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Retail Sourcing Report Facts & Insight

Q1 2019

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RETAIL SOURCING REPORT CBX Software’s Retail Sourcing Report provides research and analysis aimed at informing global sourcing and buying decisions for retailers, brands and other sourcing and supply chain professionals. Each issue includes a snapshot of key information and trends impacting global sourcing, such as economic conditions in sourcing countries, container shipping trends, currency exchange and commodity rates. We also cover hot topics ourselves and include insight from analysts and other experts.

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Statement of Indemnity: CBX Software recommends that any information provided in this report be weighed against other sources and experts on the individual topics covered. As such, CBX Software bears no legal or fiscal responsibility for any potential harm or outcome which may result directly or indirectly from information provided in this report.

Q1 2019 Retail Sourcing Report

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Content

RETAIL SOURCING REPORT ............................................................................................................................ 0

FORWARD ..................................................................................................................................................... 1

PURCHASING MANAGER’S INDEX (PMI) ................................................................................................... 3

LOW COST COUNTRY SOURCING (LCCS) HIGHLIGHTS ........................................................................ 4

GLOBAL COMPETITIVENESS INDEX ......................................................................................................... 5

CHINA WAGE TREND SNAPSHOT .............................................................................................................. 6

GLOBAL LOW-COST COUNTRY SOURCING WAGE SNAPSHOT ........................................................... 7

CONTAINER FREIGHT RATES FOR MAJOR ROUTES ............................................................................. 8

CURRENCY EXCHANGE RATES ................................................................................................................. 9

GLOBAL COMMODITY RATES .................................................................................................................. 10

CRUDE OIL ................................................................................................................................................. 10 RUBBER ..................................................................................................................................................... 10 METALS ...................................................................................................................................................... 10 COTTON ..................................................................................................................................................... 11 WOOL......................................................................................................................................................... 11 PLASTICS AND FIBERS ................................................................................................................................. 12

FOCUS TOPICS ........................................................................................................................................... 12

GLOBAL SOURCING IN 2019 ........................................................................................................................ 12 THE DIGITAL SUPPLY CHAIN IN 2019 ............................................................................................................ 14

ABOUT CBX SOFTWARE ........................................................................................................................... 15


3

Purchasing Manager’s Index (PMI)

To help understand industry and economic conditions in a country, the PMI Index tracks variables such as output, new orders, stock levels, employment and prices across private companies in the manufacturing, construction, retail and service sectors. Over 30 countries and regions participate in various PMI surveys. A reading below 50 indicates contraction from the previous month, while a reading above 50 indicates growth. This update looks at a selection of emerging economies and key sourcing countries, providing indicators for recent months based on data provided by IHS Markit, NIKKEI, CAIXIN and other sources. Q1 2019 News & Analysis: Global PMI indicators showed a general weakening in overall manufacturing growth with declines in new orders and reductions in input purchases leading to slower job growth in the sector. The outlook for 2019 is that manufacturing and export growth should remain subdued with a broader global economic slowdown forecast. While China’s manufacturing growth was marginal, the ASEAN countries had a stronger Q4, with a similar trend expected for 2019 as some manufacturing shifts from China.

Country Sep 2018

Oct 2018

Nov 2018

Summary of Indicators

Brazil 50.9 51.1 52.7 Brazil’s manufacturing sector had a strong Q4 with stronger demand and confidence driving restocking of raw materials and semi-finished products.

China 50.0 50.1 50.2 China’s manufacturing sector maintained a trend of marginal growth through Q4 with reductions in exports and higher costs suggesting a weaker 2019.

Columbia 52.8 52.0 51.6 Columbia manufacturing experienced a solid Q4, with a softening in November due to fewer orders, but material purchases remained strong.

Czech Republic

53.4 52.5 51.8 Czech manufacturing remained positive through Q4 and into Q1 of 2019, despite a drop in confidence and lower export demand than recent years.

Egypt 48.7 48.6 49.2 Egypt’s production sector continued to decline through Q4 and into the new year, with a reduction in new orders and output alongside weak employment.

India 52.2 53.1 54.0 India’s manufacturing sector continued its momentum of growth through Q4, with new orders and stronger exports driving production and input purchases.

Indonesia 50.7 50.5 50.4 While still positive, Indonesia’s manufacturing slowed through Q4 on softer demand, inflation and supply chain challenges, with exports slowing into 2019.

Malaysia 51.5 49.2 48.2 Facing weaker demand, Malaysia’s manufacturing sector trended down through Q4 and into 2019, with slower orders, input buying and cost pressure.

Mexico 51.7 50.7 49.7 Manufacturing conditions in Mexico deteriorated through Q4 on slower domestic demand, leading to reductions in production and employment.

Myanmar 47.5 48.0 51.3 Operating conditions in Myanmar’s manufacturing sector improved through Q4, with a rebound in output and new business driving increased production.

Poland 50.5 50.4 49.5 Business conditions in Poland deteriorated to the lowest point in 4 years, with a decline in demand and exports and a weak outlook for the coming year.

Russia 50.0 51.3 52.6 Russia’s manufacturing sector made strong improvements through Q4, with solid export demand and some easing in inflation and employment growth.

South Africa 48.0 46.9 48.2

Conditions in South Africa’s private sector deteriorated through Q4, with declines in purchasing, output and new orders, despite relief on input costs.

South Korea 51.3 51.0 48.6

South Korea’s manufacturing sector shifted downwards in late Q4 with falling exports and reductions in production and employment signaling a weak 2019.

Turkey 42.7 44.3 44.7 Inflation and economic challenges continued to hamper Turkey’s manufacturing growth through Q4, with reductions in output and purchasing.

Vietnam 51.5 53.9 56.5 Vietnam had one of the strongest quarters in recent years with record increases in stocks of inputs and finished goods signaling a strong 2019.

Sources: IHS Markit Economics, Nikkei, Caixin


4

Low Cost Country Sourcing (LCCS) Highlights

This section looks at selected issues impacting sourcing from key LCCS destinations based on data available at the time of printing the report, alongside official import/export numbers highlighting global sourcing trends. Bangladesh – Bangladesh’s Prime Minister, Sheikh Hasina won a recent election in a landslide victory for her fourth term. Critics say the election was rigged with such authoritarianism a threat to the country’s future. Cambodia – Exports to the US from Jan-Sept 2018 increased to 26.2% or US$ 1.87 billion due to shifts away from high China tariffs. Garments and other consumer goods made up most of these exports. India – The Indian government updated its policies for Foreign Direct investment in e-commerce platforms, limiting the growth of Walmart and Amazon and supporting smaller retailers to be more competitive. Indonesia – Indonesia announced an 8.03% increase to its minimum wage for 2019 due to inflation and economic growth. This rate was a compromise with labor unions demanding wage hikes of 20-25%. Pakistan – Pakistan’s exports suffered in 2018, growing by only 1.3% in the first five months of the year to US$9.12 billion. Textiles accounted for over 50% of exports. Imports were $23.63 billion in the same period. Philippines – Exports fell by 2.6% yoy in Q4 to US$ 51.83 billion for the first 9 months of 2018. Imports hit an all-time high of US$ 9.75 billion in September, mostly due to infrastructure related imports. Thailand – Thailand focused on pushing forward several free trade agreements with Sri Lanka, Turkey, Pakistan and the EU, with plans to finalize these agreements in 2019, to drive trade growth. Turkey – Following three years of stagnation, Turkey’s apparel exports increase 4.6% yoy to US$14.8 billion for the first 10 months of 2018. Total exports for 2018 should reach $18 billion and US$19 billion in 2019. Vietnam – Vietnam is a main beneficiary of the US/China trade war, with exports reaching US$ 200.27 billion in the first 10 months of 2018, a yoy increase of 14.2%. Key exports included garments and electronics.

Exports (% yoy growth)

May 2018

Jun 2018

July 2018

Aug 2018

Sep 2018

Oct 2018

Nov 2018

Bangladesh 9.0 -3.1 19.9 -11.7 54.6 30.5 11.9 Cambodia 29.1 8.1 - - - - - India 20.2 17.6 14.3 19.2 -2.2 17.9 0.8

Indonesia 13.1 11.3 19.7 4.5 2.4 3.6 -

Pakistan 32.4 -1.0 1.2 8.4 3.6 1.2 -6.4

Philippines -1.8 2.8 0.3 3.4 -2.6 - - Thailand 11.4 8.2 8.3 6.7 -5.2 8.7 -

Turkey 5.0 -1.5 11.5 -6.5 22.0 13.0 -

Vietnam 17.3 16.3 16.0 16.7 15.8 15.2 -

Imports (% yoy growth)

May 2018

Jun 2018

July 2018

Aug 2018

Sep 2018

Oct 2018

Nov 2018

Bangladesh 37.8 16.5 14.1 -2.0 - - -

Cambodia 35.8 30.9 - - - - -

India 14.9 21.3 28.8 25.4 10.5 17.6 4.3 Indonesia 28.2 12.8 31.7 24.5 14.2 23.7 - Pakistan 14.8 26.2 0.6 1.4 -0.2 -1.0 -2.8

Philippines 12.6 24.2 31.6 11.0 26.1 - -

Thailand 11.7 10.8 10.5 22.8 9.9 11.2 - Turkey 5.5 -3.8 -6.7 -22.7 -18.3 -23.8 -

Vietnam 10.5 9.6 11.1 12.4 11.6 12.4 -

Sources: News Reports, Fung Group, Various Statistical Bureaus


5

Global Competitiveness Index

The Global Competitiveness Index is a ranking of countries based on their competitiveness across different measures such as government regulations, labor market efficiency, education, infrastructure and other measures important to doing business in a country. Below is a selection of emerging economies which are important low cost and strategic sourcing locations. Most of these countries are increasing their competitiveness on key economic measures every year, with China leading overall. Note: The below data is released annually by the World Economic Forum (WEF). For this report we have selected relevant countries and updated the chart as of current data released in December 2017. Global Competitiveness Index: Selected Indicators, 2017-2018 (Ranking of 137 countries)

Rank/137 Bangladesh Cambodia China India Indonesia Pakistan Philippines Thailand Turkey Vietnam

Overall competitiveness 99(↑7) 94(↓5) 27(↑1) 40(↓1) 36(↑5) 115(↑7) 56(↑1) 32(↑2) 53(↑2) 55(↑5)

Institutions 107(↑18) 106(↓2) 41(↑4) 39(↑3) 47(↑9) 90(↑21) 94(↓3) 78(↑6) 71(↑3) 79(↑3)

Intellectual property protection 124(↑5) 130(-) 49(↑13) 52(↓10) 46(↑4) 97(↑12) 71(↑3) 106(↑15) 94(↑1) 99(↓7)

Burden of government regulation

78(↑15) 68(↓3) 18(↑3) 20(↑3) 27(↑10) 64(↑11) 111(↑6) 58(↑3) 67(↑4) 76(↑12)

Strength of investor protection

66(↑13) 95(↓1) 102(↑6) 13(↓5) 66(↑13) 26(↓1) 111(↑9) 26(↑10) 21(↓1) 79(↑22)

Infrastructure 111(↑3) 106(-) 46(↓4) 66(↑2) 52(↑8) 110(↑6) 97(↓2) 43(↑6) 53(↓5) 79(-)

Quality of roads 105(↑8) 99(↓6) 42(↓3) 55(↓4) 64(↑11) 76(↑1) 104(↑2) 59(↑1) 30(↓2) 92(↓3)

Quality of railroad 60(↑12) 94((↑4) 17(↓3) 28(↓5) 30(↑9) 52(↑1) 91(↓2) 72(↑5) 57(↓2) 59(↓7)

Quality of port 85(↑4) 81(↓5) 49(↓6) 47(↑1) 72(↑3) 73(↑11) 114(↓1) 63(↑2) 54(↓2) 82(↓5)

Quality of air transport

115(-) 106(↓7) 45(↑4) 61(↑2) 51(↑11) 91(-) 124(↓8) 39(↑3) 31(↓2) 103(↓17)

Quality of electricity supply

101(↑9) 106(-) 65(↓9) 80(↑8) 86(↑3) 115(↑6) 92(↑2) 57(↑4) 88(↓4) 90(↓5)

Macroeconomic environment 56(↑9) 70(↓20) 17(↓9) 80(↓5) 26(↑4) 106(↑10) 22(↓2) 9(↑4) 50(↑4) 77(-)

Health & primary education 102(↑3) 101(↑2) 40(↑1) 91(↓6) 94(↑6) 129(↓1) 82(↓1) 90(↓4) 84(↓5) 67(↓2)

Higher education & training 117(↑1) 124(↑10) 47(↑7) 75(↑6) 64(↓1) 120(↑3) 55(↑3) 57(↑5) 48(↑2) 84(↓1)

Goods market efficiency 94(↑2) 85(↓9) 46(↑10) 56(↑4) 43(↑15) 107(↑10) 103(↓4) 33(↑4) 53(↓1) 91(↓10)

Prevalence of trade barriers 35(↑21) 93(↓7) 58(↑20) 54(↓7) 79(↑12) 106(↑6) 64(↓4) 67(↑8) 45(↓1) 109(↓1)

Trade tariffs, %duty

126(↓1) 96(-) 118(-) 124(↓1) 67(↓5) 135(↓1) 58(↓9) 89(↓4) 75(↑1) 91(-)

Burden of customs procedures

98(↑18) 127(-) 44(↑11) 47(↓10) 63(↑10) 93(↑20) 125(↓4) 78(↑4) 80(↓6) 95(↑8)

Labor market efficiency 118(↑2) 48(↑10) 38(↑1) 75(↑9) 96(↑12) 128(↑1) 84(↑2) 65(↑6) 127(↓1) 57(↑6)

Cooperation in labor-employer relations

76(↑15) 67(↑3) 50(↓3) 56(↑11) 41(↑4) 125(↑9) 33(↓6) 36(-) 118(↑1) 85(↓6)

Flexibility of wage determination

58(↑11) 100(↑4) 89(↓7) 104(↑8) 99(↑10) 122(↓2) 86(↑11) 103(↑4) 51(↑11) 81(↑3)

Pay and productivity

80(↑3) 64(↓1) 26(↑1) 33(-) 22(↑7) 85(↑15) 43(↓6) 47(↑5) 91(↑3) 66(↓4)

Business sophistication 91(↑16) 106(↑8) 33(↑1) 39(↓4) 32(↑7) 81(↑14) 58(↓6) 42(↑1) 67(↓2) 100(↓4)

Local supplier quantity

62(↓15) 127(↓2) 52(↓36) 53(↓17) 42(↓2) 107(↓5) 49(↑11) 59(-) 44(↓3) 105(↓19)

Local supplier quality

78(-) 122(↑3) 56(↑1) 69(↓10) 54(↑16) 108(↑3) 73(↑1) 74(↑3) 52(↓4) 116(↓7)

State of cluster development

65(↑12) 48(↓2) 27(↓6) 31(↓4) 26(↑3) 55(↑21) 62(↑4) 67(↓5) 59(↓2) 68(↓15)

Source: World Economic Forum (WEF)


6

China Wage Trend Snapshot

Q1 2019 News & Analysis: While China’s export growth was nearly flat in 2018 and expected to trend similarly in 2019, wage growth, supported by central government policies continues to increase. According to a recent International Labor Organization (ILO) report, while wages in most Asian and other countries stagnated, nominal minimum wages in China nearly doubled from 2011 to 2018, with state-owned enterprise worker wages rising even faster. During this period, wage growth in China averaged 8.2% annually, compared to global growth rates of around 1%. Note: These are official wage guidelines mandated by each province or region based on information publicly available as of January 1, 2019. As such these numbers serve as an indicator. Actual wages may include benefits, food, housing etc. Minimum wage is typically 40-60% of average total wage.

2019 Minimum Wage Updates (official) (District variances are averaged across province)

City/Region/Province Monthly Min Avg Wage (RMB)

Increase % Official Update

Anhui 1,520 20.6% Nov 1, 2015

Beijing 2,120 5.8% Sep 1, 2018

Fujian 1,700 13.3% Jul 1, 2017

Chongqing 1,500 n/a Jan 1, 2015

Gansu 1,620 10.2% Jun 1, 2017

Guangxi 1,680 16.7% Feb 1, 2018

Guangdong 1,802 22.3% Jul 1, 2018

Guizhou 1,680 5.0% Jul 1, 2017

Hainan 1,430 12.6% Feb 1, 2016

Heilongjiang 1,680 15.4% Oct 1, 2017

Henan 1,900 8.2% Oct 1, 2018

Hebei 1,650 12.5% Jul 1, 2016

Hubei 1,750 13.1% Nov 1, 2017

Hunan 1,580 13.6% Jul 1, 2017

Inner Mongolia 1,760 8.0% Aug 1, 2017

Jiangsu 2,020 8.1% Aug 1, 2018

Jiangxi 1,680 15.1% Jan 1, 2018

Jilin 1,780 22.5% Oct 1, 2017

Liaoning 1,620 7.6% Jan 1, 2018

Ningxia 1,660 12.4% Oct 1, 2017

Qinghai 1,500 15.3% May 1, 2017

Shaanxi 1,680 5.4% Oct 1, 2017

Shandong 1,910 6.7% Jun 1, 2018

Shanghai 2,420 5% Apr 1, 2018

Shenzhen 2,200 4.9% Jul 1, 2018

Sichuan 1,780 7.1% Jul 1, 2018

Tianjin 2,050 5.1% Jul 1, 2017

Tibet 1,650 17.8% Jan 1, 2015

Xinjiang Uyghur 1,820 12.9% Jan 1, 2018

Yunnan 1,670 10.6% May 1, 2018

Zhejiang 2,010 8.4% Dec 1, 2017


7

Global Low-Cost Country Sourcing Wage Snapshot

Below is a snapshot of minimum wages in selected Asian sourcing locations, with the addition of Egypt, Ethiopia and Turkey to give a comparative view. Wages vary by region or province and indicate either an estimated or actual/official rate. In cases with a distinct variance, we provide an average. Currency fluctuations mean that these figures are approximate at the time of finalizing this report. Q1 2019 News & Analysis: According to a recent International Labor Organization (ILO) report, emerging market wages grew by just over 4% through 2018, higher than developed economies, but lower on average than China. Other countries in Asia, the Middle East and Eastern Europe are reportedly picking up business from China due to rising costs and the tariff war. Egypt, which has a free trade agreement with the US is seeing a lot of Chinese investment in their garment production sector which should impact wages positively. Note: Figures are provided in USD/month based on currency exchange as of January 1, 2019. Minimum wage policies are updated as per data available at the time of finalizing this report and are based primarily on unskilled wages. Consult sources such as Fair Wage Guide or Wageindicator.org to assess and calculate benchmarks for wages in particular countries and regions not covered here.

BANGLADESH CAMBODIA CHINA EGYPT ETHIOPIA

$95 (Jan 2019) $182 (Jan 2019) $137-$639 (Sept 2018) $172 (Jan 2017) $35-$4 (under review)

Bangladesh announced a wage increase to BT8000 (US&95) a 51% increase from the previous minimum wage which had been in place since 2013. Unions were calling for a BT16000 minimum wage.

Cambodia increased the minimum wage for the second consecutive year, to US$182, a 7.1% increase, which will take effect from January 1, 2019. Labor tension and strikes have calmed down.

Minimum wages in China are set by local governments and vary widely by region wages formulas (with housing, food, overtime etc.) Wages continue to increase each year in most regions.

Egypt’s official minimum wage (for public workers) was raised to 1,200 EGP/month as of Jan 2017 according to CAPMAS. Actual wages for non-public workers are mostly below this amount.

Ethiopia is working on a system to determine a min. wage for the private sector (wage guidelines exist for govt. workers). Entry level wages in the textile sector range from $35 -$40.

INDIA INDONESIA LAO PDR MALAYSIA MYANMAR

$40-$130 (Jan 2018) $115-$273 (Jan 1/18) $142 (May 2018) $233-$253 (Jan 2018) $108 (Mar 2018)

Indian min. wages vary by region and skill level; however, the central Indian labor ministry is considering a significant increase for 2018, which could bring wages up to $280 in some areas.

In October 2018, Indonesia’s manpower minister proposed an 8.13% minimum wage increase for 2019 and urged the provinces to accept. Indonesia wages vary by their 34 provinces and regions.

The Lao Government approved an increase in minimum wage from Kip 900,000 (US$107) to Kip 1,100,000 (US$142)) in key provinces for 2018. This raise took effect in May 2018.

Wages vary by region and are supposed to be reviewed every 2 years. Malaysian officials announced a new minimum wage for 2018 to bridge the gap between Peninsular Malaysia and East Malaysia.

Myanmar revised its minimum wage from K,600 Kyat ($2.70) per day to K4,800 (3.60) or K600 per hour for an eight-hour work day. This represents an increase of 33%, mostly impacting garment workers.

PHILLIPPINES SRI LANKA THAILAND TURKEY VIETNAM

$110-220 (Jan 25/18) $67 (Mar 2016) $190-$196 (Apr 1/18) $381 (Jan 2019) $125-180 (Jan 1/19)

Wages in the Philippines vary by region, skill level and wage classification. Negotiations are still underway, but Manila for example saw a 21 Peso ($0.42) increase in their daily wage to 491 Pesos ($9.82) in Q4 2017.

Sri Lanka adopted two laws on minimum wages as of early 2016, mandating a minimum wage of Rs 10,000 (+/- $67) and an increase of Rs 2,500 (+/-f$17) for workers earning less than Rs 40,000 per month (+/- $270)

Thailand increased minimum wages for the first time since 2013 by 2-5%, or around 5-22 Baht per day across the 69 provinces. Wages will range from 308 to 3330 THB ($9.60-$10.58) per day for unskilled workers.

Turkey announced a minimum wage increase of 26% for 2019 to 2,020 Lira per month. The hike was due to high inflation which has caused havoc on the Turkish economy in the past year. The economy grew by only 1.6% yoy in 2018.

Vietnam announced they will increase their minimum wage by 5.3% in 2019. This increase was relatively lower than the 2018 increase of 6.5%. Wages range from $125-$180 / month across 4 key regions in Vietnam.

Sources: WageIndicator.org, SAFSA, Local News Reports


8

Container Freight Rates for Major Routes

Q1 2019 News and Analysis: Q4 2018 showed a dramatic contrast in rates between Asia-Europe and Asia-North America, which will also reflect through the first part of 2019. Spot Container rates on Asia-Europe surged dramatically in late Q4 and into the busy pre-Chinese New Year period as carriers added surcharges both for the peak season and to offset increased costs of a global sulfur cap surtax. In contract spot rates for the Asia-North America routes fell through late Q4 and into 2019 on oil price and surcharge concerns and geopolitical uncertainty over US/China relations and the impending Brexit. This uncertainty should continue into Q2 when US/China tariffs are decided and the Brexit deadline of March 29 passes. Asia - Europe Trade Lanes

Container shipping rates on Asia to North Europe routes rallied through Q4 as shippers enter the peak period before Chinese New Year. Rates were 15% higher yoy on North European routes and 31% higher on Mediterranean routes compared to the same period in 2017.

The increases were partly a result of carriers passing on surcharges due to a 0.5% sulfur cap on marine fuel that will take effect from Jan 1, 2020. Carriers will take on an additional $11-15 billion in extra costs because of this new measure by the International Maritime Organization.

Asia – North America Trade Lanes

In contrast to Asia-Europe, the Asia to North America container routes faced more uncertainty and volatility in pricing. Factors impacting this volatility include volatility in oil prices in Q4 and the global sulfur cap.

Experts are predicting general volatility in the Asia-North America container trade through 2019 due to the combination of oil price and surcharge uncertainty in addition to the geopolitical climate with US/China trade relations and the Brexit. Much of the gains and strength in container shipping through 2018 was reactive purchasing and shipping over tariff concerns which have abated somewhat for the meantime.

Sources: IHS Markit, Joc.com Alphaliner, SeaIntel


9

Currency Exchange Rates

Following are exchange rates and indicators for major currencies commonly factored into global sourcing costing estimations. Signs of a global economic slowdown are impacting currencies, with the dollar expected to give up some of the gains it made in 2018. Similarly the European Union economy showed weaker data through Q4 and into 2019 which should impact the Euro negatively. The Chinese currency is more of a question given China’s notable slowdown in exports. However the Chinese government has announced stimulus measures to support its economy and more positive US/China trade talks could help the Yuan. EUR / USD (Jan 2018 – Jan 2019)

EUR / CNY (Jan 2018 – Jan 2019)

USD / CNY (Jan 2018 – Jan 2019)

Sources: XE.com, News/Analyst Reports

Q4 saw the Euro slide marginally with signs of a slowdown in the EU. This trend is expected to continue through Q1 2019 with analysts less bullish about the USD making continued gains.

EUR/USD Low High

2 years 1.04 1.25 1 year 1.12 1.25 6 months 1.12 1.18 3 months 1.12 1.16 30 days 1.12 1.15

Q4 saw the Euro lose some of the gains made in Q3 against the Yuan due to concerns over a faltering EU economy. The Yuan is also expected to make gains due to Chinese government stimulus measures to support the economy.

EUR/CNY Low High


While 2018 was a good year for the US dollar, it is expected to give up some of those gains in 2019. Easing of US/China trade tension and Chinese stimulus measures should support the Yuan in gaining some lost ground against the USD.

USD/CNY Low High



10

Global Commodity Rates

Q1 2019 News & Analysis: The trend we are seeing in commodity prices over Q4 2018 and into 2019 is lower prices driven by decreased demand, especially from China and concerns over a global economic slowdown in 2019. Oil prices led the commodity decline, falling by 40% in late Q4 after a strong comeback in 2018. A similar trend was evident in metal, rubber and other commodities. Easing of the trade tension between the US and China might offset some declines in 2019, however the big concern now is the global economy and significantly slower consumer demand and retail sales in China.

Crude Oil

Rubber

Metals

50

55

60

65

70

75

80

85Oil US$ per barrel Dated

Brent,light blend38 API

Dubai,medium, fobDubaiFateh 32API

WestTexasIntermedia 40 API,MidlandTexas

1.01.21.41.61.82.0

Rubber, No. 3 Smoked Sheet (RSS3), Singapore Exchange

Price in US cents per kilogram

2596

1937

73 0

1000

2000

3000

0

4000

8000

12000

16000

20000

24000

28000Metals US$ per metric ton

Tin Aluminum Copper NickelZinc Lead Iron

Rubber prices continued a downward slide through Q4 and into Q1 2019 on concerns over a global economic slowdown, less demand from China and concerns over trade disputes. Consumption of natural rubber is expected to slow to 14.59 million tons in 2019, a growth of 4.2%, compared to 5.2% growth in 2018.

Oil prices fell through Q4 and into Q1 2019 on concerns over a recession and weakening global demand. Prices fell by 40% over the past 3 months to around $45 a barrel compared to high in October above $80. Production has also increased from the US, Saudi Arabia and Russia. Most analysts predict demand for oil will be down over 2019, making for a rocky climate for prices.

Alongside other commodities, base metal prices trended down over Q4 and into Q1 of 2019. Driving this trend is lower demand from China and improved supply along with the China/US trade war. Even with signs that the US and China will work out a compromise, the outlook for 2019 is still a slower Chinese economy and concerns over the global economy. While steel prices were more solid due to US tariffs, Aluminum is expected to be hard it in 2019.


11

Cotton

Unlike other commodities, cotton prices held steady through late 2018 and into the new year. While there are still concerns over slowing global economic growth, cotton prices in 2019 will depend on the outcome of the US/China trade conflict and on supply/demand factors. China has been depleting its large cotton reserves over the past few years while supply has increased outside of China. If Chinese demand for cotton increases then prices could hold, if not then over supply will drive prices down. Given the overall lack of confidence for 2019, the best case is that prices will decline marginally.

Wool

Wool prices had a strong 2018, despite being impacted somewhat by the US/China trade tension in Q4. Mills were producing to order, avoiding uncertainty which kept the market stable. Increased use of wool in China and by popular global retailers and brands also drove demand. Wool demand and prices are expected to face some volatility with shutdowns of mills through the upcoming Chinese Year. Other factors impacting prices and demand in 2019 include, supply constraints, the Brexit issue and concerns over a potential global recession.

Sources: Cotton Inc. and National Cotton Council

Source: Wool.com and various News Reports


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Plastics and Fibers

A selection of plastic related prices is provided below. These are calculated from offer prices in the Plasticker Material Exchange, which provides an indication of trends. Q1 2019 Snapshot: While most commodity prices were hard hit in Q4, cotton and synthetic fibers were the exception. With the sharp slide in oil prices through Q4 of 2018 and into the new year, prices for synthetic fibers such as acrylic, nylon and polyester made solid gains. The synthetic fiber market generally follows the cotton market in terms of pricing and demand. Prices for both natural and synthetic fibers are predicted to remain stable through 2019, with some risk of a global economic slowdown impacting demand.

Sources: IMF data, Index Mundi Plasticker

Focus Topics

Global Sourcing in 2019

While 2018 was a strong year overall, indicators from Q4 and into Q1 of 2019 point to a global economic slowdown led by the big economies including China, the Eurozone, the United Kingdom and Japan. The WTO’s 3.9 percent forecast for global trade growth this year is down from 4.7 percent in 2017. While the US has bucked a downward trend due to fiscal stimulus measures and strong economic fundamentals, there is still risk due to trade conflicts initiated by the will impact on borrowing and international trade in 2019. While “recession” is not yet a thing, most pundits are using “global economic slowdown” to describe 2019. The China Slowdown Data from recent months shows that China’s economy is slowing down notably. In November, retail sales grew 8.1%, while export growth fell to 5.4%, the lowest figures in over 10 years. Domestic auto sales also fell by 18%. China’s Academy of Social Sciences think tank predicts GDP growth of 6.3% in 2019. The concern is that China has increasingly looked internally for growth in recent years and is now seeing slowing domestic consumption, alongside slowing exports. The government has been spending less on infrastructure which used to be a stimulus measure, now they are focused on tax cuts and easing loan requirements. How the US/China tariff conflict plays out will also impact this year’s numbers.

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1.0Plastics & Fibers, Regrind/ Flakes (Euros/kg)

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Emerging Market Growth Countries that are and will increasingly benefit from the global trade wars are Vietnam, Bangladesh, Cambodia, South Korea, Malaysia, Thailand and other places that are positioned to take on manufacturing that has shifted away from China. These countries are also growing as export destinations and as trade partners with China. In Eastern Europe, countries with greater proximity to Europe, such as Romania, Poland and Czechoslovakia, have seen growth in investment and manufacturing expansion, Global Trade and Tariffs Protectionism was a big theme for 2018 as many trade agreements such as NAFTA were scrapped, renegotiated or re-forged. The effect of these trade measure will come to bear in 2019. The big questions are China/US tariffs, the Brexit outcome and the CPTPP, a new Trans-Pacific trade agreement following the US exit from the TPP when Trump took office. While 2018 was a scary year with escalation of a trade war between the US/China, 2019 looks more optimistic as both China and the US appear more willing to compromise on some of the sticky points. Resolution of the trade conflict will lessen the uncertain business climate for importers and manufacturers around the globe. The Brexit Question With a deadline for the UK to leave the EU by March 29th and no clear plan or details as to how the exit will happen, a lot of uncertainty sits around trade with Europe and the UK. The concern is that goods will be stuck in customs and face large tariffs which could hamper supply chains. Some are skeptical whether the thinly supported Brexit deal will happen. Consumers are reportedly stockpiling goods for fear of limited access to food and companies are trying to make contingency plans for how they will respond to orders regardless of the outcome. Oil Price Volatility Oil prices dropped by 40% in Q4 of 2018 and fell further into Q1 on concerns of a global economic slowdown, lower demand from China and potential oversupply. Other commodities followed oil’s downward trend as China’s manufacturing economy grew minimally and caution prevailed among purchasing managers who don’t want to be stuck with excess raw materials. While oil prices should make gains in Q2 as further supply cuts are implemented by OPEC and other suppliers, volatility is expected to continue through 2019. Increased Supply Chain Costs In addition to the impact of tariff increases on supply chains, companies are likely to see increased costs due to customs clearance issues and rising trade finance costs with tighter monetary control and lending conditions due to higher risk of non-payment and depreciation in emerging market currencies. Countries such as Turkey and Argentina are good examples, but other emerging economies including Brazil, South Africa, Indonesia and several Latin American countries are at risk. In addition, companies will continue to invest in supply chain technology to meet the increasing demands and expectations on product delivery and customer service driven by e-commerce and integrated retail concepts.


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The Digital Supply Chain in 2019

The big catch phrase for 2019 is the “digital supply chain,” an umbrella term describing the integration of supply chain data, analytics and communication into an electronic format. As retail supply chains grow in complexity and demands for real time inventory availability and customer service increase, digital tools allow companies to operate in a more customer centric and strategic way. Among other things, this means replacing legacy systems with SaaS tools to manage data analytics, forecasting, customer segmentation, planning, warehouse automation, supplier management, raw material availability, design and customization. Automation Part of the digital supply chain includes automation, a growing trend in both manufacturing and logistics. Manufacturers such as Apple supplier Foxconn, have replaced 40% of their workforce, or over 60,000 workers, with robots and automation. Amazon has introduced everything from delivery drones to warehouse robots to manage fulfillment and the Amazon.go store format for cashierless payment and pick-up. Alibaba, Amazon’s China equivalent has its own innovations including Cainiao an AI tool for parcel sorting and delivery and FashionAI a digital fashion consulting tool. By 2020, over 65% of e-commerce operations are predicted to use autonomous robots in their order fulfillment process to improve productivity. Automation of this kind makes for more scalable, flexible and cost-effective fulfillment. Artificial Intelligence (AI) A more advanced aspect of the digital supply chain is Artificial Intelligence, where retailers are investing heavily in new hardware and software applications. Retailers are readily adopting AI for inventory management, demand forecasting, replenishment, warehouse operations and fulfillment. The big players such as Walmart, Amazon, Alibaba and others have their own tech incubators developing and acquiring innovative technology. They are quickly moving beyond algorithms for more basic tasks to more complex functions such as personalizing pricing, promotion and communication. Amazon and Alibaba are both well known for their highly automated, intelligent fulfillment centers. One study predicted that by 2024 over 60% of the largest manufacturers will use artificial intelligence platforms to drive productivity gains of more than 20%. The idea is to automate routine task and decisions, allowing people to focus on more strategic activities. Product Lifecycle Management (PLM) While PLM systems are not new, there is still a lot of room for adoption and integration into supply chains which are still centered around the ERP system. One study predicts that by 2022 over 40% of manufacturers will integrate data from PLM apps into their supply chain data to improve service levels. Data from PLM systems provides a more holistic view of the product lifecycle from concept to delivery. This enables companies to connect manufacturing, product development and customer demand seamlessly to deliver better performing products with improved service. Another component to PLM is supplier lifecycle management which provides greater visibility and integration between suppliers and retailers/brands, speeding up onboarding and improved visibility down the supply chain to Tier 2 and 3 suppliers. We predict that digital supply chains and more advanced technology will be more of a mainstream focus through 2019, providing a competitive advantage to the early adopters. The digital supply chain should ultimately help companies reach the holy grail of retail: bringing desirable products to market faster and more profitably while maintaining a lean inventory.


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About CBX Software

CBX Software is the world’s leading Total Sourcing Management solution provider, from concept, to delivery – combining people, process and solutions. CBX helps retailers and brands streamline product development and sourcing, all the way through order & production. CBX empowers the supply chain network by driving collaboration to over 15,000 retail & supplier partners and 30,000 users in more than 50 countries. For more information, visit www.cbxsoftware.com.

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