Chinese factories are normally at their busiest during the third quarter, cranking out production of everything from Barbie dolls to miniature trucks in time to ship them over the ocean to the US ahead of the all-important holiday shopping season. This year is different.
Even with US President Donald Trump delaying tariffs on US$160 billion of toys to smartphones to spare the Christmas boom for US retailers, the damage has already been done.
That is because big toy purveyors like Walmart Inc have already piled up inventory given the uncertainty over how the trade row will pan out, according to industry officials.
“We will be among those bearing the brunt,” said Justin Yu, a foreign trade manager at Pinghu Mijia Child Product Co (平湖米家兒童用品), a maker of toy cars and kids’ scooters in Zhejiang, China. “The influence is definitively huge.”
Yu plans to find new customers in Europe, Middle East and Africa to make up for the US shortfall. The company is considering reducing North America’s significance to its revenue to avoid future tariff hits.
Yu said he sends US$25 million of goods a year to US retailers, including Target Corp and Walmart.
Retailers started a buying frenzy a year ago as trade tensions began to heat up — shipping cargo volume to North America from Asia rose 7.9 percent in the second half of last year, according to data compiled by Bloomberg.
That growth has slowed significantly this year — to just 0.2 percent in the first half — as US warehouses filled up.
Pointing to a continued slowdown in goods volume, China’s exports to the US last month dropped 6.5 percent from a year earlier in US dollar terms.
That means US shoppers are likely to see fewer new items in stores during the holiday season as retailers limit purchasing to reduce stock toward normal levels, said Rahul Kapoor, head of research and analytics at IHS Maritime & Trade in Singapore.
“There won’t be any empty shelves,” Kapoor said. “Inventory level is very high.”
Another industry getting hit, shipping, is cutting capacity as volumes shrink.
CMA CGM SA, the world’s third-biggest container-shipping company, would pull out two vessels of its Asia-Europe services as early as this month.
Orient Overseas Container Line Co (東方海外貨櫃航運), owned by China’s biggest shipping company, also halted some services to the US and Europe from last month.
Adding to their woes, the slowing volume has pushed shipping fees down at a hefty pace.
Rates to move cargo on major trade lanes have fallen 7.4 percent this year, with those for the US slumping 26 percent, according to Drewry World Container Index.
“This peak season is going to be challenging,” said Um Kyung-a, a shipping-industry analyst at Shinyoung Securities Co in Seoul. “Some shipping companies probably are not able to cover their costs.”
A further concern is that the trade row will spill over to next year, hurting consumers’ eagerness to go shopping.
The IMF last month cited trade tensions as one of the biggest risks to the global economy as it downgraded its growth forecast for this year and next, while Goldman Sachs Group Inc has said there is growing concerns that the trade dispute will trigger a US recession.
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