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China adopts the US dollar?

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DiveController
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A piece of advice at the bottom of the Marks Models newsletter is creating some confusion regarding the existing stock of Murphy's models.

".....due to the currency exchange situation between Euro/Sterling and Euro/Dollar we are having to increase prices on all new stock arriving in as we cannot afford to absorb these price rises."

 

I presume that when Murphy models does a run of locomotives or rolling stock the 500 or so are paid for, and shipped from China, presumably to the warehouse in Ireland. Are they shipped to several worldwide destinations for piecemeal distribution to model shops worldwide or stored somewhere else not in the euro zone?

Even so, the price of the new models is set based on historical costs and currency exchange rates. Can someone explain why current exchange rates should affect prices after the event?

Edited by DiveController
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Business in China by external companies is (almost) always in USD. You cannot get Yuan outside of China, hence the USD rate is the key one. Chinese companies are mandated to quote in foreign companies, ultimatly as a way to build national foreign reserves.

Many of the models may also get shipped direct to UK rather than Ireland and then UK. If fact the Irish bound stuff is probably trans-shipped through the UK (or Holland)

Same with many south American and African countries.

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Business in China by external companies is (almost) always in USD. You cannot get Yuan outside of China, hence the USD rate is the key one. Chinese companies are mandated to quote in foreign companies, ultimatly as a way to build national foreign reserves.

Many of the models may also get shipped direct to UK rather than Ireland and then UK. If fact the Irish bound stuff is probably trans-shipped through the UK (or Holland)

Same with many south American and African countries.

Hi Chris,

But the shipment would have been paid for when shipped or before that. I doubt whether it is partially complete at the model release date with the remainder filtering through later. I suppose if the shipment was shipped to the UK and paid for in GBP, followed by a relative strengthening of the GBP versus the euro that would leave Irish models shops with more expensive purchase and retail prices....

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Hi Chris,

But the shipment would have been paid for when shipped or before that.

 

maybe, or maybe not. Depends on what credit Terms MM gets off the supplier. A likely option is a 50:50 split payment perhaps with 50% up front before production and the remaining 50% on shipment. (some of our contracts require this - totally unrelated industry though). If we say a loco cost $100 to produce MM could have paid $50 / 38eur on 1st Sept but the balancing $50 would cost 45e today. Overall cost of loco would then be 83e instead of 76e if all paid for initially. Big difference, especially if selling price was initially set in September based off known or estimated costs then.

 

In addition in my experience USD is also used as the default shipping currency so once the bill for shipping lands it'll be higher too due to FX. Even something like the declared value on import for tax purposes would change based on the FX rates and incur extra customs & duty charges potentially.

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Just to agree with Chris's post above, prices are all over the place at the moment. I buy product from China on a regular basis and it is near impossible to get suppliers to commit to a price at the moment. Transport costs are all over the place too, and I'm guessing in the case of MM that they wouldn't necessarily have been agreed at the time. Strange times

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I hear and understand what both of you are saying. So for instance, are you saying that part of the run of the 071 class, or the more recent run of 201s, are still in production? i.e. some are on the shelves (or in a MM warehouse somewhere nearby for distribution to the model shops as required) BUT some are STILL physically in production in China?

If they run has been physically produced and shipped then this has nothing to do with the Chinese supplier, right?

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I hear and understand what both of you are saying. So for instance, are you saying that part of the run of the 071 class, or the more recent run of 201s, are still in production? i.e. some are on the shelves (or in a MM warehouse somewhere nearby for distribution to the model shops as required) BUT some are STILL physically in production in China?

If they run has been physically produced and shipped then this has nothing to do with the Chinese supplier, right?

 

ah, I see what you mean. If they were all produced and sent to Ireland a while ago (say a couple of months) why are prices being amended now?

 

Well without being privvy to the exact details of MM accounts and contracts there could be several reasons. Payment terms could be one, if MM are not paying all up front and have structured payment it may be a consideration, possibly unlikely though given the nature of smallish companies dealing with Chinese giants. Most likely it'll be up front or 50:50 type arrangements.

 

Or it could be that overall business is being looked at and the profit margins now need to be increased to allow funds to be set aside to go towards affording the next run, which could already be at a planning / prototype stage and require funds to progress.

 

There could be other considerations, I don't know the specific industry well enough to comment specifically on it. But note as well that Chinese minimum wage is set to rise substancially this year and will be a big impact on production costs too.

 

 

EDIT: Just re-reading the blurb from Murphy:

"".....due to the currency exchange situation between Euro/Sterling and Euro/Dollar we are having to increase prices on all new stock arriving in as we cannot afford to absorb these price rises.""

 

To me this could imply that there are several runs of various stock sitting at the manufacturer, stored at factory rather than stored in Ireland and if MM only have to pay on release of shipment then that would certainly impact the pricing of the current runs against those previousl shipped even if all produced at the same time initially. This would make sense production wise I think. Lets take the mk2 as an example and say that all liveries were produced at the same time for the same cost and have sat in storage in China since, with MM only bringing them in staggered so one livery is sold before the next released. That would mean that initiall the cost of the Galway / IE / Supertrain was all the same. But with the Supertrain only just release the FX rates will impact it now rather than at production and cause the price rise. If say there is also an IR livery next up in 6 months the price could rise even further if FX rates continue in the same trends.

 

Again I'd just like to point out this is all speculation based on my general business experience and may be off the mark entirely, it's just what would seem reasonable as an explanation to me :).

Edited by chris
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There could be other considerations, I don't know the specific industry well enough to comment specifically on it. But note as well that Chinese minimum wage is set to rise substancially this year and will be a big impact on production costs too.

 

Yes, that has been highlighted before and will certainly impact the prices of what comes onto the market in the future. At some point an equilibrium will be reached whereby they increased costs will reduce demand for the product by the consumer and that process is likely to be accelerated if the quality drops as it certainly has with the paintwork on the coaches which may be the labor intensive portion of the product production.

 

To me this could imply that there are several runs of various stock sitting at the manufacturer, stored at factory rather than stored in Ireland and if MM only have to pay on release of shipment then that would certainly impact the pricing of the current runs against those previously shipped even if all produced at the same time initially. This would make sense production wise I think. Lets take the mk2 as an example and say that all liveries were produced at the same time for the same cost and have sat in storage in China since, with MM only bringing them in staggered so one livery is sold before the next released. That would mean that initiall the cost of the Galway / IE / Supertrain was all the same. But with the Supertrain only just release the FX rates will impact it now rather than at production and cause the price rise.

 

Actually, that is a plausible explanation if they are still in China and partially paid for. I'm not sure why the application of the liveries was good on previous coaches and now is problematic on the Supertrain Mk2ds. Does suggest that they're not made by the same company there although the same completion COD system could apply.

So, several members are familiar with the process of obtaining MM stock but haven't contributed to the thread……… GIVE!….. (please and TY!):)

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