CBI: GETTING THE BALL ROLLING
Byline: David Grant Caplan
NEW YORK — It’s been nearly five months since trade parity for the Caribbean Basin region went into effect, but the U.S. textile and apparel industry is still waiting to reap the benefits of the bill.
Executives interviewed said they expect the new law eventually to lead American companies to shift more apparel sourcing into the Caribbean Basin Initiative region, and in turn stimulate demand for U.S.-made fabrics and yarn. The law, which went into effect Oct. 1, allows apparel assembled in CBI countries of fabric woven in the U.S. of U.S.-made yarn to return to the States duty- and quota-free. Also, some fabrics knitted in the CBI region of U.S. yarn can be made into qualifying garments.
However, most textile officials said they haven’t yet seen a major surge in demand from the bill and apparel-sourcing executives said they’re moving cautiously in shifting production into the region.
“I would not say that our sourcing in the area is going to double or triple or that anything dramatic is going to happen on a short-term basis,” said Bob Zane, Liz Claiborne’s senior vice president of manufacturing, sourcing, distribution and logistics. “I would say that the change from three months ago to three months from now is slight, coincidental, not necessarily related to CBI.”
Not all apparel executives are so cautious in their approach to the region. Kellwood Co., for one, expects to step up its production in the CBI region, said vice president of strategic sourcing Joe McConnell.
“We’ve always had a presence in the area and with CBI coming into effect+we’re now gearing up even heavier going into the CBI countries,” he said. “We’re focusing on our women’s business, which is a key part of our business, and we’re looking for opportunities, in terms of our quick turn to our retailers.”
McConnell said the region’s key countries for Kellwood — with lines including Sag Harbor, Northern Isles and Jax — are Guatemala, Honduras, El Salvador and the Dominican Republic.
“We’ve had a presence in them prior to [the extension of trade parity], so we’re familiar with those areas,” he said. “It’s got a strong well-established contractor base and it can handle the volume that Kellwood generates.”
Some mill officials said they’re starting to see a modest level of what they believe are CBI-induced orders roll in.
Andrew J. Parise, chairman and chief executive officer of New York-based mill Texfi Industries Inc., said his company has seen sales rise about 15 percent since CBI parity came into effect.
“I did expect it to pick up because there is a fairly significant saving for our customers and our retailers,” he said. “I am expecting it to increase but it’s only been in effect since October and it takes awhile to put a program in, and for people to find the manufacturers in the CBI.”
Parise said his company recently landed a fabric order when a large U.S.-based apparel company transferred production of an apparel program from Korea to the Dominican Republic.
“We couldn’t previously compete with Korea before,” he said.
Texfi has also had “extensive meetings” with a specialty retailer about shifting some of its production from Asia to the CBI region, he said.
Gail Strickler, president of New York converter Saxon Textile Corp., said her company has also started to hear from new customers because of CBI parity.
She said during one day this month, she received orders from two new customers, both based in Costa Rica. One of the firms will produce for a U.S.-based uniforms manufacturer, while the other will make apparel for a U.S.-based outdoor clothing company.
“I would say about 8 percent of our business was to the CBI before,” she said. “If this kind of trend continues, I would say that it would double this year.”
Executives at fiber and yarn suppliers said they have also started to hear from new customers looking for CBI-compliant supplies.
Yarn texturizer Unifi Inc. has picked up “six or seven new customers” since CBI came into effect, said Michael Delaney, senior vice president of marketing and strategic planning for the Greensboro, N.C.-based company.
“Volumes are still very low,” he said. “But we’re just looking to get to know people and find ways that we can work together in the future.”
Unifi has sales representatives based in the Dominican Republic, Honduras and Guatemala, Delaney said. (The Guatemalan rep’s territory includes El Salvador.)
Nylon maker BASF Corp., which has its U.S. fiber headquarters in Charlotte, N.C., has seen an uptick in business related to CBI parity, though officials there couldn’t offer specific numbers.
“It’s still hard to quantify, but we are shipping yarn into the CBI countries,” said Bill Scott, business director of textile and automotive products. “The domestic business has been retrieving programs that four or five years ago went to Asia.”
“It’s going to be a slow but persistent growth,” he said.
One thing that is slowing the growth of the region’s manufacturing industry, apparel executives said, was that sewing skills in the area lag behind Asia and the U.S., which makes it tougher for apparel vendors to source complicated garments in the region.
“Most of the factories in most of the countries covered by CBI tend to do better with commodity items than they do with fashion items,” said Claiborne’s Zane. “These factories still have to develop skills to enable them to make fashionable products or more fashion-oriented products.”
Zane said once the region’s apparel producers improve their fashion garment-making skills, the New York-based company will likely increase its production there.
“We’ve always been keen on the region and we’ve always told factories in the region that they have to develop capabilities to do fashion goods,” he said. “As they develop those capabilities, we will move in with more production.”
Kellwood’s McConnell said he also finds the CBI region’s capabilities somewhat limiting.
“They’ve got a developing fabric market, but if you’re looking for novelties, you still have to source outside of the U.S. and outside the local area,” he said. “Basically in the U.S. we’re looking at basic fabrics — your twills, your denim — and locally in those countries, you’re looking at your basic knit products.”
Within the region’s current areas of expertise — basic tops and bottoms — some textile executives point out that it’s unlikely the region’s demand for U.S. fabric will grow substantially until additional plants are put in. Their reasoning: many of the plants down there are currently using American textiles anyway, so there’s not a huge opportunity to displace other fabric sellers.
Arthur Wiener, chairman and ceo of the New York-based mill Galey & Lord Inc., said the fact that most plants in the Caribbean are running at or near full capacity means it will be some time before parity results in a surge in demand.
“In order to see that increase, there is going to have to be more sewing put in the Caribbean,” the executive said during a conference call with analysts about the company’s first-quarter earnings.
Strickler, of Saxon, agreed that it may take time for the region’s sewing industry to expand.
“People didn’t change their infrastructure overnight,” she said. “Costa Rica and the Dominican Republic didn’t suddenly put nine million more sewing machines in, so I think it’s going to take awhile for the full benefit of CBI.”
However, others pointed out that even now the region is expanding its capacity.
Parise, of Texfi, said firms in the CBI region are “definitely expanding cut-and-sew” facilities, particularly in El Salvador, the Dominican Republic, Guatemala and Honduras.
“There is a need,” he said. “The investment is going into the Caribbean certainly, but there is no shortage of manufacturing at this point.”
While a handful of companies have experienced an increase in CBI-related business, most have not.
Thomas J. O’Gorman, president and ceo of New York-based knitter Glenoit Corp., contended that’s because the law came into effect at an awkward time: too late for the fall-winter 2001-2002 apparel manufacturing season and too early for spring-summer 2002.
“We have not seen anything of any significance yet and one of the reasons why we haven’t is because it was passed in October and therefore, the season for activity still hasn’t started,” he said. “There’s still a little bit of time, people have an opportunity to begin to find, or at least to divulge, where and how they are going to source their product for the coming season.”
O’Gorman added, “typically between March 15 and April 15 is when you begin to see the real surge of activity for the coming year.”
Jim Gutman, president of New York converter Pressman-Gutman, said his firm has had “some CBI business, but it hasn’t been meaningful.” He agreed with O’Gorman that the legislation’s timing has stymied any immediate surge in business.
“I am hoping that, for spring 2002, we’ll see more planning for CBI because we couldn’t use it until October and that was too late to have planned a lot of the business that would normally be done,” he said. “I would say, at this point, it is really add-on business for us.”
James Martin, president of Dan River’s apparel fabrics division, said the Danville, Va.-based mill has not experienced any notable increase in CBI-related business.
“I don’t think the business has picked up to the level we had hoped for,” he said. They’ve got to find a way to put the needle in place to take advantage of this.”
Martin said his company landed two apparel-fabric programs for garments now sewn in Honduras, that previously had been sourced in India and Taiwan, because of the lack of duty and quick turnaround time.
“They came back because of the advantages of new duties and they have rationalized that it is competitive,” he said. “They never specifically told me it was cheaper, but I know it’s at least equal to the product that they were doing in the Orient, as far as the cost basis is concerned+it doesn’t necessarily have to be cheaper if you can also show that you can turn this product quicker.”
Martin said he expects other firms to shift production from Asia to the CBI region once current commitments expire.
“What we need to realize is that the CBI parity ruling has only been in effect since Oct. 1 of last year and it takes time to rationalize your production,” he said.
Martin said he expects to “know by the end of this year, beginning of next year, what the full possibilities are going to be” for CBI.
Like Dan River, Lawrence, Mass.-based fleece maker Malden Mills expects CBI-related business to pick up as its customers head to the CBI region, lured by the prospect of quick turnaround times and lower costs and quotas.
“Typically when products were coming from China, I had quota issues to deal with, you had a time delay for goods being on the water, if you wanted to do a spot check on quality you would have to hop on a plane,” said Cesar F. Aguilar, senior vice president and general manager for the firm’s newly created Polartec Worldwide division. “It’s more cost-effective and having them closer to our home turf is certainly a benefit.”
So far, said Aguilar, “We haven’t really quite pinpointed exactly how much we’ve benefitted, but we certainly believe the CBI initiative will help our business.”