While some sectors seem happy to declare the pandemic “over” – for global retail, dependent upon international supply chains, the aftershocks are still very much being felt. Has Covid left a lasting legacy on the import of major appliances? In this article, we’ll explore how the explosive combination of booming demand and throttled supply, generated by the pandemic, impacted (and continues to impact) the white goods import market.
We’ll also discuss how demand for imports remains strong, and address some of the key manufacturing and transport challenges that the sector will need to improve if retailers want to be better equipped to handle unforeseen circumstances in the future.
Let’s kick off by studying some of the more generally observable patterns that we’ve seen emerging in the major appliances import market over the last couple of years – especially within the USA.
In the year that Covid hit, despite the challenging global economic situation created by the pandemic, the US Electrical Appliance imports market maintained a strong increase of 11% – growing to a full year import value of $36b for 2020. This compares to $32b in 2019. The leading imports based on value were refrigerators and freezers (up 13%), instantaneous or storage water heaters (up 4%), and dishwashers (up 7%.)
Electrical appliance imports from China, the biggest exporter to the US, grew 14.8% in 2020. This growth was predominantly observed in the final quarters of the year, as lockdowns started to lift and factories could reopen.
Coming in second, Mexican imports remained stable. Meanwhile, imports from Korea and Thailand grew 25% and 38% respectively, with those from Germany rising 6%. Even imports from the smaller players in the US import market, Indonesia, Vietnam, and Poland rose 110%, 54.9%, and 20% in 2020. A slower but still increasing growth is forecast for 2021-2022.
All in all -– despite an incredibly challenging professional environment, hampered by social distancing and even the temporary cessation of manufacturing and shipping, the large appliances sector underwent some innovative, responsive restructuring as it reacted to the increased demand for appliances that a move to remote working triggered.
With China representing both the leading importer of large appliances and the supposed origin of the rapidly spreading virus, the pandemic appeared to have a notable impact on consumer preferences within the US.
In a study conducted by Coresight, more than 50% of consumers expressed the opinion that retailers should move away from sourcing products from China. This sentiment was more prevalent in older respondents, with the percentage rising to three-fifths among consumers aged 60 or older.
While these statistics could be interpreted as a growing mistrust of Chinese goods, its also possible that the pandemic simply represented a wake-up call to consumers – highlighting the significant dependence of the US on imported goods, and the fragility of an international supply chain they had never had to consider before.
Import statistics still show strong trade between the two countries, but irrespective of whether the “Made In China” moniker has been tarnished by Covid, US retailers may increasingly look to diversify their reliance on China as their main source of import – unwilling to experience future repercussions of supply chain disruption. To date, low cost has been the greatest driver for import trade and yet over-dependence on China left supply chains vulnerable.
The pandemic left the major appliance industry itself with some serious thinking to do concerning its temperamental supply chains. While consumers may have traditionally tolerated slightly longer lead times for larger, more costly appliances, the impact of Covid meant that these delays became significant, throwing dependencies and vulnerabilities into stark relief.
Every stage of the supply chain was impacted, as all parties at various stages of the manufacture and transport process found themselves in a bind – whether as a result of a lack of production components, or a shortage of container space and reduced flights.
Maritime transport plays a key role in global supply chain linkage and is especially important within major appliance supply chains. Shipping and ports are estimated to handle over 80% of global merchandise trade by volume and more than 70% by value. The disruption caused to maritime container shipping of exports from China evolved in four stages. The first started in early 2020, but was typical of the impact annually associated with the Chinese New Year (i.e. lowered container shipping demand due to Chinese factories shutting down for the holiday.) However, as the Chinese New Year was extended, so was the problem. During the third stage, some of the cargo that was originally scheduled to be transported after the Chinese New Year (and which had been delayed by the lockdown in Wuhan) was transported – giving a temporary impression of recovery. Finally, as Covid spread and international lockdowns started to be called, further negative impact was felt.
When manufacturing could safely resume, many manufacturers decreased supply and production in expectation of slower demand due to economic uncertainty. However, the opposite soon occurred, with a rise in demand for major appliances as people remained home. As shipping costs skyrocketed, the price was ultimately passed on to consumers. Today, while logistics still poses the thorniest issue, growing issues around the availability of raw components are also playing a role in pushing up major appliance prices.
Although the days of nationally observed lockdowns may be behind us, the pandemic has opened industries’ eyes to the fragility of many of the supply chains that we depend upon. As a result, many are taking action to ensure that, in the case of a similar situation in the future, supply and demand could be kept in better and more reliable balance.
Extreme interdependence and lack of clearly defined emergency measures has meant rethinking many supply chain elements to future-proof and lay down more comprehensive contingency plans. Some of the methods that the major appliances sector is turning toward for more efficient supply chains include:
IoT-informed procurement strategies will become increasingly critical for original equipment manufacturers (OEMs) within the major appliance space – especially as the demand for smart appliances rises, and OEMs have to juggle support of legacy components.
Supply chain data management with intelligent automation and analytics
Similarly, AI-powered supply chain data management will help to balance out the supply and demand issues with predictive analytics and lessen the impact of future bumps in the road. 58% of smart home appliance manufacturers (and 54% of all manufacturers) are currently making investments in supply chain network optimization and visualization applications.
Supplier risk management
Many are moving towards software-based solutions to minimize supplier-centric risk. While this doesn’t allow for a de facto simplification of the supply chain, it does at least acknowledge the inherent risk associated with the many “moving parts” that a complex supply chain represents, and puts measures in place to proactively guard against supplier-based issues, allowing for greater security, trust, and transparency.
A move away from “Just In Time” Production
For many, Covid was a wake-up call that highlighted how quickly a “JIT” production strategy could come to a screaming halt. Producing and delivering products at speed theoretically increases margins as storage and working hours can be optimized (and this will only improve with the advent and accuracy of IoT and AI) – but in our increasingly crisis-prone world, is this breakneck speed sustainable – or even, sensible?
Strategizing for the global chip shortage
The rise in demand for smart appliances is part of a trend that spans many industries – everything from our cars to our watches is becoming increasingly dependent on semiconductors. This megatrend shows no signs of slowing, and will only accelerate as electric vehicles (which require four times the semiconductors of their traditional counterparts) continue to grow in their popularity. A strong procurement strategy here will be essential within home appliances – with rising costs to factor in, as well as lag times.
New (and tested) supply chain loyalties
The pandemic shook up many supply chain relationships – and when the dust settled, many major players were surprised to discover that the vendors they had previously taken for granted no longer could facilitate them as a customer. These types of partnerships may need to be strengthened, reforged, or even completely renegotiated. The power of even the smallest supplier has been magnified, and respect for all stages of the supply chain needs to be renewed.
Consumer demand for major appliances remains high – and although there was a notable backlash against the “Made In China” tag at the start of the pandemic, ultimately consumer purchase motivation is driven by accessibility and affordability – a game in which imported brands often hold the advantage. It seems that for the foreseeable future, imported appliances will remain in high demand, and as supply chains react to the global pandemic by becoming smarter than ever before, the efficiency of these imports will only continue to increase.
Shipping costs from EOMs remain high, and this cost will inevitably have to be passed on to the consumer, but with the disruption of the pandemic increasing a willingness to spend more on aspirational brands or to sidestep longer wait times, will this represent a major issue?
We’re already seeing the “micro” impacts of virus resurgence on shipping. In 2021, a Covid outbreak at Shenzhen’s port of Yantian caused a 70% reduction in operations for nearly a week, and this resulted in a 20% spike in ocean rates to the US and Europe – but beyond this temporary imposition, the impact was contained. As supply chains adapt and become more resilient to the temporary impact of these smaller, more sporadic outbreaks, this is something that importers and exporters alike will simply factor into their planning moving forward.
With higher prices being accepted due to higher demand, retailers seem content to amass a higher amount of imported stock. The financial impact of storing higher levels of stock – even bulky home appliances – is offset by the security of having stock “in hand” should restrictions ever cause supply shortages.
Imported stock is, if anything, an easier sell since the pandemic, when many consumers were happy to try new brands, enhancing brand recognition. Add to this the determination of major importers like China to achieve an encyclopedic knowledge of different consumer preferences, nation by nation, and you have the perfect pairing of a highly optimized offering coupled with enhanced consumer trust. When courting the UK market, for example, Hisense applied insight gathered from consumer data to increase the speed of its tumble dryers from 1,200 rpm to 1,400 rpm. Similarly, Haier, a Chinese multinational home appliances and consumer electronics brand, increased the capacity of its refrigerators for the Pakistan market.
Ultimately, the future of imports of major appliances in the post-pandemic landscape is strong. Consumers have been driven to try new brands and accept higher prices, but beyond this, retailers have learned the importance of diversifying their trade partners and supply chains have been taken back to brass tacks, and reimagined in a smarter, more shock-proof configuration.
This should all help to ensure that – although some ripples of disruption are still being felt – the wild imbalance of supply and demand that Covid created in the major appliance sector will be never be replicated, and can be safely consigned to the history books.