December 2011 Newsletter

As this is the last newsletter of the year we would like to take this opportunity to wish all of you a Merry Christmas and a happy and hopefully prosperous New Year.  The media has done a wonderful job in focusing on all the problems that the world is facing, as good news unfortunately does not stimulate interest or generate revenue for them. Whilst it is now a fact that economic growth has stalled, if you take a trip to the shopping centres throughout the UK, you will see that people are still spending and the world has not come to a standstill.  Over the past few weeks we have taken the opportunity to visit a number of the garden centres who have reported a good level of sales and are extremely busy.

As we forecast last month China did not come to the rescue of the Euro. It is now up to the leading counties in the Euro zone to bring together 27 different counties to work together with a common objective, to operate in harmony and modify the European Treaty so that a strong united body will emerge.  There is a better chance of ‘pigs flying’ than this ever happening.  In our opinion the Euro is a flawed concept as no-one has ever followed the rules that were set up in the Maastricht Treaty. Whilst the purpose of this newsletter is certainly not to rake over, yet again, the economic woes facing Europe, it is now apparent that the BRIC countries ( Brazil, Russia, India and China) are not as immune as first thought from the trials and tribulations of Europe.

It was thought that the BRIC countries would be able to come through the global slowdown unscathed due to the fact that their domestic and export markets would prove to be resilient. This opinion is now being challenged and all four countries are reporting decreasing the levels of growth. In China, exports have peaked are thought by many observers to be falling and this sentiment can be partly substantiated by the relative decline in the strength of the RMB v $US. In India banks are imposing credit restrictions and even in Brazil, sales of its leading export commodities have flattened out. It is difficult to comment on Russia as the figures that are presented by the government are even more flawed than those reported by China.

Whilst we hear on a daily basis that the banks are suffering and the banking system is once again semi-paralysed, the hedge funds and investment banks are actually making a lot of money due to the volatility in bond yields and interest charges. The efforts of the government in creating loans for small businesses have quite clearly failed due to the rigid and unyielding stance being adopted by the banks.  Whilst many organisations are clearly are not viable and were only viable whilst they were able to borrow large sums of money, there are many good companies who will be forced to close over the coming months as they are no longer able to get funding to cover their cash flow requirements. Over and over again we hear from the banks that they must adhere to their policies.  It is a great shame that they did not listen to their own advice a few years ago when they were happy to lend any amount of money to absolutely anybody.

We made our final trip to Asia for this year at the end of November. This is the best time of year to visit the factories as the exhibition period has been completed and they are in full production for next year's spring and summer season. The production window is actually very short as at least 70% of the goods required for next spring and summer have to be produced before the middle of January, when the Chinese New Year commences. Having spent so many years writing these reports we sometimes forget to mention the importance of this holiday. Just as we get return to work after the New Year, Asia goes on holiday. Whilst many people consider (especially in the USA) that the European Christmas break is ridiculous it has nothing on the Asian New Year. This holiday has got longer and longer. The factory workers start to return home a week before the official beginning of the holiday and are away for a three-week period. Many workers do not actually return from the holiday for over a month. Over the past five years, as the factories have been so busy, workers have not been concerned about losing their jobs if they did not return on time as they knew that there was always another factory hiring in the same area. This may not be the case in the future and the factory owners we spoke to on this trip believe that the New Year disruption will be less damaging than it has been in recent times. The significance of this holiday is that it means that no goods will leave the factories in Asia from the last week in January until the middle of February.

In last month’s report we mentioned the dangers of paying deposits to Suppliers in Asia but a new issue has emerged in the past few weeks which is causing havoc in the supply chain. In recent years due to the volatility in raw material prices, new groups of commodity suppliers have been established. Before, one could buy raw materials from a large number of different brokers but as time has gone by the number of brokers has declined and raw material sales have been controlled in the individual regions by a number of dominant companies. These companies have over the last two or three years demanded that the factories pay them deposits of up to 50% in order to secure raw materials. The factories have had no choice but to give these deposits in order to secure the price and timely supply of raw materials. It has now emerged that a number of these companies are controlled by some unscrupulous individuals who have over the past two months disappeared taking with them the factory deposits. This is creating chaos with the Suppliers and there are a number of very good and honourable factories who have to close down as a result of being victims of this type of behaviour. In the Linhai area, two of the leading factories have lost between them over $20 million and it is doubtful whether they will be able to survive. It is quite incredible that what was once a very simple process called buying and selling is now so complicated and fraught with dangers.

In the light of these issues we visited our major factories throughout Asia on this trip to ensure that production was running according to plan and to carry out quality audits and inspections. We still come across buyers on our travels who seem to be content to either meet their suppliers in their hotels or at showrooms in the main cities. There is no substitute for going to visit the factories. On this particular trip we went to see a new factory who had exhibited some great looking products at the Spoga fair.  Unfortunately, the factory did not live up to our expectations. It turned out that the products we had expressed interest in were prototypes that had been copied from designs seen in Europe and that the factory was not producing anything apart from some Wellington boots for the Japanese market!

Whilst the production departments of the factories are in full swing, the design departments now have the time to work on new projects and this was the second purpose of our visit. We are finalising the indoor offer for the second half of 2012. As soon as we go back to work after the New Year, we will be offering our new indoor ranges to customers. If you are interested in receiving details of the new ranges, please tick the brochure list attached as all the new items are currently being incorporated into the catalogues. Some of the items that we are currently working on are worthy of special mention. We have a great range of new faux leather storage items and beds. Our new range of chicken and pet houses are of first quality and superbly manufactured. We have expanded our range of artificial plants to hedges and trellis that even close up is hard to differentiate from the real thing.

One of the most enjoyable parts of the trip is when we go to factories who are working on OEM projects for our customers or new ranges for us. On this occasion we saw a number of products sourced on behalf of customers in production. The factory that produces our recycled rubber products has finished off the project for the 2012 Olympics where they will have supplied materials for the Olympic village and also some of the running tracks

When talking with the factories they often make us aware of stock offers. These are 1st quality goods and generally come about as a result of production overruns.  In good times, the stock offers have been limited but over the past few weeks we have received and sold a number of different and varied lines that might be of interest.  Our most surprising success was the sale of the willow coffins which apparent are very good value. Please see the attachment of the offers received in the past two weeks for your consideration.

Every trip seems to provide us with a moment of madness. On this occasion we were driving on a new motorway just outside Yiwu when we were overtaken by a lorry doing approximately 80 miles an hour. This was slightly alarming as we were on a downhill section and approaching a bend in the road. When we made it round the bend we saw the lorry going off the road. At 80 miles an hour the lorry hit what can only be described as a Formula 1 gravel trap which brought it to a halt in approximately 100 m. It was quite incredible to see this vehicle being brought to a stop in such a short distance. Our driver stopped and it became apparent that the brakes on the lorry had failed. We do not like to think what would have happened if this gravel trap had not been there. We should mention that if there is a company who has a trademark of LGHI in a rectangle we would advise caution before accepting a delivery from this area as there is a possibility that their goods may have been damaged

There has been little mention over the past few weeks on the subject of price increases. This is clearly a reflection of the softening in demand which in turn is expected to leading more stable raw material prices. However, labour rates which are controlled by the government are still rising in accordance with the national economic policy and power prices continue to rise.  There is a general consensus that the shipping rates have now bottomed out and due to the excess of shipping capacity worldwide, there are a number of shipping lines who are clearly bordering on bankruptcy and once these companies have folded a large proportion of this excess capacity will be removed from the marketplace giving the remaining lines the opportunity to increase the rates. It would not be inconceivable for the lines to try and follow the policy they adopted two years ago and just keep increasing rates in order to make up for their recent losses. Over the past few days there has been a move to reintroduce the peak season surcharge, even though there is no peak season. This surcharge may actually come into force as it has become clear that the lines are talking to each other and possibly working together in the management of this charge.

If you require any further information concerning our trip or just want to call to get further information, please do not hesitate to contact us and we would be delighted to assist you with your particular requirements. We are always available on the phone and our showroom is conveniently located near junction 4 of the M1 and we are open every day from 7:30 AM to 5:30 PM. Please call one of our sales executives who would be delighted to meet up with you.