CAFTA countries could be coming into their own, thanks to increasing cost pressures.
This story first appeared in the August 16, 2011 issue of WWD. Subscribe Today.
As the apparel and textile supply chain grapples with higher labor, raw material and transportation costs, markets closer to home, such as Central America and the Dominican Republic, are expected to continue to gain substantial business through imports and exports, mainly at the expense of China and other Asian countries.
The U.S. textile industry is banking on its rebounding export business with its six partner countries of the Central American Free Trade Agreement — Guatemala, El Salvador, Nicaragua, Costa Rica, Honduras and the Dominican Republic — to offset some of the price pressures in the system. At the same time, apparel importers are turning to the region for quicker deliveries of a diversified selection of products, ranging from socks and underwear to high-tech performancewear.
Central America represents the second largest export market for the U.S. textile industry, which shipped $2.5 billion worth of fabrics and yarn to the region in 2010, up 28 percent from 2009, according to the National Council of Textile Organizations. U.S. brands and retailers use those raw materials to produce apparel that is then shipped back to the U.S. duty free.
U.S. exports of yarns and fabric to the CAFTA region increased 37 percent during the first six months of the year to $2 billion. In contrast, combined apparel and textile shipments from China fell 10 percent to 2.3 billion square meter equivalents in June.
“When you have 60 percent of U.S. yarns and fabrics going to [North American Free Trade Agreement partners Mexico and Canada] and CAFTA, I think the industry will tell you that, by and large, these trade agreements have really helped spur their exports,” said Kim Glas, deputy assistant secretary for textiles and apparel at the Commerce Department.
NCTO president Cass Johnson said, “If we had a stronger recovery in the U.S., we would have even stronger growth in the region today. On top of that, high costs of raw materials for cotton and man-made fiber are suppressing demand.…But people in the region are still feeling pretty bullish.”
Unifi Inc., a Greensboro, N.C.-based producer of multifilament polyester and nylon textured yarns, has added 15 percent to the capacity of its 120,000-square-foot polyester texturing facility in El Salvador, which now produces 25 million pounds of polyester draw textured yarn and polyester twisted yarn.
“We invested $8 million to $10 million in the plant, which has the ability to expand,” said Bill Jasper, present and chief executive officer. “We built there because we do believe the region is going to grow.”
Jasper said the companies producing synthetic apparel in the region, measured by consumption, grew by 25 percent in 2010 alone, adding that the company expects “another 15 to 18 percent [this year] in Central America, in terms of the consumption of synthetic apparel.”
About 60 to 65 percent of Unifi’s business goes through either CAFTA or NAFTA countries.
David Sasso, vice president of international sales with Buhler Quality Yarns Corp., a fine-count yarn spinner based in Jefferson, Ga., said: “We export 60 percent of our product directly and indirectly to CAFTA and NAFTA countries.” He explained how some sales are to apparel manufacturers in the region and others are to firms that buy the yarns in the U.S. and then ship part or all of the orders to Latin American factories.
Sasso said after the implementation of NAFTA and CAFTA, some companies benefited and for others it just represented more foreign competition.
“For the weak players, it didn’t help them at all,” he said. ‘For the strong players, it helped them tremendously. They found new markets and were able to compete. We couldn’t survive just in U.S. sales. We need those low-cost needles in Central America and South America.”
Apparel importers have also benefited from the region’s proximity to the U.S.
For first six months of the year, apparel imports from the CAFTA region rose 6.3 percent to 1.5 billion SME, while apparel shipments from China during the same period fell 2.8 percent to 4.1 billion SME.
Nate Herman, vice president of international trade at the American Apparel & Footwear Association, said: “I believe CAFTA will become even more important to the region as prices are going up in Asia and shipping costs are going up and people are looking to lower inventories and have smaller runs and also respond to fast fashion.”
Herman said the region is beginning to attract new investment and diversify beyond commodity production of underwear and socks, which still remains significant, into other product categories.