The garment supply chain just can’t get a break from Covid-19.
If global shipping delays and inflationary pressures weren’t bad enough, factory closures from coronavirus shutdowns in Bangladesh and Vietnam could derail more than one-quarter of U.S. imports of clothing and footwear, S&P Global Market Intelligence’s global trade data platform Panjiva said Friday.
Production lapses in late July and early August, when imports of apparel and footwear typically peak in the United States, could result in a shortage of fall/winter deliveries, preventing retailers from fully capitalizing on the spending rebound from stimulus-flush Americans venturing back outside. Already, shipments in the three months to May 31, covering late spring/summer clothing and back-to-school supplies, have jumped 58.6 percent year over year, according to Panjiva.
Paused production lines in Bangladesh and Vietnam, on the other hand, could place 27.4 percent at risk, mostly because “there has been something of a refocusing” on those countries of late, with year-over-year shipments in the three months to May 31 ticking up 6.3 percent and 26.5 percent, respectively, said senior analyst Christopher Rogers. By comparison, imports from China and India stumbled 15.9 percent and 4.1 percent, respectively.
Bangladesh, which resumed its national lockdown on Friday following an “Eid break” to allow Muslims to celebrate the religious festival, is currently the world’s second-largest exporter of garments after China, though there were signs that Vietnam was nipping at its heels even before the contagion upended the globe.
“Some apparel brands and retailers have reached a tipping point to the volume they can source from Bangladesh,” Saskia Hedrich, senior expert at McKinsey’s apparel, fashion and luxury group, previously told Sourcing Journal. “These are starting to diversify volume from Bangladesh to other countries to avoid overdependency and manage supply-chain risks.”
But the pandemic has demonstrated there are no safe havens. Even before spiraling Covid-19 cases triggered a 15-day lockdown in the capital of Hanoi over the weekend, several footwear factories in Vietnam had halted work to curb the spread of disease. Now, the wave of infection has left more than one-third of the nation essentially paralyzed. Panjiva has warned that Nike could find itself short on sneakers because suppliers in Vietnam provided nearly 50 percent of its U.S. seaborne imports in the second quarter of 2021. Footwear was included in 82 percent of the Swoosh company’s shipments in the 12 months ending June 30, it added.
But Nike, which lists 132 Vietnamese suppliers on its website, said it is confident in its ability to “navigate these near-term dynamics” as it remains “prudent” in its planning. The sportswear giant also said it expects its suppliers to prioritize the health and livelihoods of their employees while complying with its code of conduct on the provision of wages, benefits and severance.
“The health and safety of our teammates, as well as that of our suppliers, remains our top priority,” a Nike spokesperson told Sourcing Journal. “We continue to work with our suppliers to support their efforts in response to the dynamic and unprecedented nature of Covid-19.”
Adidas was similarly sanguine about the situation in Vietnam, where 75 of its more than 500 suppliers reside.
“We support the measures taken by the authorities; health and safety is a top priority for Adidas, also in our supply chain,” a spokesperson told Sourcing Journal. “We do not expect any immediate effects on our business at the moment. We are in close exchange with our partners on the further development of the situation there.”
But circumstances could get worse before they get better, according to Neža Kričaj, intelligence solutions consultant at risk-assessment firm Everstream Analytics. And brands could be scrambling more than they’re letting on.
“Production shutdowns at footwear manufacturers have already caused supply-chain disruptions at Nike, where sources reported that the company has begun using air freight to get its products out of Vietnam as quickly as possible amid a shipping crunch,” Kričaj told Sourcing Journal. “Also at risk of disruption are supply chains of other large companies that have their products manufactured in factories in Vietnam. The situation is likely to worsen in the coming weeks as the flow of cargo through Vietnamese ports increases. Should logistical operations deteriorate while production continues, there is a risk of warehouse space becoming scarce.”
Suppliers in Vietnam are also struggling to adopt safety measures that can prevent the potential spread of the virus and allow them to stay open.
“Due to the short notice of the announcement, many companies have been unable to meet the requirements in order to continue operations,” Kričaj said. “Moreover, companies that can meet the requirements are reportedly required to register with authorities to be approved for the usage of the mitigation plans such as ‘three-in-one spot’ restrictions, which require companies to allow employees to work, eat and rest in one location.”
In the case of Bangladesh, June, July and August are the peak months for the country’s apparel exports to Western markets, with roughly 35 percent to 40 percent of annual exports made during this period, said May Yimon Aung, manager, APAC supply chain intelligence, at Everstream Analytics. “Missing this period for production and shipment would entail a loss in sales,” she added.
The South Asian nation’s stalled output “reverses the trend” seen earlier during the pandemic, when the country’s garment suppliers were hit with numerous order cancellations from retailers anticipating Covid-19 restrictions in Europe and the United States, Panjiva’s Rogers said.
But Panjiva’s data showed that Bangladeshi exports of apparel to the U.S. have remained more resilient than those of neighboring garment hubs throughout the pandemic, with shipments in the three months to April 30 down by only 1.6 percent year over year compared with 6.4 percent in Sri Lanka and 10.1 percent in India. Panjiva’s U.S. seaborne import data also revealed a recovery to pre-pandemic levels in May with a growth of 6.2 percent compared with the same period in 2019. Shipments linked to H&M, one of Bangladesh’s biggest buyers, increased 13.5 percent in the three months to May 31.
The Swedish fashion chain said it “refrains from speculating how this situation will affect our production planning” but will be monitoring it closely.
“We have a good relationship with our partners and are used to handling any potential disruptions that may impact our supply chain,” a spokesperson told Sourcing Journal.“We will, as always, stand by our contracts and responsible purchasing practices.”
In terms of sourcing from Bangladesh and Vietnam, companies are “caught between a rock and a hard place,” said Sofia Nazalya, Asia analyst at risk-analysis company Verisk Maplecroft.
“Temporarily shifting production to other countries unconstrained by lockdown measures is a likely option,” she told Sourcing Journal. “However, there is no guarantee that they won’t be hit with similar closures when cases increase.”
Still, given the importance of the garment industry in Bangladesh, it’s unlikely that factories will remain closed beyond the expected end of lockdown on Aug. 5.
“This will be a temporary setback for the industry, with no major disruptions expected as a result of the latest lockdown,” Nazalya said. “The apparel industry in Bangladesh has proved resilient throughout the pandemic, and has bounced back in the face of global instability and shifting sourcing decisions.”