The volatile global economy and restrictive trade policies have triggered a dramatic shift in the hierarchy of countries that supply the U.S. with its fashion.
Driven by the need to keep apparel prices low as shoppers severely limit spending, companies are increasingly turning to value suppliers such as Vietnam, Bangladesh and Honduras, creating pockets of growth despite a worldwide slackening of apparel and textile manufacturing.
The apparel and textile industry has been buffeted by economic turmoil and sourcing uncertainty throughout this year, bringing about declining import numbers worldwide, notably from China, which had been riding an exporting juggernaut for several years, along with Pakistan, hurt by political instability, and long-term falloffs by Mexico and Canada, which saw rapid rises in the Nineties in the advent of the North American Free Trade Agreement.
China also has been hampered by steep inflation and increased labor and material costs. Annual growth in China’s gross domestic product fell to 9 percent in the third quarter, the lowest rate in five years, primarily because of a continuing slowdown in exports.
International banks have revised their growth forecasts for China into next year, predicting the country’s double-digit era of economic expansion may have come to an end. Chinese government figures show more than 10,000 textile and garment factories shut down in the first six months of the year and 20 million manufacturing jobs were eliminated.
Although China remains the largest single supplier to the U.S., it has lost market share to lower-cost developing countries such as Vietnam and Bangladesh, along with Honduras, which has benefitted from its duty free status under the Central American Free Trade Agreement.
As consumer demand plummeted in recent months, apparel and textile imports to the U.S. fell 4.5 percent year-over-year to 43.1 billion square meter equivalents, valued at $79.9 billion, for the 10-month period ended Oct. 31, the most recent import data available from the Commerce Department. Imports from China slipped 2.5 percent to 17.7 billion SME, valued at $27.9 billion.
Apparel and textile imports continued to slide from several other countries in the 10-month period, with shipments from Pakistan declining 8.28 percent, Mexico dropping 12.04 percent and Canada falling 29.22 percent.
“The cost increases of doing business in China have affected the trade,” said Matthew Priest, deputy assistant secretary for textiles and apparel at the Commerce Department, and chairman of the interagency Committee for the Implementation of Textile Agreements. “It may not be extremely significant…but even when times were good, the feedback I got was that placing all your eggs in the China sourcing basket was not the best approach.”
Year-to-date apparel and textiles shipments from Vietnam increased 21.6 percent to 1.5 billion SME. Shipments from Bangladesh increased 5.9 percent to 1.4 billion SME, and Honduras showed a gain of 11.6 percent to 1.1 billion SME. Vietnam, Bangladesh and Honduras are the second, third and fourth largest apparel suppliers to the U.S., respectively.
Women’s knit shirts and blouses, women’s pants and cotton underwear were the categories that accounted for the largest percentage of growth in imports from Vietnam. Bangladesh recorded large increases in men’s pants, cotton and man-made fiber underwear and women’s pants. The largest category increases in Honduran imports were in men’s knit shirts, cotton underwear and hosiery.
“Vietnam and Bangladesh are perceived as the value suppliers — not that they’re the cheapest, but there is a perception that you get more value for the price,” said Julia Hughes, senior vice president of international trade for the U.S. Association of Importers of Textiles & Apparel.
Priest agreed that Vietnam has grown into a less-expensive, high-quality alternative to China. Importers looked for ways to mitigate rising production costs in China over the last year. Apparel importers were attracted to the duty-free certainty they get in Honduras under CAFTA, Priest said.
El Salvador, another CAFTA country, also has benefitted from the trade deal. Apparel and textile imports from the country rose 8.6 percent during the same period. Two other CAFTA countries — Guatemala and the Dominican Republic — have not fared as well. Apparel and textile imports from Guatemala fell 8.9 percent during the 10-month period, and imports from the Dominican Republic declined 5.9 percent.
The number of apparel suppliers actively shipping to the U.S. decreased more than 85 percent in the 12-month period ended Oct. 31, to 6,262 from 43,653 a year earlier, according to a study released by Panjiva Inc., a New York-based firm that helps brands evaluate factories. Despite the declines, some countries were able to eke out increased market share.
According to Panjiva research, Guatemala expanded its share of active suppliers to 0.9 percent from 0.5 percent; Honduras grew its market share to 0.8 percent from 0.3 percent, and Pakistan expanded its portion of the supply base to 7 percent from 2 percent. China and Hong Kong maintained relatively flat market shares of active suppliers to the U.S. Vietnam’s share fell from 2 percent to just under 1 percent. With a growing volume of imports to the U.S., that contradiction likely shows some consolidation among factories, said Josh Green, chief executive officer of Panjiva.
“There’s no doubt…right now there’s a flight to quality,” Green said. “People are moving to suppliers that they really know are stable. It’s reasonable that we would see consolidation across the board.”
Some executives said trade restraints also were a factor that shaped sourcing decisions this year. Quotas on a range of Chinese textiles and apparel, implemented as part of a 2005 U.S.-China accord, end Jan. 1.
“In light of safeguards and quotas, importers looked to put production in other locations over the last several years,” said Mark Jaeger, senior vice president and general counsel for Jockey International. “Restraint on China did not result in production returning to the U.S. Instead it shifted to other markets.”
Countries such as Vietnam and Bangladesh, whose imports to the U.S. have increased, benefitted from that shift. Importers will avidly keep an eye on trade restraints into January and on whether the Obama administration will take definitive action affecting trade, Jaeger said. The Bush administration instituted a review of Vietnam’s imports to determine if goods were being dumped in the U.S. below market value or less than the cost of manufacturing. While the review found no such incidents, President-elect Barack Obama said he would take a tough stance on trade because of the impact on American workers and jobs.
But like many other things in 2008, sourcing decisions could come down to the economy, and the new president will surely play a role on how brands and retailers decide where they manufacture. Last week, the Bush administration filed a case against China with the World Trade Organization, charging the country with supporting its industry with illegal export subsidies.
If the current business climate persists, razor-sharp pricing will continue to be the most important factor in sourcing decisions, said Hughes of the USA-ITA.
“The trade policy triggers that people used to look to are not playing a role right now,” Hughes said. “It is really, really tough out there.”
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