Singapore firms scramble to mitigate trade war fallout as orders dive

Singapore

SINGAPORE businesses across various sectors from manufacturing to trading to services are feeling the heat from the extended US-China trade war as new orders dive - with some bracing for a decline in revenue this year.

Firms tell The Business Times they have put expansion plans on hold as they try to manage the disruptions by finding new markets to diversify their customer and supplier base, as well as moving up the value stream to create more price-inelastic products.

The latest round of tit-for-tat measures saw China raising the tariff rate on US$60 billion of imports from the US on Monday in response to the US' tariff hike on US$200 billion of Chinese goods which kicked in last Friday.

Erman Tan, chief executive of Asia Polyurethane Manufacturing, said he experienced "straight away" the impact of the new round of tit-for-tat tariff hikes. "Based on our forecast schedule, if our customers from China did not place orders last week, they should do it this week... But nothing has happened. People are cautious."

Uncertainty arising from US-China relations has caused customers to take a wait-and-see approach by either ordering the minimum quantity required or stopping orders altogether, he said.

Sales to China makes up about 25 per cent of the company's business.

"We feel frustrated and helpless as we see that our China business has come to a halt," added Mr Tan.

As a result of the slowdown, he projects a "significant" 20 per cent drop in revenue this year as he does not expect the trade war to be resolved so quickly.

Others like Aman Gupta, managing director of metals trader Gupta International, have already seen an impact on their bottomline. In its last financial year, the business - which supplies raw materials like metals and coils from China to customers in the US - suffered a 22 per cent revenue dive in the fallout from the trade war.

Trade with US and China makes up about 50 per cent of Aman's business. "Our customers in the US are coming up with absurd requests for us to bear the tariffs and wanting to cancel our orders from China," he said. This means that advance payments by Aman to their Chinese suppliers have to be forfeited.

At the same time, the company also has to look for suppliers from other origins, which is a "huge cost" as pricing is very different and other mills in the region have jacked up their prices to benefit from the situation, said Mr Gupta.

The cost and effort to rejig supply chains is also an issue faced by David Low, CEO of Futuristic Store Fixtures.

With a manufacturing facility in China and one in Malaysia, the store fixtures manufacturer for global retail brands has had to switch some of its manufacturing from China to Malaysia to avoid the tariffs.

This means re-laying out the facility to accommodate new brands, and finding ways to fill up the vacuum in its China plant, he said.

"There's a cost to all these adjustments," he said. "The trade war has been very disruptive for us."

Mr Low also noted that the trade war has weighed on the expansion of its global retail customers as they are becoming more "conservative" in their orders, which would affect Futuristic's sales if continued.

Another firm that saw an impact from the trade war is Ademco Security Group, which provides security solutions and services.

Group managing director Toby Koh saw several of its US clients with facilities in China stop their upgrading projects with the company in the last six months. He estimated that this has led to its China business to miss out on 6 million yuan (S$1.2 million) in revenue.

But on a brighter note, he said that some of the same US clients turning away from China are looking into Vietnam as an alternative site.

"It is both good and negative for Ademco... our fingers are crossed that the projects materialise in Vietnam, which will bring us more than 6 million yuan," he said.

With the unpredictability of the trade war, even businesses that have been spared so far are on tenterhooks. Birch Sio, managing consultant and director of Concord Associates, explained: "Once the manufacturing sector is affected, it will create a domino effect and thereby affect the service industry subsequently."

But despite the gloomy business sentiment, firms are not staying still. In fact, one silver lining seen is that businesses are positioning themselves to emerge stronger.

Mr Gupta has been exploring new markets in the last six months such as India and Turkey in an effort to move its business away from US and China, even though it has been in this line for almost two decades.

"As a small trader... I will have to shut shop on that, and look for other avenues to generate revenue," he said.

Futuristic's Mr Low said it is not stopping even as it "prepares for the worst".

"We are relooking our efficiency, training our people and trying to get more brands into our portfolio," he said.

As for Asia Polyurethane Manufacturing, Mr Tan says the business is investing in technology and innovation to create higher value-add products with high margins and less elasticity in demand.

One example of a product is a spring aid for cars to enhance safety, he explained. "We have been involved in R&D (research and development), but tech adoption takes awhile," he added.

Trade and Industry Minister Chan Chun Sing dealt with the same subject earlier this week when he commented on how businesses need to prepare themselves in three key areas to ride out the trade war.

First, they must be keenly aware of the shifts in global trade flows brought about by the current disruptions from the trade conflict. Second, businesses must also continue to diversify into other sectors and markets, so that they are never "held ransom" by the fortunes of any single sector or market.

Finally, Mr Chan added that firms here must continue to upgrade their business capabilities and their worker skills.

Singapore trade associations acknowledge that the extended trade conflict has had an impact on local businesses, but strike a positive note that there are opportunities to grow.

Douglas Foo, president of the Singapore Manufacturing Federation (SMF), told BT in an e-mail that manufacturers must "work even harder at working smarter" in these challenging times.

He wrote: "Concepts of digitalisation and collaboration are well-known, but businesses will now have to embrace them with increasing alacrity."

He added that SMF members can turn to the association for help in areas such as business process remodelling services, as well as drawing on its overseas network of trading partners to venture into other markets such as the "up and coming" Asean region.

Ho Meng Kit, CEO of the Singapore Business Federation, urged businesses to leverage the free trade agreements that Singapore has with the US and China to benefit from savings or improved qualifying criteria.

"We anticipate the impact to be more widespread should the trade war escalate further, causing a sustained drop in global business and consumer confidence and slowdown in global trade flow," he said.

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