Part I: Demand Strong; Availability Uncertain
Background
In January, NAUMD Uniform Market News took a look at some of the challenges faced by sourcing professionals within the uniform industry. These included a worldwide cotton shortage, a rising demand for all textiles, an emerging middle class in developing countries, and of course, the economic downturn.
Cotton prices nearly doubled last year, hitting a 15-year high. Actual mill delivered price started at $.73/lb and ended the year at $1.42/lb. And there’s no relief in site: prices are expected to climb throughout this year and well into 2012.
Then there’s the worldwide recession, which wreaked havoc on many global economies, with one glaring exception: China. In fact, China’s economic growth spawned an emerging Chinese middle class, bringing with it an appetite for textile consumption even as cotton inventories shrank. China, a major producer of cotton, is also the world’s largest importer of U.S. raw cotton.
Those seeking relief from the rise in cotton prices with a greater reliance on synthetic fabrics like polyester and blends, found little respite: prices for raw materials are on the rise here too, and may negate any advantage from a switch.
All this, as the country slowly rebounds from recession. “These are unprecedented cost increases at a time when companies are struggling to win back business,” Mary O’Rourke, president, O’Rourke Group Partners, said back in January.
Made in the USA Again?
Adding to the confusion is the recent spate of articles appearing in the New York Times and elsewhere touting the return of manufacturing to America as China’s rising labor costs erase most savings from offshoring.
With Chinese wages rising at about 17 percent per year and the value of the Yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly, according to analysis by The Boston Consulting Group. The report goes on to say that flexible work rules and a host of government incentives are making many states—including Mississippi, South Carolina, and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market.
After adjustments are made to account for American workers’ relatively higher productivity, wage rates in Chinese cities such as Shanghai and Tianjin are expected to be about only 30 percent cheaper than rates in low-cost U.S. states. And since wage rates account for 20 to 30 percent of a product’s total cost, manufacturing in China will be only 10 to 15 percent cheaper than in the U.S.—even before inventory and shipping costs are considered. After those costs are factored in, the total cost advantage will drop to single digits or be erased entirely, according to the analysis.
All this could result in a “manufacturing renaissance” as the U.S. becomes a low-cost country among developed nations, according to the BCG.
Moreover, a number of companies, especially U.S.-based ones, are already rethinking their production locations and supply chains for goods destined to be sold in the U.S. For some, the economics have already reached a tipping point.
Topic Focus of Convention, New NAUMD Initiatives
The change within the supply chain is so critical to the economic life of the uniform industry that the topic took center stage at last month’s convention, and is the focus of other new initiatives.
Mike Todaro of the American Apparel Producers’ Network headed a breakfast panel that outlined sourcing obstacles and solutions in the 21st century. Todaro was joined by David Earley, senior director of Cotton Incorporated, and NAUMD member Mary O’Rourke, who provided comparative global cost analysis for select uniform products and hourly labor cost trends.
NAUMD’s Richard Lerman traveled to Mexico later that month, taking part in a sourcing fair that for the first time included representatives from the uniform industry. “We’re reaching out to gain a better understanding of how the supply chain affects the industry and our members,” said Lerman.
Sourcing and the changes in the global economy will also play a leading role here at NAUMD UniformMarket News. Over the next several months, we’ll examine the challenges facing today’s sourcing professionals. Where can the industry find the best value? Are countries such as Thailand, Ethiopia or Vietnam viable solutions to China? What options exist in this hemisphere? How do rising costs affect the supplier/customer relationship? Will apparel manufacturing really return to the U.S.?
We’ll attempt to answer these and other questions, starting next month.
