Apparel Import Prices Tick Up for The Holiday Season Southeast Asia Sectoral Cost Indices – Q4 2022 Update

What does comparative advantage look like in practice? How are costs shifting across key supply chain sectors and countries? Flexport’s Southeast Asia Sectoral Cost Indices (SEASCI) help answer these questions.

The Methodology: Flexport’s Southeast Asia Sectoral Cost Indices (SEASCI) provides a comparison of the wholesale cost of US imports of a range of products including apparel, electronics, furniture, and automotive components from China and selected Southeast Asian countries. Calculations are based on identical SKUs imported from each country available in the Flexport database on a consistent quarter-to-quarter basis. While coverage may therefore change from quarter-to-quarter, our methodology is meant to minimize composition effects.

Update - January 26, 2023 The latest report includes data for Q4 2022. It shows apparel import costs ticked up during the holiday quarter. In contrast, furniture import costs and electronics import costs stayed mostly stable. We also see a slight divergence in import cost trends for auto imports. Finally, there is continuing evidence of multisourcing in the pricing data.

Apparel - Price Trends Diverge Across All 3 Regions

Import prices from Thailand have trended upward significantly over the last several quarters. It appears prices from China and Vietnam have also started to tick up, albeit much more modestly, in Q4’22 relative to Q3’22.

Furniture - Converging Price Trends

Furniture costs from Mainland China and Indonesia have remained stable. Prices from Taiwan came down slightly after increases in 2021 and early 2022. Prices in Vietnam ticked up slightly, continuing an upward trend after early pandemic lows. Overall, we see price indices trending back towards their 2019 levels or relative stability after some larger price variation in Vietnam and Taiwan.

Electronics - Still Holding Steady or Trending Down for all but Vietnam

In Q4’22, electronics prices held at Q3’22 levels or showed slightly downward trends for all countries but Vietnam. This is in contrast to the price run-up we saw for electronics in 2021 and early 2022 and the downward trending prices from 2019-2020.

Auto Components - Diverging Price Trends

Some care with interpretation is required with auto components, given the breadth of products ranging from steel-heavy components, such as body panels, to electronics-focused in-car systems. Nonetheless, it appears import costs for auto parts from Taiwan held steady for another quarter after their 2020 to early 2022 rise. Cost trends in Vietnam and mainland China diverge in trend, with costs from China coming down and Costs from Vietnam going up over the last two quarters.

Relative Import Costs Maintain Wide Dispersion

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 multisourcing firms. The dots in Figure 5 show individual multi-sourced products with the y-axis scaled as the Chinese sourcing cost divided by the Vietnam cost for products that are sourced commonly from both locations. The solid lines represent a simple average of the dot readings.

Points above the line y=1 reflect companies bearing a greater import cost per item in China in a given quarter. Points below one reflect companies bearing a greater import cost per item from Vietnam. The greater a point's vertical distance from one (up or down), the greater the ratio of costs the corresponding firm is paying for multiple sources of supply.

While the average cost ratios in Figure 5 hover close to one for both furniture and apparel, the averages mask considerable—and perhaps increasing—cost dispersion. The vertical spread of the dots has grown no narrower over time. Companies have maintained their willingness to pay for multiple sources of supply even at maintained and increasing marginal cost differences across countries.

To aid in seeing the dispersion of costs over time, this quarter we are also including an 80-20 plot of the cost ratios for each category each quarter. This is shown in Figure 6 below. An 80-20 plot shows the difference between the cost-ratio cutoff for cost ratios in the top 20% and cost ratios in the bottom 20% each quarter. This figure reveals that, in general, cost-ratio dispersion has been increasing over the last two years. The figure also reveals that cost dispersion may be especially seasonal for furniture, with a strong dispersion peak in the third quarter of the last few years.

Finally, we observe that the dispersion in cost ratios is driven by cost-ratio volatility both within and across items from quarter to quarter. In our analysis, we find both sources contribute roughly equally to the relative-cost volatility captured in Figure 5.

The Flexport SEASCI is published quarterly, with the next update—including data for Q3’22 and Q1’23—scheduled for April 2023.

Please direct questions about the Flexport SEASCI to economics@flexport.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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