The Supply Times
Posts
Slaying the Dragon

Slaying the Dragon

Naseem Malik
June 15, 2023

Hello dear readers!

Welcome back to The Supply Times!

It’s definitely summer down here in Texas, and though I’ve been here almost a year now, it’s an adjustment all right when it comes to the heat. I still stand by my assertion that, brevity notwithstanding, there’s no better city in the world to enjoy summertime than the Windy City.

In this issue, we take a look at China’s shrinking import share, as well as one society journalist’s take on the new rules of success in a post-career world. I’ll also share with you some great things I’ve been reading, watching, listening to, and thinking about, and as always, some fun odds and ends.

Here we go!

Industry Highlights: Shrinking Giant

We’ve heard for a while now that the US is taking strides to distance itself from China. Given the economic stances and human rights concerns coming from Beijing, it’s no surprise that most US companies want to taper its reliance on Chinese manufacturers, but many supply lines have been so deeply ensconced there that turning the tide is a huge undertaking.

We haven’t really seen anything more than lip service paid to the idea of seeking products and materials elsewhere—until now.

According to a recent analysis by logistics tech company Descartes, China has lost some ground exporting goods to the US through May, marking a sharper dip of a larger decline that’s been happening since 2017.

That slide coincided with the tariffs imposed by the Trump administration, and it’s increased since tensions between the two superpowers have begun to rise. It’s also worth pointing out that the current administration has retained most of the tariffs, so clearly that’s not going to change anytime soon, despite the objections from the WSJ editorial board.

Descartes examined the last two decades of US container import data and discovered that China’s share peaked at 44.5 percent in 2010—50.1 percent if you count Hong Kong. As of last month, China accounted for 35.8 percent of containers coming into the US.

Descartes reported that since 2016, China has gained ground in two commodity categories but declined in eight.

The dip in imports is being accounted for by a rise in reliance on other South and Southeast Asia countries, including Vietnam, India, Thailand, and Indonesia—all of which have built capacity in a number of industries.

“This underscores that US businesses are learning to adopt a multi-country sourcing strategy that still includes China,” Descartes wrote in their report.

That’s not to say our ties with China are completely cut. Despite the dip, it still remains the primary supplier for most of the top 10 commodity groups.

“China is exporting $1 trillion more than it was before the pandemic. It’s exporting $1 trillion more than it did when Trump started his trade war,” former Biden administration official Brad Setser told Bloomberg. “A whole bunch of large policy measures that were designed to make trade less attractive didn’t have the effect of making China less dependent on trade.”

Setser said despite the increased tariffs, other factors kept China’s exports strong, including the shift to global demand toward goods and away from services, the stable value of the Chinese yuan, and the emergence of a competitive Chinese auto industry.

That said, other manufacturing movements suggest the withdrawal trend could continue. Mexico has recently been in the headlines for the headway it’s made in stealing China’s import share.

According to FourKites data, shipment volume from Mexico to the US has increased 20 percent this year, with shipping delays down 25 percent. This means that Mexico is streamlining its supply chain—even though volume is up, congestion is down.

Additionally, Prologis reported last week that Mexico’s net absorption—the ratio of real estate space to vacancies—has doubled in the last two years, with only 1.1 percent vacancy rates in the country’s six major manufacturing regions. Over 400 manufacturers have expressed interest in building manufacturing plants in Mexico, including fast fashion behemoth Shein and Tesla—both of whom currently rely almost exclusively on China for its goods.

The bottom line is that China will keep its place at the head of the class for now, but if companies continue to gain toeholds in other parts of the world, it could be in for a precipitous fall.

I highlighted these issues in a recent LinkedIn post, and I wanted to share this insightful contribution from my good friend Carlos Barajas, who’s the VP of Manufacturing and End-To-End Supply Chain for Newell Brands and is in the middle of this paradigm shift:

“I would add that being in countries like Vietnam, Indonesia, Cambodia does not solve all of your problems,” he wrote. “They are still far away and many times in need of importing components from China which could make your lead-time even longer. The switch I see is a flip to TCOD (total cost of delivery) from a landed cost traditional view. It goes well beyond tariffs and freight. Now it becomes even more important to keep low inventories (cost of opportunity), improve response time to changing market conditions (shorter leadtime), and ability to meet customer micro demand (ability to have delayed customization as close to the customer as possible). In that sense it is important to consider additional production countries like Brazil (for Brazil), Colombia, Portugal, Spain etc. … that goes beyond Mexico that is becoming busier and Eastern Europe that is living through political uncertainty. Even at a slightly higher landed cost, your TCOD can be lower and help gain market share over traditional LCC producers. The trick is how each company values that last step between landed cost and everything else that is needed to deliver the product to the end customer (a lot of untapped value in the last step).”

After all this, I would be remiss if I didn't point out that just this week, Treasury Secretary Yellen said that decoupling from China would be disastrous. De-risk yes, decouple, no. It’s a bit of a head-scratcher as we continue to change our tunes on policy, but if you want to learn more, you can read more from The New York Times here.

The Future of Work: The Workquake

We’ve all felt the disturbances in the job force in recent years, but as we inch further and further away from the epicenter of the pandemic, the future of work is coming more into focus.

In short, the old American Dream is, well, old. Time for a refresh.

That’s certainly the theory of journalist and author Bruce Feiler, whose new book, The Search: Finding Meaningful Work in a Post-Career World posits that the boostrappy aspirations of climbing your way to success are no longer reality.

In a recent thoughtful essay published in The Wall Street Journal, Feiler outlines the 400 life stories he collected for his book in order to get to the root of workers’ shifting career goals and why they’re occurring.

He writes that yes, the pandemic was the flash point for the 50 million Americans who quit their job last year, but that it was only a spike in a subtle but profound shift that’s been happening for the last two decades.

He believes many Americans still define and work toward career goals, but the path to achieving them is far rockier.

“Today’s workers … rebuff the notion that each of us must follow a linear career—lock into a dream early, always climb higher, never stop until you reach the top. They resist having their lives summarized by a resume.”

That once straight path up the ladder is now broken by life events—what he calls “workquakes”—which instigate reevaluation or reinvention. Feiler says these disruptions occur on average every two-and-a-half years.

His findings very much track with the data we have on employees’ changing attitudes about the workplace. A 2021 Gallup poll revealed Millennials and Gen Z’ers—which comprise about 46 percent of the workforce—place more importance on employee well-being than previous generations. A similar Deloitte study showed younger generations prioritize work-life balance over everything else—including pay.

So if the rules for achieving the American Dream set out by titans like Dale Carnegie are no longer applicable to the career game, what should the new guidelines be?

Feiler has three suggestions:

Success isn’t found in climbing the ladder. Focusing solely on landing a job may lead to superficial success without true fulfillment. Instead, those who are truly fulfilled at work start by identifying who they want to be, what they want to do, and why they want to do it, by performing some introspection and understanding their inherited work values and personal aspirations.
Worth, not wealth. Research suggests that workers are willing to accept lower salaries for meaningful work. Today, people are more likely to pursue additional work for meaning and prioritize different aspects of their lives at different times, including periods of prioritizing earning money versus pursuing creative or caring endeavors.
Success is a moving target. Success is not a static concept but a dynamic narrative that can be redefined over time. With the freedom to shape our own definitions of success, individuals can make choices that align with their diverse needs and priorities throughout their lives.

Do you have your own rules for defining success in the future workplace? I’d love to hear your thoughts. Drop me a line and let me know!

The Supply Aside: What I’m Reading, Watching, Listening to, and Thinking About Re: Supply Chain, Work, and Beyond

📕 Read - Life Is In The Transitions – Bruce Feiler

The reason Bruce Feiler’s aforementioned essay caught my attention is because I’d previously read one of his other titles and really enjoyed it. Life Is In The Transitions: Mastering Change At Any Age came out in the throes of the pandemic, and it felt particularly poignant. All of Feiler’s work has explored how stories give our lives meaning, and this book does just that. Feiler shares the tales of Americans who have been through major life changes—from losing jobs to loved ones—and looking for a fresh start.

And, after reading his WSJ essay, I’m definitely interested in getting my hands on The Search. If it’s anything like Life Is In The Transitions, it’ll be a worthwhile read.

What I’m Also Reading:

“Meet the Newest Employee at Elon Musk’s SpaceX. He’s 14” – Business Insider – An incredible story about teenager Kairan Quazi joining SpaceX as a software engineer. He’s already a graduate from Santa Clara University and started coding when he was 11. An interesting move from Musk’s company—especially considering Quazi was passed over by 95 other firms.
“More Startups Throw in the Towel, Unable to Raise Money for Their Ideas” – The Wall Street Journal – According to this interesting deep dive into the startup world, there’s a mass extinction event on the horizon for aspiring entrepreneurs. Effective models that worked when venture pockets were deep no longer work, and startups are scrambling to find ways to fund their next big ideas.

📺 Watch - STILL: A Michael J. Fox Movie

Similar to most Gen X’ers out there, I grew up watching Michael J. Fox on Family Ties, Back to the Future. Even if you didn’t, you’re probably familiar with his very public battle with Parkinson’s Disease. This Apple TV+ documentary, which incorporates interviews and archival footage, recounts the story of his rise to fame in the ‘80s and his diagnosis at age 29. Inspiring, melancholic, and funny in only a way Marty McFly could pull off.

👂 Listen - All In Podcast

I’ve mentioned the All In Podcast before because it’s a great collection of brilliant business minds that’s never short on fascinating takeaways. This recent episode features moderator Dave Freedburg navigating a discussion on the US government’s crypto crackdown, Sequoia’s split, and the PGA’s merger with the Saudi-owned LIV Tour.

💡 Think - The Labor Market

Over the past year, the Fed has been gripping the reins of financial conditions, wrestling with the bull of rising inflation. We've all been on the edge of our seats, wondering when they might dare to slacken their hold. There was a collective sigh when they did pause the increases earlier this week. On the one hand, we certainly don't want to tap the brakes so hard that we skid into the pothole of recession. Yet, on the other hand, the labor market is flashing a green light that the Fed seems unwilling to ignore.

The unemployment rate is currently lounging at a cool 3.7 percent—not a record low anymore, but it's still sitting pretty in the major leagues. To put this in perspective, Uncle Sam's been playing ball at an average unemployment rate of 5.72% from 1948–2023, which factors in the historic 14.7 percent spike we witnessed in April 2020. Now, stir into this mix that a whopping 10.1 million open jobs are up for grabs. In other words, there are enough empty seats to accommodate every job-seeking American.

Sure, no one's asking for a recession ticket. But unless we see more industries making roster cuts in a bid to trim costs, the Fed might take it as a thumbs-up to keep interest rates cranked up until the specter of runaway inflation fades into the rearview mirror.