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Unifi Inks Joint Venture in Guatemala as Central American Sourcing Grows

As interest in Central American sourcing grows owed to its logistical and duty-free advantages, Unifi Inc. wants to increase its capabilities in the region.

The Greensboro, North Carolina-based yarn spinner has signed a letter of intent to form a joint venture in Guatemala with the owners of Complast S.A and Technologia Textil Avanzada.

Complast and TTA have existing recycling, spinning and texturing operations in Guatemala. The joint venture would continue those operations, with Unifi owning 51 percent and the existing principals of Complast and TTA retaining 49 percent ownership.

Unifi said its desire to form the joint venture is based on the importance of the Central American textile market and its commitment to it for the foreseeable future. The company believes the venture will further expand the geographic footprint of its Repreve recycled fiber through local, quick-turn production of Repreve brand filament yarn within Central America, a key apparel-producing market that requires compliant yarn.

“Central America has been a region of focus for brands and retailers over the past few years, as apparel programs are sourced closer to the U.S.,” said Unifi president Tom Caudle. “The growth in the region is key to our strategy of building our Repreve and other value-added brands.”

[Read more about Repreve: The New Polyester: Eco-Friendly and Beyond Basic]

Complast owns and operates a bottle processing facility and produces flake and chip under the brand name EuroPET for the consumer packaging market in Central America and for further processing in its spinning plant. TTA produces polyester POY and textured yarn under the brand name EuroFIL and supplies the Central American market. Under the letter of intent, these operations would be contributed to the joint venture and the companies intend to expand the existing operations.

Repreve is Unifi’s flagship brand of recycled fibers, made from recycled materials including plastic bottles, and can be found in products ranging from apparel and hosiery to automotive and industrial applications. Brands like Patagonia, Haggar and Quiksilver have used Repreve in their product.

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Lucia Palacios, marketing and promotion manager for Vestex in Guatemala, who spoke on a Central America sourcing panel at last month’s Texworld USA, cited the region’s ability to react quickly to fashion trends with factories that can handle smaller runs of fabric and yarn types.

[Read more about what’s happening in Central America: Central America Looks to Surpass Asia for Affordable Quick Response]

The fact that finished goods imported to the U.S. from countries that are part of the Central American Free Trade Agreement—Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic—and under Haitian trade preference programs, are brought in duty free, represents an average 33 percent duty savings and is a key aspect of the region’s appeal.

“The biggest advantages are the flexibility for rules of origin, proximity, the ability to react faster and produce quick response, and competitive labor,” Mark D’Sa, special projects coordinator for Haiti and who also spoke on the Texworld USA Panel, said. “This is something that very few other places can offer.”

D’Sa said one factor for U.S. brands and retailers that cannot change is geography—it takes roughly three-and-a-half to five days ocean shipping time to the U.S. He said there’s also a growing “verticality” in the region, such as cotton yarn capability expansion in Costa Rica and filament yarn capacity investment in Honduras, leading to the ability to produce 300 million more garments a year in Central America.

“The gap is closing,” with Asian manufacturing,” D’Sa said. “Central America is becoming more important to American retailers and brands such as Nike, Lululemon, Under Armour and Gap that are bringing more manufacturing back to Central America and to Haiti.”

Gildan Activewear will be making a lower-priced line for its new American Apparel brands in Honduras and Nicaragua, augmenting the Made in USA production for the signature collection. Gildan owns and operates vertically integrated, large-scale manufacturing facilities primarily located in Central America, the Caribbean Basin, North America and Bangladesh.

Honduras seems to be leading the way in the region, with imports to the U.S. surging 15.1% to 99.9 million square meter equivalents in May, with the value of its shipments rising 19.6% month-to-month and 3.5% from May 2016 to $225.4 million.

Overall apparel and textile imports from the CAFTA region for the first five months of the year were up 1.14% to 1.27 billion SME, according to the Commerce Department’s Office of Textiles & Apparel.

Lenzing Fibers has spent the last few years developing the supply chain for its products in Central America.

David Adkins, Lenzing’s commercial manager for nonwovens Americas and textiles North and Central America, who also spoke at Texworld, said the maker of cellulosic fibers Tencel and modal has been educating its mill sources in the region about what Lenzing can produce, and the company has started to move downstream to develop knowledge among weavers, knitters and cutters there.

“We’re really encouraged about the reaction we’re getting,” Adkins said. “And we’re getting a lot of positive reaction from the brands about what we’re doing down there and what we can do to help develop sources.”

The Unifi transaction is subject to the parties reaching a definitive agreement, with a transaction closing expected to occur by the end of the year.