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Why The Business Orders Increase Profits But Do Not?

Issuing time:2022-11-18 10:54


Since last June, China's monthly total import and export value has maintained a continuous positive growth, and the overall trend of China's foreign trade has not changed.

According to customs statistics, in the first 11 months of this year, China's total import and export value was 35.39 trillion yuan, up 22% year on year and 24% year on year.

However, in the past year, with the soaring sea freight, the difficulty of finding one cabinet, and the rise of the RMB exchange rate, the price of raw materials, and the domestic power and production restrictions, the survival situation of foreign trade enterprises is not optimistic.

"We must be soberly aware that many foreign trade enterprises, especially small, medium-sized and micro foreign trade enterprises, are facing increasing operating pressure and difficulties, and the phenomenon of 'not taking orders' and' increasing income without increasing profits' is common." Ren Hongbin, Vice Minister of Commerce, said.

Behind the rapid growth of China's import and export scale, the difficulties of small, medium and micro foreign trade enterprises are increasing. When will the inflection point come?

Dare not take orders: new orders are busy and old ones cannot be issued

Affected by the epidemic, foreign factories are not operating enough, and orders from Bangladesh, India, Vietnam and other South and Southeast Asian countries have been transferred to China. However, the domestic suppliers were not happy, and they had to return or reject the order because the order was too late to make.

Due to the increase of orders, the delivery of goods in the factory is delayed. Combined with the untimely supply of upstream raw materials and other factors, they had not completed their orders in August in September, while the downstream enterprises urged urgently, "the factory has no more room for operation."

In this case, each new order will undoubtedly increase the risk of compensation for delayed delivery.

In addition to the inability to make orders, it is difficult to find a container, which also makes foreign trade enterprises "dare not take orders". Since the epidemic, ports around the world have been heavily congested, and containers stranded at foreign terminals cannot be returned to China in time, resulting in no boxes for enterprises to ship.

Increase income without increasing profit: enterprises bear more costs

Another headache for foreign trade enterprises is that "the factory looks very prosperous, but it just doesn't make money." as a result of:

1、 The rise in the price of raw materials is a black hole that eats up profits.

Since February this year, the price of raw materials has risen significantly. Taking textile and garment raw materials as an example, cotton yarn, staple fiber and spandex almost all started to rise, with cotton prices rising by 71.4%,

In addition, since August this year, at least 20 provinces in China have been involved in power rationing to varying degrees. Power rationing also brings about price adjustment.

2、 The rise in labor costs also affects corporate profits.

Due to the sharp increase in orders, some foreign trade factories have to recruit more workers to ensure that orders are completed on schedule, which also increases the burden on enterprises.

According to previous media reports, taking garment processing in Ningbo as an example, before the epidemic, the average wage of garment workers was 5000~6000 yuan/month, and this year's skilled workers rose to about 8000 yuan/month; Even in inland Jiangxi, the monthly salary of garment workers has risen to about 4500~5000 yuan.

3、 The appreciation of RMB has also significantly eroded the profits of export enterprises.

However, small, medium-sized and micro foreign trade enterprises have limited bargaining power. In the face of rising costs, most of them will choose to bear their own costs.

"For the contracts signed before the price increase, in order to stabilize the customers, they usually have to bear the losses themselves." A   foreign trade practitioner from Shenzhen said that most enterprises would raise the price of new orders after the price increase, but also consider the affordability of customers. "Because the price increase affects the purchasing power of foreigners, the demand for orders will gradually decrease."

Sea freight continued to soar, and orders suddenly turned cold from overheating

In addition to the cost problem, the changes brought about by international shipping also caught foreign trade enterprises unprepared.

Since last year, the global container freight rates have continued to rise, and the container market quotations for some routes have soared to more than 10 times.

The sharp rise in ocean freight has greatly affected the purchase enthusiasm of foreign merchants, especially the small commodities with low added value. Related orders also changed from overheating to cooling.

In addition, the congestion of major ports around the world has also aggravated this problem. The ship can not come back, and it is difficult to seize empty containers, which will undoubtedly continue to drive down the order volume of foreign trade enterprises. The negative impact of the order reduction may also appear next year.

Ministry of Commerce: A new round of policies and measures to stabilize foreign trade will be introduced in due course

At present, the survival situation of small, medium and micro foreign trade enterprises is not optimistic. At the recent press conference of the Ministry of Commerce, Ren Hongbin, Vice Minister of the Ministry of Commerce, mentioned that there are still many problems such as more trade risks, more cost increases, and more supply chain congestion.

"There are still many hidden worries about the development of foreign trade, and we should not be blindly optimistic." Ren Hongbin said that the Ministry of Commerce will timely introduce a new round of measures to stabilize foreign trade.

Among them, in order to enhance the ability of enterprises to cope with exchange rate risk, it will further enhance the role of export credit insurance and make efforts to provide foreign trade credit.

When will the inflection point occur?

According to Wang Meiting, a researcher at the Bank of China Research Institute, it is expected that the price rise of raw materials will gradually improve in the first half of 2022 when the weather in the northern hemisphere warms up and energy demand falls back.

The global epidemic spread and the emergence of new variant viruses have led to the slow recovery of global supply chain tension, but China's export growth is still resilient. China's busy shipping and insufficient container supply may continue for about half a year.

Why do foreign trade orders increase while businesses increase their income without increasing their profits

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