Folks,
It’s been an interesting twelve months for us… To say the least. New tariffs, then reduced tariffs. Then higher tariffs, then no tariffs (for product classes with exemptions).Tariffs levied on our neighbors in North America and and allies in Europe.
Express and logistics companies having their arms twisted to collect Aluminum Extrusions Antidumping (ADD) and Countervailing Duties (CVD) penalties on products that aren’t aluminum (“It’s not made using any form of aluminum – it’s molded plastic that’s reinforced with 10% chopped glass filaments.” “Doesn’t matter – you need to fill out and submit the form or you’ll be fined.”).
More recently, US Customs has been arbitrarily changing HTS (Harmonized Tariff System) codes and increasing tariffs. For reorders, where the HTS code had been accepted and cleared dozens of times.
Ugh… A lot to digest, but we got to a point where it was all semi-manageable. Approximately fifty percent of our projects are executed in China, so we worked hard to minimize the impact of the tariffs. In some cases, we rotated or shifted projects to countries without a tariff burden (a weighty topic for next month’s newsletter), built and validated new tooling, set-up new manufacturing systems and qualified a fresh slate of materials suppliers and subcontractors.
Then COVID-19 hit just on the cusp of the Lunar New Year holiday. Luckily for EastBridge, all of our staff with one exception canceled their travel plans and hunkered down with their kids. They are all well and waiting for the all clear signal. Which has sort of arrived.
Our Suzhou office was allowed to reopen on February 19th and our Dongguan office reopened on the 26th. Most of our colleagues are working away in the offices, albeit with the HVAC systems turned off, the windows open, wearing masks & gloves and sanitizing hands, desks, doorknobs and elevator buttons nonstop and enduring temperature checks & interviews in the lobby. A handful of our people continue to work at home due to the crazy quilt of travel restrictions that are in place. Schools remain closed and are expected to reopen on April 6th.
This has produced a challenging set of circumstances for companies that source parts in China as well as many downstream suppliers that procure parts and materials there. Taken as a composite, the roughly 600 Chinese suppliers where we regularly do business are open at a 60% capacity level. This is improving day-by-day, with engineers, technicians and administrative staff back in higher numbers than line workers.
Many production workers were born in the rural interior, including Hubei Province. They went home for the holiday and many continue to be stranded there. They and others from provinces that were not as directly impacted, are required to self-quarantine for seven to fourteen days when they return to work.
The result is that lead times are being pushed out. In some cases by as much as six weeks. Due to the delay, freight is backed up at the ports (longshoreman are also in short supply now) and many companies are expediting orders by air freight. Air freight is running about two weeks (up from five days) and ocean freight to North America is at six weeks. We’ve confirmed from multiple sources, including our friends at C.H. Robinson, that there are no special requirements to disinfect or fumigate orders originating in China.
What this means to you is that we and your suppliers need your patience and order visibility.
They/we are working an extraordinary number of hours to get orders out the door. Engineers are running punch presses, marketing specialists stuffing PCBAs and corporate management packing orders. Providing us and them with forecasts of upcoming orders as well as a ranking of the criticality of open orders is a great help. All of these folks are enormously resilient, hard working and dedicated to succeeding. We’re updating our customers daily and appreciate the good wishes and expect to catch up shortly.
Cheers,
Jack Daniels
+1.617.285.2486
