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Price Pain: Apparel Grapples With Higher Costs

Just as brands and retailers are finding consumer demand slowly climbing back to pre-pandemic levels, they’re now dealing with rising costs, from raw materials to logistics.

Raw materials

In the fiber world, most cotton benchmark prices increased over the past month. Since early February, futures prices increased to 87 cents from 80 cents per pound.

The Cotlook A Index, an average of global spot cotton prices, rose to 90 cents per pound from 86 cents over the past month, Cotton Incorporated noted in its monthly report last week.

U.S. spot cotton prices averaged 81.08 cents per pound for the week ended Feb. The weekly average was up from 77.40 cents per pound the previous week and from 63.67 cents a year earlier, according to the U.S. Department of Agriculture.

“Cotton price levels continue to trade at levels above those that global supply and demand estimates suggest may be appropriate,” Cotton Inc. said. “The Chinese stocks-to-use ratio is about 40 points higher than it was in the 2000s, before the financial crisis and before the massive accumulation by the reserve system. The stock-to-use ratio for the world outside China of 65.9 percent is about 20 percent a higher than it has commonly been in the modern era. Nonetheless, the A Index reached its highest monthly average since October 2018 last month, and cotton prices continue to climb in early February.”

Cotton Inc.’s analysis said it remains to be seen what factor might eventually be successful in challenging the uptrend, noting that similar to equity markets, the resurgence in Covid-19 cases and a downturn in consumer spending have had little effect.

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The organization representing U.S. cotton growers said commodities like cotton can be seen as a hedge against inflation and that easier monetary policy in the U.S. compared to other markets can lead to declines in the value of the dollar, which can also support cotton prices.

Cotton Inc. noted that along with cotton prices, values for crops that can compete with cotton for acreage have also been increasing. A result is that global cotton acreage could be expected to be stable or a little higher than those in the current crop year.

Robert Antoshak, CEO of consultancy Textile Projects, agreed that “intercrop competition” is also boosting cotton prices, with farmers making decisions for greater profitability during difficult times.

Synthetic fiber prices have also started to increase, Antoshak noted, because historically, cotton prices and polyester staple prices have tracked each other.

The U.S. Producer Price Index for synthetic fibers was up 1.3 percent in December month to month, with prices for processed yarns and threads, and finished fabrics also ticking up, according to the Bureau of Labor Statistics.

Yarn manufacturer Unifi Inc., in reporting that net sales for its fiscal second quarter ended Dec. 27 dipped 4 percent year over year to $162.8 million, said the decline resulted from lower selling prices in connection with lower raw material costs and unfavorable foreign currency translation.

“The polyester segment benefited from a better production and sales mix, along with raw material and pricing stability, along with the richer sales mix and manufacturing efficiencies, achieving a gross margin of 14.2 percent,” CEO Eddie Ingle said.

Wool prices have also firmed up of late. Australian Wool Innovation (AWI) reported that the benchmark Eastern Market Indicator was up 8 cents per kilogram, or 0.8 percent higher, to close the week ended Feb. 12 at $9.86 per kilogram.

Wool markets appear to be moving towards more of the ‘normal,’ pre-pandemic economy levels and their associated expected patterns,” AWI said. “Italian buying was very apparent, as the quality of wool suitable for their high end needs became available…Additionally, smatterings of orders destined for the sub-continent provided good support, but it is still very much the Chinese domestic manufacturing and consumption market that is providing the backbone to the Australian wool price.”

Shipping

At the same time, shipping costs have risen to meet increased demand amid shifting trade and purchasing patterns.

The World Container Index assessed by Drewry decreased 0.7 percent, or $38, for the week ended Feb. 11 to stand at $5,190.75 per 40-foot container (FEU), but was up 197.7 percent when compared a year earlier.

Ocean carrier A.P. Moller-Maersk said last week that the demand surge in the second half of the year created supply-chain bottlenecks, including vessel and container shortages, and led to higher rates.

FedEx said last month that the impact of the coronavirus continues to generate elevated volumes and the company continues to experience high demand for capacity and increased operating costs across its network.

​To continue providing customers with the best possible service during this challenging time, FedEx said customers at the enterprise level that meet a certain volume threshold will be charged a “Peak Residential Delivery Charge” for packages shipped starting Feb. 15.

The charge amount of 30 cents per package will apply to FedEx Express and FedEx Ground U.S. domestic residential packages, excluding FedEx SmartPost and FedEx One Rate packages. FedEx SmartPost packages will be subject to the previously announced Peak Surcharge of 75 cents per package effective Jan. 18.

All that likely contributed to U.S. retail apparel prices increasing a seasonally adjusted 2.2 percent in January, the third consecutive monthly gain, the Bureau of Labor Statistics reported Wednesday in its Consumer Price Index (CPI).

The price hike was broad-based, with a rise in all sectors. Children’s wear led the way, with price increases of 6.2 percent in girls’ apparel and 3.4 percent in boys’ clothing. Women’s apparel prices were up 2.4 percent in the month and men’s wear prices rose 1.1 percent.