

During the last year, 58% of companies suffered financial loss from supply chain disruptions.  (I came across this statistic, which comes from an Aberdeen survey, while reading an article in Industry Week.)

My bet is that the ACTUAL percentage of companies that suffered financial loss from supply chain disruptions is much higher — but only 58% had the courage to admit it.  And, frankly, the percentage is certainly going to go even higher, given the high number of factory closures now occurring around the world.

Nevertheless, I hear from some sourcing executives that they have strong relationships with their suppliers and are therefore not worried.  It makes me wonder…  Did the 58% of executives, who suffered financial loss from supply chain disruptions last year, express similar confidence prior to the disruptions?

Another article in the New York Times about factory closures in China.  According to government statistics, 67,000 Chinese factories closed in the first half of the year.  11,000 per month.  And that was BEFORE the global economic meltdown.

It’s scary enough that all of these factories are closing.  It’s even scarier that these closures are happening without any warning.

See a previous post about how you can spot risk in time to do something about it.

Two interesting posts over at SpendMatters:

* One notes that Indian suppliers are refusing to take orders from American companies because they’re worried the American companies won’t be able to pay.  (This, by the way, is consistent with what we’ve been hearing from suppliers.)

* The second highlights concerns that buyers have (or should have) about the effect of the financial crisis on suppliers…  Will they survive?  Will they cut corners?

So suppliers are concerned about buyers, and buyers are concerned about suppliers…  I.e., everybody’s worried about everybody, and rightfully so.  Given this state of affairs, what steps should solid buyers take?

1) Be prepared to prove to your suppliers that you’re solid.  References from your customers and your bankers may be able to help in this regard.

2) As Jason from SpendMatters suggests, be vigilant in monitoring your suppliers.  Check out a previous Panjiva post on how to look into a supplier’s financial health.

As David Barboza reported over the weekend in The New York Times, Chinese authorities are expanding their melamine investigation.  Melamine is the toxic chemical that should not be making its way into the food supply chain — but that nevertheless has been.  By now, some may be tuning out news about food (and product) safety scandals.  Not sourcing executives…  Managing risk — particularly food and product safety risk — has risen to the top of the agenda of most sourcing executives.  The same is true for government regulators, both here in the U.S. and abroad.

What is perhaps most interesting, though, is that there really aren’t a lot of good ideas on how to effectively manage this category of risk.  I was struck by this comment from a professor at NYU, who was quoted in Barboza’s article:
“’A year ago, everybody should have been in a complete panic about it and done something then,’ said Marion Nestle, a professor of food studies and public health at New York University and the author of ‘Pet Food Politics: The Chihuahua in the Coal Mine.’ ‘Someone should have required that melamine not be in any food product.’”

Professor Nestle seems to be assuming that simply requiring that melamine be excluded from the supply chain would have solved the problem.  Not so — and particularly not so in China.  The number of participants in the food supply chain — just in China — is huge.  How would you communicate new requirements to all these participants, let alone enforce these requirements?

Putting the right regulations on the books is perhaps a necessary step, but a much more comprehensive approach to solving the problem is required.  As noted above, regulation must be coupled with communication and enforcement.  In addition, key players (government regulators, inspection agencies, private sector leaders) must agree on standards and provide for transparency about who is abiding by these standards.  This last piece creates positive incentives for good behavior — an important complement to punishments for bad behavior.

Your thoughts?

I’m hearing a lot of anxiety from our customers about the possibility that their factories might fold. This anxiety is justified. The economic slowdown is causing lots of buyers to reduce and delay orders. For suppliers with high fixed costs, this behavior could prove fatal. How do you find out if your supplier falls into this category — before the supplier goes under and leaves you hanging? Some ideas:

1) Buy a credit report on your supplier

Credit reports will tell you if your supplier is paying *its* suppliers on time. If it’s not, chances are good that your supplier is in trouble. D&B is a good place to start for this kind of information.

2) Look at your supplier’s export activity

Is your supplier’s export activity dropping precipitously? Definitely a sign that you should be preparing a back-up plan. (Full disclosure — Panjiva sells this kind of data, so obviously I think this is a particularly effective approach.)

3) Ask your supplier contact

Simple enough, but most people overlook this approach. Ask your supplier contact if he or she is worried. Chances are good that your contact will put a positive spin on trouble at the supplier — but you never know what you might learn until you ask.

Figuring out if your suppliers are about to fold is really important… Gives you a bit of time to come up with a back-up plan, and minimize the disruption to your business. Have other ideas on how to figure out if your suppliers are about to fold? I’d love to read about your ideas here — and of course via email (josh@panjiva.com).

Just want to take a moment to welcome those of you who are new to Panjiva’s blog. Panjiva’s mission is to make it easier for companies of all sizes to do business across borders. With this in mind, we’ll be discussing issues affecting the global trade community — those of us doing business across borders. This is a HUGE topic, so we’ll cover a lot of ground. Here, though, are a few themes you can expect to see popping up on a regular basis:

• Risk

Choosing to do business across borders opens up a world of opportunity, but it also comes with quite a bit of risk. What are these risks, and how can you mitigate them? This is a favorite topic of discussion within Panjiva, and in conversations with our customers. We’ll share what we’ve learned — and are learning.

• Transparency

“Transparent” is not a word we’ve heard used to describe global trade. This is too bad, because transparency promotes cost savings and helps mitigate risk. In the course of Panjiva’s work, we seek to provide a new level of transparency to those doing business globally. On this blog, we’ll highlight other efforts to promote transparency, and point to areas where more transparency is urgently needed.

• Simplicity

Doing business across borders is an incredibly complicated activity. We’ll do our best to help you cut through the complexity — and identify ways to simplify the process of doing business across borders.

Members of the Panjiva team will be regulars, and we’ll also feature a variety of guest contributors. If you’re interested in guest-contributing — or just want to vent — e-mail blog@panjiva.com.

Thanks for joining us!