by: Scott Caplain and Jeff Hunter
Goods produced in China have long had a significant effect on U.S. manufacturing, but for traditional binderies, the impact has been less noticeable due to tight turnaround times that cannot be matched by overseas competitors. The same is not always true for those in loose leaf. However, increased costs for freight and raw materials, a sluggish U.S. consumer market, and changes to China’s labor laws are redefining the way the American companies view goods produced in the Asian market. Further complicating the situation for companies who have typically relied on Chinese production for small, easily reproducible parts are the 2008 Olympics and the recent earthquakes. No longer the cheapest, fastest, or best way to fulfill an order in every situation, those marketing loose leaf products in the U.S. are finding ways to combat changes in Chinese production – often through custom work.
Scott J. Caplain is the executive vice president for Charles Leonard National, Inc., a manufacturer and distributor of loose leaf devices. Caplain explains how recent events in China will continue to have a significant impact on ring hardware prices. For his perspective, see “The Changing Cost Dynamics of Ring Hardware.”
Jeff Hunter is the owner of Federal Looseleaf, Inc., a custom loose leaf manufacturer located in Minneapolis, Minnesota. As a creator of custom product, Hunter believes his company is in an excellent position to out-sell competitors promoting product from China. For his perspective, see “Custom Loose Leaf Products Not in Competition.”
The Changing Cost Dynamics of Ring Hardware
It seems that ring mechanisms are finally receiving some respect, however, not for the reasons that I had hoped. With price increases coming unabated this year, the cost of ring elements has already reached unprecedented proportions – and the year is not over. Nevertheless, the landed cost of rings is still a bargain and lags far behind comparable products with moving parts, nickel plating, and precision engineering.
During the past decade, prices have remained fairly stable, incurring increases that have been announced two to three times per year at minimal levels. The selling prices in 2007 were actually comparable to numbers of product produced domestically in the 1970s and 1980s. Now we witness something that is unparalleled in my almost 40-year-history with ring metals.
Since virtually all three ring products are manufactured in China, distributors in the U.S. are now a function of the latest events in that country. When I first visited China in the early 1980s, I remember the dirt roads, the lack of good transportation, and a very modest infrastructure. Crossing the border today from Hong Kong into Shenzhen, one views the dramatic evolution and progress of this country with super highways, skyscrapers, new hotels, and abundant manufacturing. Clearly, China has become the world’s workshop. This trend toward modernization has “led the charge” in today’s scenario of rising prices, with demand for raw materials that outstrips the supply, growing labor shortages, currency fluctuations, and of course, the rising cost of petroleum that has precipitated hikes in ocean freight transport.
If that’s not enough, the earthquake in Sichuan province and the Olympics in Beijing have created a new set of circumstances. Rebuilding the infrastructure after the massive devastation that took the lives of approximately 20,000 Chinese citizens has required substantial steel capacity, and the Chinese government has mandated that steel production be used for rebuilding rather than as an exportable commodity. To control the country’s air pollution and minimize its effect on Olympic athletes and visitors, the government has ordered steel mills within a specified proximity to curtail production or fully suspend operations until after the games are completed. The largest and most effective producer, BaoSteel, falls within this region.
The aggregate impact of these circumstances could have far reaching effects, including issues with supply and the obvious string of price increases that are headed our way. The limited supply of steel has already produced a bidding process with some companies, resulting in the possibility of shortages. However, with an estimated 35 million units warehoused in the U.S. at any given time, shortfalls in product availability are still remote and may be confined to the specialty rings that are not part of a regular stocking regimen.
What happens from here is anyone’s guess. Continued price increases will almost assuredly occur on a monthly basis through mid-fall of this year. Clearly, price increases are a matter of concern and will have to be addressed in the short term by all manufacturers should we continue to see a protracted period of price increases. However, the slowing U.S. economy may result in some stabilization before year end due to reduced consumption. Needless to say, challenging times are ahead. In the meantime, our firm remains committed to working with our Chinese partners in exploring alternative manufacturing venues, particularly in India where we have already located capacity for distribution to the European market.
On the brighter side, product innovation has enjoyed a renaissance of sorts over the past several years. Mechanisms have been redesigned to open and close easier, lock more securely, mesh more evenly, and even appear differently. While these products have yet to reach the custom market, one trip to a super store will convince any doubters that these unconventional rings are selling well. Shelves are well stocked, favoring binder products that feature both the E-Z Touch and E-Z Comfort ring mechanisms over those that have lower cost hardware installed. It is really too early to establish any trend but suffice it to say, “new and better” are receiving a warm welcome in the office products network. The Chinese are highly responsive to innovation from both service and product standpoints, and seem to consistently deliver on these ideals. Despite the many issues currently being seen with overseas production, I am confident that more “new and better” designs will be a big part of our future.
Scott Caplain is executive vice president of Charles Leonard National of Hauppauge, N.Y., a manufacturer and distributor of loose leaf devices. Caplain has almost four decades of experience in both sales and ownership of the ring binder component industry, including 31 years with US Ring Binder Corp. Caplain can be reached by calling (508) 674-5009 or by e-mailing SCap48@aol.com.
Custom Loose Leaf Products Not in Competition
There are two distinctive categories of loose leaf products and China’s influence is very different based on the category we’re discussing. When a customer is looking for a commodity product and has warehouse space available for storage, China is absolutely a consideration, often based on price alone. If a customer wants a custom-made product, I usually don’t need to worry about China.
Price
The primary reason for much of U.S. loose leaf production to go overseas has been price. But China is now dealing with new labor laws, eliminating the practice of employing young children and requiring employers to pay overtime. Western practices are taking hold in China and that, coupled with oil prices that are changing the whole face of freight, is limiting the cost-based appeal of China for many people. The U.S. still produces a large amount of “office supply binders” and I would suspect the production of those commodity products is increasing in the U.S. based on the upswing in freight costs.
As the economy sours and freight bills go up and recession looms, the business outlook is actually better for U.S. custom manufacturers because there will be a demand for smaller quantities of product, produced quickly and efficiently. The counterintuitive approach that I’m taking currently is that as the economy worsens worldwide and oil prices go up, affecting freight and oil-based materials like vinyl, customers will still need to order 3-ring binder products. Yes, everyone will be affected in the U.S., but these conditions also are limiting the opportunities China has to expand its loose leaf presence here. Loose leaf is a mature industry and now some of this business is finally coming back into local hands because it’s so expensive to do business overseas right now.
Quality and Turnaround Time
When I’m out selling binders directly to customers and I come across someone who is trying to sell a competing Chinese product, I sell against it by pointing out that the finish of my product is not in question because I can immediately show samples for approval and make sure I’m meeting customer expectations.
From a custom point of view, our turnaround goal has always been to produce a quality product in two to three weeks. Customers can’t get that from China without factoring in air freight, which is extremely expensive. China is great when ordering full container shipments, but that means large quantities, and most of the custom manufactured binders in this country are in smaller quantities – 1,000 pieces and under.
Difficulties of Custom Work
The other thing that makes competing with China easy is that the manufacturer in China usually has to see a finished prototype in order to accurately produce the product your customer wants. There is little room for the back and forth that often comprises the design process, so the burden of artistic creation and decisions about material are on the customer in China. Here in the U.S., we can sit down with the customer and make suggestions for ink, wrapping materials, and more. Customers sending business to China can specify a certain thickness or a certain type of material, but many times the Chinese manufacture their own materials so you’re not always getting what you expect. My selling proposition is simple:
- We can offer infinite variety in custom applications. China can too, but you have to show them exactly what you want, which can be difficult.
- Rising prices for materials and freight are increasing the cost of doing business in China (and really anywhere across the globe).
Having said all that, if you have an order with a customer who needs 100,000 binders and the order requires a lot of hand labor – sewing or eyeleting or attaching elastic barbs – you have to consider China if you expect to ship the order in a reasonable amount of time. The cost of fuels, higher emission levels, new labor laws, and the fact that they pretty much shut down in the month of February are making it harder to place an order with China, from the perspective of a custom manufacturer, but that doesn’t mean there isn’t a place for it.
I look at China as a competitor and as a tool. It’s my challenge to be able to join them, rather than fight them. If I can use them, I will – and I’ve certainly used them before. Of course, this is a snapshot of the market today and all of this could change in a month. That’s part of the wonder of working in an international market!
Jeff Hunter is the owner of Federal Looseleaf, Inc., a custom manufacturer of creative turned edge, vinyl, and polyplastic presentation packaging. Hunter can be reached by calling (612) 781-9995 or through e-mail at jeff@federallooseleaf.com.
