A side effect of the coronavirus pandemic has shown that textile and apparel manufacturers in Mexico, El Salvador, Guatemala, Honduras, Haiti and the Dominican Republic can be a viable source for the Canadian and U.S. markets.
A new report from Nicole Bivens Collinson, who leads the international trade and government relations practice of Sandler, Travis & Rosenberg (ST&R), for the Inter-American Development Bank found that the ability of regional manufacturers and governments to recognize and act on the possibilities of a post-pandemic environment could dictate outcomes for this industry for the next decade.
According to the report, the pandemic uncovered several factors that could prove beneficial for textile and apparel producers in these countries. It cited noticeable vulnerabilities in brands’ and retailers’ supply chains that are causing them to consider changes such as hub-and-spoke sourcing models, vertical manufacturing in individual countries or regions, and nearshoring.
For example, they may begin to produce in the Western Hemisphere for the Western Hemisphere market, in a strategy known as dirt to shirt. They may produce in Africa for the European market and may produce in Asia for the Asian market. At each hub, they will look to develop a vertical production line so that all inputs are available for each target retail market, the report noted.
The use of a hub and spoke or more vertical regional sourcing also meets the needs and demands of corporations seeking to become more sustainable and to reduce their carbon footprint. Brands are seeing a growing trend towards a “green deal” that may force certain environmental reforms or taxes on them. The U.S. is expected to investigate the possibility of a carbon border tax on imports under the Biden administration, the report said.
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Combined with the need for supply chain verticality as evidenced by the coronavirus crisis, these forces are prompting corporations to address these manifold issues simultaneously.
“In other words, they can justify the additional costs of shifting production to more expensive locations to demonstrate that it will protect investment and supply chains in the event of another pandemic and that it will help meet their corporate sustainability and environmental goals at the same time,” the report said.
Brands and retailers are also reexamining their sourcing schemes in the context of another pandemic, the report noted.
“For supply chains that rely on cotton from one country, spinning in another, weaving in a third country, then cut, make and trim in a fourth country, the potential to be impacted multiple times by the virus exponentially increases,” it said. “At each juncture of the supply chain, the possibility for work stoppage exists. There is a desire by the government and many brands and retailers to produce closer to home through either on shoring or near shoring production.”
This comes when consumer shopping behaviors are evolving, with e-commerce sales increasing exponentially.
Concurrently, the United States and Canada are imposing trade-restrictive measures on major suppliers in China in response to concerns about forced labor practices in that country. There are also increasing civil and governmental pressures to bring manufacturing and jobs back to or nearer to the U.S. and Canadian markets, where more mutually beneficial trade tends to take place.
The report asserts that these countries–eligible for duty-free trade under the U.S.-Mexico-Canada Agreement and the Central American Free Trade Agreement–can take advantage of the evolving situation and become a post-pandemic manufacturing destination if they engage in a collaborative public-private sector effort.
This effort includes continued steps to demonstrate flexibility and quick response to market circumstances; maintenance of versatility in production and supply chains for e-commerce and drop shipment; development of verticality in supply chains for yarns, fabrics and apparel by working as a regional coordinated supplier; capitalizing on their proximity to and free trade agreements with the U.S. and Canada, and providing full transparency into their supply chains to demonstrate that no forced labor is used.
The report also recommends that companies leverage accelerated trade lanes for trusted or known traders, pursue cooperative agreements with the U.S. and Canada for pre-approved customs clearance for shipments, regional education and training initiatives, and integrate existing free trade agreement provisions.
“The natural benefits of geographic proximity and duty-free access remain attractive to buyers, but the need for greater capacity, more flexibility, more verticality and more speed are essential for the future,” the report added. “Because these countries have been supplying brands/retailers with information on country of origin for inputs, they have an advantage in ensuring full visibility into the supply chain, which is essential as more U.S. policy action is taken with respect to preventing the import of any goods containing cotton that may have been produced using forced labor.”