The upward movement in commodities as well as labor costs and the Rmb appreciation have become an increasing challenge for everyone operating and buying from China. We recently put together a simple primer on the facts as it relates to our printing and packaging business. Following are some of the key points from that presentation:
Implemented minimum wage increases since 2009 coupled with announced increases in South China effective 1 April 2011, coupled with the appreciation of the Rmb against the USD has resulted in a 53-55% increase in the minimum wage costs compared to early 2010.
Paper demand and supply post the economic crises of 2009 has entered a completely different phase, the cyclical patterns of the past are no longer completely at play as pulp, paper and board capacity in most parts of the world is much more aligned with demand. This is supporting a prolonged period of price increases that continues even today. Paper and board prices have been on an upward trend now for near two years. While magnitude varies by grade and region costs of paper to a printer today are between 7-25% higher than they were at the early part of 2010.
At Hung Hing we are taking steps to minimize the amount of price increase we must pass on to our partners and customers. We are continuing to invest in new presses that increase throughput and minimize waste; we are improving incentive plans that promote efficiency in our hand assembly lines; and we are pushing forward our supply chain management programs to ensure we are acting as efficient as possible. These alone though are not sufficient.
Direct labor makes up anywhere from 10-25% or more of a products total cost, that cost translates to price increases of as much 5-13% in finished goods prices to compensate.
Paper of course, makes up the largest portion of most printing companies’ costs, the paper cost movements recently translate into finished product price increases of another 3-13% depending on the paper type and product involved.
These cost increases are here to stay in the short term, wage increases and Rmb appreciation is a long term permanent trend that we must address together as partners and customers in the industry.