Finding the right source: Shutdowns and tight shipping challenge foreign sourcing and production
The Milan sectional by Marge Carson is made in Mexico along as is the high end company’s upholstery line.
HIGH POINT — Ongoing challenges related to container availability and pricing combined with temporary countrywide shutdowns related to the global pandemic have made it extremely difficult for wood and upholstery resources to predict what’s next in global sourcing.
Many say they are hoping for stability in container pricing along with further decreases in COVID-19 cases before committing to any plans to further develop sourcing in Asia or elsewhere. Others, while not totally abandoning Asia, say they are looking to the West, including parts of Europe and North and South America, for opportunities.
“The biggest issue right now is that there is not enough equipment, and that is driving prices up,” said Fred Henjes, CEO of case goods importer Riverside Furniture, of container availability. “We are competing for equipment, and there are only so many containers globally. There are not a ton of places to go, and everyone is trying to get there.
“I would say that everything is on the table,” he added, noting that people will have to try to find alternatives or pass along the costs. “It is not going to be easy.”
Container prices out of Asia had risen to an estimated $15,000 each just before the June market more than five times what they were in late summer of 2019. Several weeks later, industry officials said they had risen to $17,000 to $19,000 per container, with no end in sight.
“At this point, our sourcing is being dictated by our container contracts; we are being extremely cautious sourcing in areas where we don’t have coverage or limited coverage,” said Joff Roy, CEO of case goods resource Jofran, which currently buys product from Vietnam and India as well as China, Indonesia and Malaysia. “There is just too much jeopardy with the cost of freight that would make sourcing out of bounds for most people.”
Even if there wasn’t an issue with containers, making a decision to shift sourcing is not an easy or quick fix. Sources attribute the quality they are getting out of Asia right now to long-term relationships with the factories and many years of experience developing and building product with those factories.
“It is not a quick change,” said Scott Ostrander, president of Austin Group Furniture, which specializes in bedroom, home entertainment and occasional furniture sourced mainly in Vietnam and Malaysia. “India and Indonesia are not very stable government and safety-wise, and Cambodia is not ready.”
That said, he noted the container situation has complicated things to the point where many companies need to start looking elsewhere. In mid-June, he noted, containers from Asia were about $15,000 compared with about $3,000 last year around the same time.
“It is ridiculous,” he said. “You can’t get anything unless you pay a premium rate. You can’t even guarantee the booking even if you pay the premium because someone else paid more. They notify you that your booking was canceled and don’t tell you why.”
He said this has created log jams at the factory level where factories are warehousing goods that can’t ship.
“It backs up the facility, and they don’t have room to build more product,” Ostrander said. “It’s like a big vicious cycle.”
Now, sources say, many factories are requiring their customers to book goods on a container before they even start production.
“Once there is a booking they produce the goods,” said Bill Dominquez, vice president research and development at New Classic Furniture, noting that the prior model of producing and then booking goods on a container has resulted in factories tying up their cash in finished goods, not only waiting to be shipped but also overflowing into production space. “Unless they see a booking, they are not producing anything. That is how most factories are working now.”
The logistics logjam in Asia, sources said, doesn’t mean they plan to abandon their current Asian sources anytime soon. For example, New Classic continues to source its wood out of Vietnam and Malaysia and its stationary and motion upholstery lines from China and Vietnam, respectively. It also sources some stationary upholstery out of Malaysia.
“It is still too early to diversify sourcing,” Dominguez noted. “We have options we are thinking of, but nothing is 100% yet. If Vietnam and Malaysia is bad right now, what will assure me that Indonesia will be good? It will probably end up getting worse.”
Luxury furniture resource Sarreid Ltd. said it has no plans to alter its sourcing network in China, Vietnam, Italy and India. The company has dealt with many of the same resources for decades and needs a stable network to produce the quality its customers expect.
“We are about getting the right product at the right look, in the right finish, with the right details and at the right price point for our customers,” said Brad Cates, CEO. “Our sourcing structure definitely is going to stay stable, but I won’t say I don’t have an eye out for what’s next. There may be a new technique or a new wood treatment that we have never seen before.
“We have to be nimble, and we have to always be on the lookout,” he added. “For us, it is about great product and great craftsmanship that we are after first.”
Based on experience
Officials note that any decision to grow inside or outside a source country largely depends on past experience either with a current factory or knowledge of the sourcing footprint in that country or region.
Napa Furniture’s longtime dedicated source factory in Indonesia, for example, is expanding, which is expected to help the company fuel growth with new and existing customers.
Hekman Furniture recently added another wood factory to its sourcing structure in Indonesia. While it also sources from India and Vietnam, Indonesia, has become its largest resource, said Neil McKenzie, director of product development.
He said the company’s medium-sized position constrains further development in places such as Vietnam, where capacity is tight due to the many furniture companies sourcing goods there from wood furniture to motion upholstery. Yet, he noted, there are factories with capacity in India and Indonesia that are looking to work with company’s Hekman’s size.
“We see opportunities to expand in Indonesia and India; we made a move with a factory in Indonesia this past market,” he said of the company’s new Scottsdale collection made at the new source factory.
“In Indonesia, we have found more and more of those medium-sized factories where we can be important to that supplier vs. in Vietnam and China where they were all huge factories where it is difficult to get anyone’s attention. … And being a higher end line, we also need their attention so we can get the details executed in our furniture to satisfy our customers.”
At the same time, McKenzie noted, the container situation still complicates its efforts to grow in places such as India and Indonesia.
“We are always looking at those opportunities, but it doesn’t resolve the container problem,” he said. “Indonesia has as big a container problem as does India. It is universal.”
And as container rates from Asia continue to rise upwards of $18,000 — or higher — compared with $2,500 to $3,500 in the third quarter of 2020, it makes the situation even more pressing for many as profits shrink or evaporate entirely as containers begin to outweigh the cost of goods.
“We have our ear close to the ground to keep track of where others are having some success,” McKenzie said, noting that industry was in a similar situation a couple of years ago when faced with moving product out of China due to double digit tariffs. “But at this point we are not making any major moves unless we feel we need to. We just got over moving from China to Vietnam or from China to Indonesia, and that was a year-and-a-half-long process doing that. It is not fun to move product.”
Others say they are also caught in a balancing act of keeping an eye out for new sources without either alarming long-term sourcing partners, while protecting their business from further disruption and financial vulnerability.
“We have demand for all of our product out of Vietnam and India, and we are not going to drop it because container costs are high,” said Henjes, of Riverside, adding that the company is still open to expanding its sourcing platform down the road.
“I would say everything is on the table,” Henjes added. “What we are recognizing is that we have to have more of a global supply chain rather than just a regional chain.”
Travel limitations have only increased the challenges for many, particularly as many countries have lengthy quarantine periods that extend overseas visits much more than a normal two-three weeks.
“For right now, no one can travel, and you simply cannot make a decision to bring in a different country if you have never been there before and you don’t know what’s going on in terms of container and factory capacity,” said Derrick Ng, president of Lifestyle Enterprise.
He noted that high development costs in places such as Vietnam also make it difficult for a factory to pull the trigger on an expansion. The costs, he noted, particularly on raw materials such as steel, also can make it hard to know if future business will warrant such an investment.
“Everyone is still in survival mode at the moment,” he said. “When you are in survival mode, no one considers an expansion mode. You just try to figure out how to ship what you can and make some money and keep your head above water. With retailers it is the same. Medium and small-size retailers are struggling.”
Others agreed this is an uncharacteristically difficult time for anyone in the industry getting product from Asia, particularly with the expense of flowing goods.
“It is a tough time to be sourcing,” said Luke Silver, president of case goods importer Steve Silver Company, noting that a big part of the focus has been on finding the right supply chain to flow finished goods. “I get so much of my work done by being able to travel and meet with factories in person. Sourcing and working with factories has been difficult this past year.”
Today the company maintains a diverse sourcing mix in Asia, with about half the company’s mix from Vietnam while and another 30% comes from China. The balance is from Taiwan, Malaysia and South America.
“I would like to find more sources, but with the travel restrictions in place, it can’t happen as fast as I would like,” Silver said, noting that he sees additional potential in places such as South America and Poland. “There is some potential there. … I think there are other countries that can offer different products to satisfy our needs, but you have to teach them. I think there is going to be a learning curve wherever we go next, but we have started to do that. We are taking steps in the right direction.”
Diversifying the mix
Others said they, too, believe that ultimately diversifying one’s sourcing portfolio will help ride out future challenges whether they be with supply chain, logistics or needing to offer new looks and materials in the marketplace.
Full line furniture resource Sunpan sources its mix out of China and Vietnam, as well as Malaysia, Indonesia and India.
While it continues to source product throughout Asia — and could likely grow in some of those countries — it has since diversified its sourcing beyond Asia to places such as Mexico, where it has developed a line of bedroom and dining room furniture, and Canada, where it has developed a line of domestic upholstery.
Now it is considering further diversifying within Mexico as well as places such as South America and Eastern Europe.
“Just like in a stock portfolio, you need to be really well diversified now more than ever,” said Carl Lovett, vice president, sales, noting that the pricing of the domestic upholstery is comparable with its Asian-sourced upholstery, of a model that is priced using a $5,000 per container scenario.
Roy, of Jofran, noted that the company is looking to expand its footprint in Asia. But like others, it also is looking to expand its sourcing to other parts of the globe.
“We have our eye on it and are interested in doing business outside Asia,” he said, noting that Mexico is one main area of focus for the industry. “It is a matter of finding the right factories that suit our business model. We are somewhat agnostic to where the product is made. We will seek the best value, and that is what sums up our game.”
Some have completely left Asia for Mexico. That includes luxury furniture resource Marge Carson, which earlier this year announced plans to abandon its case goods assortment out of Asia and focus on its upholstery program out of Mexico, where it has been producing finished product for many years. It also is sourcing some bedroom and occasional furniture from Mexico and will likely expand that assortment sometime in the future.
Case goods and upholstery resource Elements International said it continues to source bedroom, dining and occasional furniture from Vietnam and Malaysia. It also sources upholstery from Vietnam, Malaysia and China.
Yet while Elements remains entrenched in Asia, it is exploring other areas, too, such as South America and Mexico.
The sourcing in Mexico dates back to its 2018 acquisition of case goods resource Largo International. At the time, Largo had already been sourcing in Mexico and the purchase gave Elements a chance to tap into that platform.
“We were looking at Mexico, and when we bought Largo in 2018 that gave us opportunities to grow there,” said Mike Wurster, president of Elements International, adding that the company is also looking to expand its upholstery offerings from Mexico as well as South America.
Today, Elements sources many categories from Mexico including dining room, bedroom, occasional and accent furniture and upholstery.
“I would say the pricing is relatively comparable with Asia, especially when you factor in the freight,” Wurster said, noting that the country also has good labor and good access to raw materials. “We have found some good factory partners there, and even if the freight situation stabilizes, we are looking to source goods there long term and create long-term partnerships there.”