April 27, 2023
Southeast Asia Sectoral Cost Indices
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Furniture Costs Rose in Key Countries in Q1 2023 Update
Flexport’s Southeast Asia Sectoral Cost Indices (SEASCI) helps to answer the questions of what comparative advantage looks like in practice and how costs are shifting across key supply chain sectors and countries. The latest report shows apparel costs stabilizing in Sri Lanka and Bangladesh, but falling in India and Vietnam. Furniture costs are still rising in key countries, led by Taiwan, India and Vietnam, but leveling-off in China. The same was true for China’s electronics import costs, while Malaysian costs in the same category fell for the third quarter in a row. In vehicle parts, Taiwan’s costs are coming down from a high reached in Q3 2022.
The Methodology: Flexport’s Southeast Asia Sectoral Cost Indices (SEASCI) provide a comparison of the wholesale cost of US imports for apparel, electronics, furniture and automotive components from Mainland China (hereafter China) and select Southeast Asian countries. Calculations are based on identical stock-keeping units (SKUs) imported to the US from each country available in the Flexport database for at least two quarters. While coverage may therefore change from quarter-to-quarter, our methodology is meant to minimize composition effects.
Update - April 27, 2023
The latest SEASCI includes data for Q1 2023. We have added India, Bangladesh and Sri Lanka to the apparel index for this and future releases.
Apparel: New SEASCI Countries Show Convergence Among Key Exporters
The addition of India, Sri Lanka and Bangladesh – all significant exporters of apparel – helps to create a clearer picture of trends in the sector, with costs in Vietnam continuing to plunge, having fallen 2.3% QoQ and 10.3% overall since Q1 2019.
India’s costs started rising sharply in Q3 2021 and are still up 10.7% over the base period despite declines in recent quarters.
Thailand’s costs, meanwhile, are still increasing as of the latest quarter, ending up 7.7% over the base period. The latest quarter-on-quarter (QoQ) change was 1.1%.
China’s QoQ change was also 1.1% and while there has been some volatility over the past four years, its apparel costs are only 0.9% higher than the base period.
Furniture: Rising Almost Across the Board
Furniture costs were up QoQ across all the countries covered by the SEASCI, with the largest increase in India, which saw a rise of 1.3% compared to Q4 2022.
Taiwan’s costs, which had been on a steep upward path, are still rising but at a slower rate, up only 0.4% from the last quarter. They are 14.5% above the base period.
Vietnam’s costs are still on their way to returning to Q1 2019 levels, ticking up 1.4% and 1.1% over the past two quarters, respectively. They are still down 6.3% from the base period.
China’s costs also edged up, albeit only by 0.5%. China and Vietnam are the only two countries covered by the SEASCI which have seen costs fall from the base period. China is down 3.5% by that measure.
Electronics: Continued Divergence
Electronics costs are moving – or not – in different directions across the SEASCI.
Vietnam’s costs were up 2.2% QoQ and were 14.7% above the base period, by more than five percentage points above the next country.
Which was China – its costs increased only 0.2% from Q4 2022, but are 9.1% above Q1 2019.
Malaysia’s costs were down for the third straight quarter and now stand at 12.4% below the base period.
Taiwan’s costs continued to hold more or less steady around 1.2 - 1.8% above the base period over the past four quarters.
Auto components: Minor Changes Only
Some care is required in interpreting results with auto components, given the breadth of products it includes, ranging from steel-heavy components, such as body panels, to brake pads and airbags.
Taiwan’s costs are softening but remain elevated. They were down a mere 0.6% QoQ and were 21.7% higher than the base period, more than double the increase in Vietnam’s costs by the same measure, which were up 0.3% QoQ and 10.3% from Q1 2019.
China’s costs, once up 6.5% as of Q1 2022, fell in the latest quarter by 0.2% and at 1.2% above the base period, have been the most stable among the three countries covered here.
Relative Import Costs: Widening in Furniture, Narrowing in Apparel For Multi-sourced Products
Comparing identical products sourced by the same company in the same quarter from China and Vietnam provides an overview of the import cost patterns of multi-sourcing firms. The dots in the figure below show individual multi-sourced products with the vertical axis scaled as the Chinese sourcing cost divided by the Vietnam cost for products that are sourced from both locations. The greater a point's vertical distance from 1.0 (up or down), the greater the ratio of costs the corresponding firm is paying for multiple sources of supply.
The solid lines represent an average of the dot readings.
When the lines are below 1.0 that is an indication that, within our sample, firms are willing to pay more to source from Vietnam or to source from both locations. One way to interpret the results for furniture (seafoam blue line) is that, over the past two quarters, firms have been increasingly willing to pay higher costs to source from Vietnam. This could be due to factories remaining closed in China. It is a trend we are continuing to watch.
In apparel (coral red line), seasonal effects tend to be greater, especially in the third quarter. This incentivizes firms to perhaps pay more to meet demand. We saw that last effect last year. In the first quarter of this year, the ratio has continued the trend of moving back towards 1.0.
To illustrate the dispersion of costs over time, the above is an 80-20 plot of the quarterly cost ratios for both categories. This shows the difference between the cutoff for cost ratios in the top 20% and cost ratios in the bottom 20% each quarter. What it reveals is that, in the latest quarter, the range of prices companies are willing to accept was lower; the gap was smaller than it has been in the past, in other words.
The figure also reveals that cost dispersion may be especially seasonal for furniture, with a strong dispersion peak in the third quarter of the past two years. Again, we are watching this indicator for signs of a solidifying trend.
The Flexport SEASCI is published quarterly, with the next update - including data for Q2 ’23 - scheduled for July 2023.
Please direct questions about the Flexport SEASCI to email@example.com.
Disclaimer: The contents of this report are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. Flexport does not guarantee, represent, or warrant any of the contents of this report because they are based on our current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This report has been prepared to the best of our knowledge and research; however, the information presented herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this report.
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