It’s now or never: Importers from China must act now to avoid coming price rises
Last year was a difficult one for London businesses importing goods from China. Supply chain difficulties, rocketing prices for raw materials and increased shipping prices have seen the cost of doing business with Chinese suppliers shoot up.
Currency fluctuations are also having a significant impact on UK buyers with the US Dollar and Chinese Yuan cross falling to its lowest level since May 2018.
With many forecasters expecting it to fall even further, there is likely to be an increasing trend towards Chinese suppliers putting up their prices. This would be yet another blow for UK importers.
These macroeconomic factors appear to be starting to bite in recent official trade figures of imported goods.
According to government statistics, £5.37bn worth of goods were imported from China to the UK in October 2021. This is down by a fifth (19 per cent) compared to the same month in 2020 (£6.59bn) as markets recovered following the collapse of global trade due to the first pandemic lockdowns. It also marks over a 13 per cent decrease compared to September 2021 (£6.12bn).
China remains the largest import partner of goods to the UK – although the gap with Germany is narrowing. But these trading headwinds combined with inflationary pressures and continued uncertainty over the Omicron variant put UK buyers in a difficult position in 2022.
Businesses importing goods from China have different options to respond to these threats.
Firstly, these recent barriers to trade with Beijing have revealed the dependence of UK importers on China, especially for consumer electronics. British companies should consider diversifying their supply chains by reaching out to suppliers in other countries, particularly in Eastern Europe.
Turkey, for example, is becoming an increasingly attractive partner. The country is the second biggest importer of consumer electrical goods to the UK behind China. The value of imports of these goods has risen by over a third (34 per cent) from September to October 2021, and by a fifth (20 per cent) compared to October 2020.
Having these relationships with suppliers in different geographies will also put UK importers in a stronger position when negotiating with Chinese suppliers. It gives them greater optionality over which seller to go with and less exposure to fluctuations in a single currency.
However, such is China’s status as an economic superpower and manufacturer that demand for goods from the country is unlikely to abate.
UK businesses should therefore ensure that they start re-negotiations with their Chinese suppliers, which typically occur around the Chinese New Year, as soon as possible.
This will ensure they are strengthening trading relationships by demonstrating cultural awareness of local business practises in China. Most importantly, the negotiations could head off any further price increases.
Managing currency risk is another way in which buyers can lessen their exposure to Foreign Exchange fluctuations. Businesses must ensure that they have protections in place such as requesting to be invoiced in the Chinese renminbi to create more stable pricing.
As we enter into another period of uncertainty in 2022, these actions will help UK importers do all they can to protect and widen their supply chains.