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War & Trade

NEW YORK — With the possibility of war between the U.S. and Iraq looming ever larger, sourcing managers from U.S. apparel retailers and vendors are putting together contingency plans to ensure that their goods coming from the Middle East...

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NEW YORK — With the possibility of war between the U.S. and Iraq looming ever larger, sourcing managers from U.S. apparel retailers and vendors are putting together contingency plans to ensure that their goods coming from the Middle East aren’t among the casualties.

Practically, a U.S. attack on that Persian Gulf state wouldn’t have an immediate effect on business. Iraq itself is not a supplier of apparel or textiles to the U.S. and no one is expecting a major naval blockade of commercial shipping lanes or any such direct interference with trade. Importers aren’t pulling their orders out of neighboring Middle Eastern states, like Turkey and Jordan, both of which are significant producers of apparel.

But realistically, importing executives said a military conflict in the Persian Gulf will influence their business in many ways.

One immediate concern is the so-called CNN effect — a term that grew out of the 1991 Gulf War, which prompted many Americans to sit at home and watch the news developments on TV rather than going out to shop.

A war would also influence sourcing patterns. While the Middle East is by no means as critical an apparel manufacturing region as Asia or Latin America, it did supply $3.88 billion of the U.S.’s imported textiles and apparel in the year ended Nov. 30. The region is seen as a key source of cut-and-sewn knit garments, like polo shirts, as well as some specialty woven products.

Importers have been preparing for possible conflict with Iraq at least since President Bush last year identified it and neighboring Iran as part of an “axis of evil” that also included North Korea.

Their preparations have influenced the sorts of orders they’ve placed in the Middle East, continuing to contract for basic goods from countries such as Turkey, Israel and Egypt, but trying not to commit to time-sensitive fashion deliveries out of the region.

They have also put in place contingency plans to allow them to deal with Middle Eastern factories without traveling to the area. Some companies have stopped sending U.S. employees to Jordan, which borders Iraq, and Israel, which Iraq attacked during the Gulf War.

“We have been positioning ourselves to get the fashion moved out of the region and really focus on the basics. If we have to double-source anything, we would,” said Nancy Marino, senior vice president of brand development and worldwide sourcing at Sears, based in Hoffman Estates, Ill. “We’ve been watching our production closely and been watching the situation very closely. It has not stopped us from doing business in the region, but it has changed the way we do business.”

For Sears, she said, the greatest areas of concern are Jordan and Israel.

Several importers took heart in the knowledge that the last Persian Gulf war had minimal effect on production and shipping in the region.

“We have goods in Jordan, Israel and Turkey, and last time it all went through pretty well,” said Peter McGrath, president of J.C. Penney Purchasing Co., Plano, Texas. “The big thing is the attention the consumer gives to the TV and will it be a TV war like the Gulf War was. But who knows?”

Importers agreed that a major question will be how long any war in Iraq lasts and whether it appears to be likely to spread through the region. The general fear is that if Iraq attacks Israel again, and this time the nation responds militarily, as it has indicated it would, that a general conflagration in the area could result.

“If this is a quick conflict, we don’t see any significant changes in sourcing patterns resulting,” said Rick Darling, president of Li & Fung USA, the Hong Kong-based sourcing giant’s New York arm. “If the conflict becomes more drawn out, then people will begin to reassess their sourcing patterns and that will effect things.”

One certainty, Darling said, is “There will be some disruption to travel and that is an important part of what we do as sourcing people.”

Flora Wong, divisional vice president of sourcing at Seattle-based Nordstrom Inc., agreed that a war would “impact our travel to the area.”

“We haven’t been traveling to Israel or Jordan and we’re going to continue that, just from a caution standpoint,” said Wong, adding that over time, “It would be harder on the factories, because we’re not going over there. They’ll have to come over here if they want to continue the kind of business that we’ve been doing.”

Darling said a war would also influence Li & Fung’s travel procedures.

“We don’t necessarily have a fixed policy, but we put every single employees’ safety first,” he said. “If we feel there is any danger, we tell them that if they are uncomfortable they should not go.”

In anticipation of a falloff in travel to the region, Darling said, “We have set up video conferencing on both coasts, if we can’t travel as much as we need to.”

Still, there are limits to electronic communication — if there weren’t, the telephone would have spelled the end of the traveling salesman. That has many observers recommending that foreign manufacturers who find their American customers are unwilling to visit the region during a conflict start calling directly on the U.S.

Jeanne Atkinson, president of Global Marketing Strategies, a consultant to overseas apparel concerns who currently counts the Jordanian and Israeli industries among her clients, said she’s been recommending just that.

“The first thing that these companies have to do…as a protective measure, is come over here in some way and establish an office,” she said. “Someone has to be here to work through problems and hold customers’ hands.”

One company that bought into that message is Confetti Clothing & Fabrics, an Istanbul-based manufacturer that came to New York last month for a trade fair.

Özcan Çetinshoy, an owner of that company, said a war in neighboring Iraq was a concern for Turkish businesses, but “practically, there will be no effect.”

Turkey is a big country, larger than Texas. Its major manufacturers are clustered in the western region of the country, near the capital city. Istanbul is more than 1,000 miles northwest of Baghdad.

“Psychologically, [a war] will effect businesses all over the world,” he said. “This, in my opinion, will be over in two weeks, but the effects of it will last six months or more.”

While sourcing executives can place orders and give directions to foreign factories without traveling overseas, most U.S. manufacturers still need to have representatives visit factories to check on compliance with codes of conduct and perform quality-control inspections.

Li & Fung and other major importers have prepared for that by establishing local offices in major production companies staffed by people native to those countries, who might be less vulnerable to anti-American sentiment.

“We have fairly developed offices on the ground in the Middle East, with local employees for the most part,” said Li & Fung’s Darling.

That’s become an increasingly important practice in an apparel industry where production migrates to poor countries, which are often seen as less stable than well-developed nations. For instance, U.S. buyers have been staying away from Pakistan and to some degree India, two countries with nuclear capacities that have been threatening conflict for some time now.

“Pakistan and India were difficult last year, and yet business maintained and grew,” said Darling. “I’m not sure I know of a client that has been to Pakistan in a year, but our sales there are up because of our strong local office.”

In addition to travel concerns, a war in the Persian Gulf would likely have an effect on shipping. Since the Sept. 11, 2001 terrorist attacks in the U.S., the Customs Service has been stepping up its scrutiny of cargo, requiring that importers improve the security of their plants and containers and provide Customs with a 24-hour advance notice of all cargo they’re shipping to the U.S. before it’s loaded onto a boat.

Brian Moore, director of apparel sales with Madison, N.J.-based ocean carrier Maersk-Sealand Inc., said a war with Iraq would likely result in an increased focus by Customs on cargo coming out of the region.

In addition, he said, the cost of shipping would likely rise, as insurers typically increase the rates paid by ships that operate in or near a war zone. Carriers typically try to pass those costs along to their customers. Further, fuel is a major cost of shipping and any increase in the cost of oil would likely result in rising shipping costs.

Erik Autor, vice president and international counsel for the National Retail Federation, noted that another potential logistical problem is that the U.S. could take over commercial ships for military transport purposes.

Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles and Apparel, concurred that, “During the Gulf War, the issues became availability of vessels and planes because the U.S. can commandeer American flag carriers, which leads to big logistics issues.”

She said there were some disruptions during the 1991 Gulf War, particularly in shipments from Turkey and the United Arab Emirates.

Still, sourcing executives said conflict and uncertainty is an inevitable part of world trade, and projected a war in Iraq most likely would not result in major long-term shifts in sourcing patterns.

“I was in Israel when the Scud missiles hit in 1991 and it didn’t affect the work I was doing,” said Atkinson, the consultant.

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