That, at least, is one key takeaway from a Financo Inc. seminar held Tuesday, where Kathleen B. Cooper, undersecretary for economic affairs at the Department of Commerce, declared: “We’re optimistic a recovery is near. Before too many months, we’ll see some growth as we move down the road. We won’t see a robust year in 2002, but it will be better than 2001.”
Citing economic indicators like solid consumer spending and stabilized capital investment, Cooper predicted a first-half turnaround, but she cautioned that the turnaround would be followed by a slower-than-usual recovery.
Consumer spending continues to bolster the economy, according to Cooper. Fourth-quarter spending was up 4 percent, boosted by strength in auto sales, Cooper noted, adding that housing construction and retail spending figures remain strong.
Currently, 44 percent of consumers say the economy is “getting better,” up from 30 percent in October, she said. “Consumers are more upbeat,” added Cooper. “They’re more hopeful, but they’re realistic. Consumer spending remains strong, but the consumer cannot do it alone. We need to see a turnaround in [corporate] investment to get this economy going.”
Capital investment by corporations has stabilized and is “not terribly far” from turning around, Cooper contended. However, because consumer debt remains at historically high levels, when the economy rebounds, it will likely grow more slowly than it usually does after a recession, as consumers continue to pay-down their debt, she noted.
Cooper was the most optimistic member of a blue-ribbon panel, moderated by Financo chairman Gilbert Harrison. Panelists explored the supply-chain difficulties caused by an increasingly uncertain political and economic environment around the world. “We need to better understand the realities of global production so we can survive disruptions,” Harrison said.
With varying degrees of pessimism, the other attendees — William Fung of global sourcing giant Li & Fung; Jules Kroll of security firm Kroll Inc.; Richard Soja of Chubb Commercial Insurance, and Hans Toggweiler of air-freight leader Danzas AEI North America — depicted a sourcing and merchandising industry gravely affected by the events of Sept. 11 and still struggling to develop appropriate responses.
The discussion revealed some surprising, and sometimes worrying, observations about the state of the industry. Among them:
Retail lags most other industry sectors in implementing security measures, said Kroll, who is executive chairman of Kroll Inc. “There’s been a dramatic change in security at office buildings and stadiums, but we’re not seeing a lot of changes in retail. Unfortunately, we’ll have to wait for the first bomb to go off in a mall before people pay attention.”
Kroll dismissed those who say that retailers can’t check on an employee’s history without violating their civil rights. “Germany has very restrictive legislation [protecting civil rights] and yet I can tell you that at the Frankfurt airport, they know the background of every person that works there.”
Tough economies around the world have led to a surge in commercial bribery and theft. “Theft accounts for about 60 percent of loss claims in the merchandising industry and fashion apparel is the most susceptible to cargo crime,” said Soja, who is global marine and energy manger at Chubb. Hijackings are a risk in countries ranging from Mexico to Italy, panelists said.
To defend against cargo crime — and cut their insurance costs — apparel manufacturers should try to avoid overland shipping in high-risk markets like Mexico, and ship products in discreet packaging and with documentation that doesn’t highlight contents of the merchandise, Soja said.
Cargo Insurance rates are on the way up — at least 5 to 10 percent in 2002 — though insurers will still offer terrorism insurance for goods that are in due course of transit, said Soja. The climbing rates are a result of changes within the industry, but were certainly exacerbated by the events of Sept. 11.
U.S. ports are still lightly policed and could be easy entry points for terrorist materials. Containers coming into the U.S. by sea are subject to few searches, though outgoing air-freight has been subject to additional checks, said Toggweiler. That opens up the possibility of a bomb, either on board a cargo ship, or in an American port.
“The checking going into containers is de minimus,” agreed Kroll. “This is an area that is essentially completely wide open in this country.” Panelists said that it would take a bomb explosion in a U.S. port to draw any serious resources to shipping security.
Looking at the big picture, panelists said the events of 9/11 highlighted what every apparel firm should already have known: a strong, flexible, transparent supply chain is vital — and something that can’t be built overnight.
“You have to put your sourcing to the test,” said Fung, chief executive officer of Li & Fung. “This fall, some fashion people switched their production to basics, or cut back on production. The ability to do that without harming a relationship is evidence of a strong supply chain.”
Apparel firms should also have strong local managers and contingency plans in case of strikes, riots, war or even rapid currency fluctuations, said Toggweiler. “You need flexible partners both domestically and overseas, because by the time you read it in the New York Times, it’s too late.”
On the plus side, profit possibilities have been created by the global turmoil. Prices are dropping in markets like Indonesia and Pakistan, as manufacturers try to entice wary buyers back into business. “Problems also create opportunities,” said Fung.