I. Increasing raw material prices.

More and more Chinese suppliers have started a new round of price increases. In response to the main reason for the price increase, many Chinese suppliers will reply that the price of raw materials has skyrocketed. So, how high did raw material prices rise in China during the epidemic?

From the published data, the PPI increased by 10.7% year on year in September 2021. PPI refers to the average price of raw materials purchased by enterprises, such as copper, coal, iron ore, etc. This means that the money spent by factories on raw materials in September this year was 10.7% more expensive than in September last year.

Three Reasons lead to higher purchase prices

Take our socket products as an example: the price of copper – the raw material used in socket products, was basically stable at 45,000 to 51,000 yuan per ton in 2019, before the epidemic. In March 2020, at the beginning of the outbreak, the price dropped to 35,000 yuan per ton. Since then, with the epidemic under control and production resuming around the world, copper prices have soared and reached CNY 78,000/ton in May this year.

We can see from the data that this year copper prices have increased by 40% to 50% compared to normal copper prices before the epidemic, and more than doubled from the lowest point of last year. This is not only the price of copper, other raw materials have also risen to varying degrees. Below is the price hike of commonly used raw materials from the middle of last year to this year.

 Pulp (raw material used in carton boxes and packaging) 55%

 Iron ore (a raw material used in the manufacture of steel) increased its price by 25%

 Foam (used in the manufacture of upholstered furniture) 50%

 High Density Polyethylene (raw material for plastics) up to 25%

Given the long-term relationship, many early-stage Chinese suppliers single-handedly absorbed a large part of the price increase caused by physical increases. But many orders were signed six months early as raw material prices soared. From the current material prices, it has not been able to make up the cost, so a new round of price increases is really not an option.

In the face of suppliers who raise prices on demand, on the other hand, buyers need to understand the actual situation of material price hikes. It is easy to obtain this data through exchanges with different suppliers, or with prices related to raw materials on the site. Then the buyers need to analyze whether the price increase is within the reasonable range. On the other hand, you can negotiate prices with the supplier many times. Considering the long-term relationship, many suppliers are willing to share the price increase caused by the rise in raw materials.

II. Labor costs are rising.

Many foreign trade factories in China are concentrated in coastal areas. The pandemic has made many inland workers unwilling to work in coastal areas, but choosing to work in their hometowns. On the one hand, they can accompany their families. On the other hand, with the development of China’s domestic economy, many domestic companies have begun to build factories at home. Although the wage level is not as high as the coastal areas, many workers still give up the idea of ​​working in coastal factories far from their home.

After the Spring Festival of his year, we can see the recruitment information of foreign trade factories everywhere. Factories lure workers onto the production line by paying round trip bus fare and providing free room and board. However, the results were not satisfactory, and many factories remained in a state of shortage of manpower.

It is helpful for buyers to know the labor flow situation in the supplier’s country. At present, China’s foreign trade exports are still dominated by labor-intensive advantages. A stable supply of labor is very important for price stability and product quality. In daily communication with suppliers, buyers can ask for more relevant information. These questions, although they seem simple and not directly related to the product, can help you better judge the next market situation.

III. High transportation costs.

The increased transportation costs are mainly divided into increased inland freight and sea freight.

First consider domestic shipping rates. The recent increase in domestic oil prices in China has increased the cost of domestic transportation. At the same time, during the epidemic, freight stations need to purchase large quantities of masks and disinfectants due to the need for epidemic prevention and control, which results in additional costs. Increased inspection of cargo entering the port for release at terminals due to the pandemic has reduced the efficiency of cargo entering the port. Whereas one truck can arrange two shipments to enter the port in one day, now only one shipment can be arranged.

Three factors lead to higher purchase prices

The above-mentioned increase in domestic freight rates does not include higher employee salary costs and higher vehicle maintenance costs.

The second is the insane rise in shipping rates. Container prices in China remain at historically high levels, driven by an imbalance between supply and demand. More containers are leaving China than returning, resulting in a “race to the bottom”. With the recurrence of the epidemic, importers’ production and exports have slowed or stopped, and the demand for physical products from China is still strong, which has led to a shortage of containers entering China. Many ports around the world are also experiencing various levels of congestion and port labor shortages which has further angered the “normal flow” of containers returning to China. In terms of container prices, they are five times higher than before the epidemic this year, and there are no containers available yet.

In this case, buyers need to plan their purchases in advance. The increase in sea freight rates due to the shortage of containers will not be immediately mitigated in the following period. Confirm delivery dates with suppliers at regular intervals and at least one month in advance to ensure timely release of containers.

Three factors lead to higher purchase prices

These are the main factors that prompted suppliers to increase prices in the pandemic environment. Although the epidemic in China is under control thanks to the efforts of the government and the people, it is still going through a long process around the world.

If you are a buyer, you should analyze the reasons behind the price increase from the above aspects, in order to be more convincing when negotiating prices with your suppliers.

Three factors lead to higher purchase prices