CONCERN MOUNTS OVER CARGO
Byline: Kristi Ellis
WASHINGTON — U.S. apparel and textile firms sourcing in the Mideast and South Asia are performing a delicate balancing act.
They must finalize orders for 2002 while they simultaneously reevaluate sourcing strategies because of the possibility of shipping disruptions.
As the U.S. enters its third week of military action in Afghanistan in its campaign against terrorism, companies are at a crossroads. The timing is crucial for placing apparel orders for spring and summer 2002, but the instability in the region has many executives reexamining their sourcing plans.
Many apparel and textile firms were able to get finished goods out of Pakistan — the U.S.’s fourth-largest supplier of fabric and garments in terms of the square-meter-equivalent measuring unit — without experiencing severe delays after Sept. 11. The big question is whether they will continue to place orders in the region if the situation deteriorates.
Retailers, manufacturers and importers have or are threatening to cancel orders for textiles and apparel in Pakistan, which has aligned itself with the U.S. in the retaliation against Afghanistan, where the Bush administration’s key suspect, Osama bin Laden, is believed to reside.
Although destabilization in the area has not created unmanageable shipping and production problems, executives remain worried about that possibility.
U.S. apparel and textile companies are struggling to balance a number of new developments in the region, including higher insurance costs, war-risk premiums, canceled commercial flights and fewer sea carriers.
They are hopeful the Bush administration will offer trade benefits to Pakistan in exchange for its cooperation and support in the campaign. The Pakistani government is seeking a temporary suspension of apparel and textile tariffs and quotas through 2004. A deal could be announced soon.
Both the U.S. and Pakistani governments are seeking short-term solutions.
The Pakistani government issued a letter of assurance three weeks ago to business lobbyists and trade groups claiming it will help companies get their goods out in a timely manner, even if chartered flights have to be arranged.
Undersecretary of state for economic, business and agricultural affairs Alan P. Larson has also told U.S. apparel and textile companies some airplanes delivering humanitarian and other supplies are leaving Pakistan empty and could be used to transport apparel and textiles back to the U.S.
Measured in dollar terms, Pakistan ranks 15th on the list of importing nations, having shipped $1.91 billion in goods to the U.S. for the year ended in July, according to the Commerce Department.
Pakistan is the U.S.’s number-one supplier of cotton yarn imports, cotton fabrics and cotton home furnishings, according to the Commerce Department’s figures.
“We don’t have a lot of time before more companies start canceling business there,” said Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles and Apparel. “It’s not because they have lost confidence in Pakistan’s ability to supply products but because of the potential for disruption.”
Hughes said the primary concern among importers at the moment is not shipping delays from Pakistan but in delays of up to two weeks at U.S. ports, due to increased inspections by the U.S. Customs Service.
“My members have told me about lengthy delays at ports on the U.S. side,” said Hughes. “Customs is holding shipments from Pakistan longer than usual to do special inspections,” she claimed.
The majority of companies ship apparel and textiles by sea but they also use air cargo as a fallback or for quick-turn fashion items.
“There have been some delays at some of the land border ports, sea ports and airports,” said a U.S. Customs spokesman. “We are asking for the patience and support of the trade community as we try to maintain security at this time.”
With the U.S. on a heightened state of alert, Customs has been conducting “dramatically enhanced inspections” of all cargo, people, cars, boats, planes and trucks at all of the U.S.’s 301 official points of entry.
He attributed the delays to a “dramatic increase in bomb threats at ports,” which forces officials to close ports for several hours at a time.
But he said the agency has deployed additional people to ports around the country, which has enabled it to reduce commerce backlogs.
“There were some immediate backlogs following Sept. 11, but we believe most have been reduced,” he said.
Facing many of these challenges, U.S. companies are watching rapidly changing developments in the region very closely and quietly developing backup plans — which generally mean moving production to another part of the world.
J.C. Penney Co. produces a “small percentage” of its apparel in Pakistan and Jordan and “a lot” of knits in Turkey, said Peter McGrath, president of purchasing.
He noted that the number of sea carriers serving that region has recently fallen from three to one, but added that shipments have not been disrupted because overall volume has declined.
“We lost some carriers but orders have been lost as well so the demand for space is not exceeding capacity,” McGrath said.
He said 95 to 98 percent of Penney’s imports are shipped by sea from the region and noted that U.S. Coast Guard visitations have become a “situation we’ll have to deal with as importers,” though he said there are “no excessive slowdowns.”
McGrath said that if long delays become a problem, Penney’s plans to shift knit production from Pakistan to Indonesia.
“Our plans are steady,” he said. “Both Jordan and Pakistan will continue to receive a normal order flow until such time we think production is in jeopardy, in which case we would do a pull.”
Kellwood Co. has less than 10 percent of its production in Pakistan, India, Sri Lanka, Egypt and the United Arab Emirates, according to Robert Rampersad, international logistics manager.
He said finished garments shipped from Pakistan are “moving smoothly by sea.” But Kellwood is “staying away from air shipments because it is very volatile.”
Rampersad said war-risk premiums charged by shippers have only been placed on shipments from Sri Lanka, though he said carriers are threatening to slap them on shipments from other countries in the region.
He said Kellwood is not canceling orders and is currently shipping holiday and transition goods. The company uses eight sea carriers worldwide and has heard of no planned service cancellations.
He said he doesn’t expect to experience major disruptions because the seas are very well protected. “I see little effect on ocean transportation because the Red Sea express is well guarded.”
Delays at Customs ports have also not been a significant factor, he said. “In light of the rules that went into effect from the Coast Guard, we are calling ports four days prior to entering and that action has helped us avoid delays.”
But air freight, which the company uses for products made in India continues to “be precarious,” and is frequently delayed as a result of the recent American air strikes, he said. He is also anticipating price increases soon.
Kellwood has not made any decisions to remove sourcing from the region but it hasn’t made a decision to increase it either, he said, adding, “It is still a wait-and-see approach.”
While New York-based Liz Claiborne Inc. has no production in Pakistan, it does contract with suppliers in the country for cotton yarns and gray goods and also has production in Turkey, Indonesia and Jordan, according to Bob Zane, senior vice president of manufacturing, sourcing, distribution and logistics.
“The combination of increased inventory in conjunction with alternative sources like India and China, gives us a nice margin of safety,” Zane said.
The company has not experienced shipping delays, Zane said.
He said about 20 percent of Claiborne’s goods shipped from Turkey, Indonesia and Jordan are sent by air, which has not been disrupted either.
Zane noted that carriers have dropped services in some parts of the region, which he characterized as a “minor pinprick.”
“There has been some curtailment of services from Sri Lanka and some surcharges on shipments from Sri Lanka and India, but they are manageable.”
He noted insurance premiums on the company’s worldwide sourcing increased recently only by $15,000 annually.
“Our posture is to be more alert to potential problems, more concerned with developing contingency plans and leaving the sourcing configuration intact,” he said. “I’d love to do everything in Greenwich, Connecticut, but I can’t.”