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How Much Will Twin Storms Damage Central America Garment Exports?

MEXICO CITY — Tropical storms Iota and Eta could cost Central America up to $200 million in garment exports and see shipments delayed by one to two months as clothing factories are forced to idle production, industry observers said.

They added the region, which sent nearly $7 billion of apparel to the U.S. last year, will need billions to rebuild and finance new infrastructure projects to make it more resilient to adverse weather events stemming from global warming.

“It’s a tragedy,” sighed Mario Canahuati, president of the Honduran Manufacturers’ Association (AHM) and member of the Canahuati texiles family conglomerate in the nation, whose maquila sector saw the most damage from nearly two weeks of storms as Eta hit Nov. 3, followed by Iota on Nov. 16. Both were Category 4 storms. Eta affected 3.6 million people across the isthmus, pummeling Nicaragua, Honduras and Guatemala with catastrophic winds, rain and flooding. Meanwhile, Iota is said to have displaced 400,000 people in Nicaragua, though its apparel supply chain was understood to have been left largely unscathed by the storm.

Canahuati declined to estimate how the storms damaged Honduras’ textiles pole, a major supplier of basic T-shirts and underwear to the U.S., noting that only two large unnamed mills in the industrial San Pedro Sula area idled production for two days in response to Eta and this week to cope with Iota. Honduras’ key apparel shipments port Puerto Cortes was saved, however, but roads to transport goods to it were damaged. Key infrastructure in Honduras’ Sula Valley industrial strip on the northeast Atlantic was severely damaged including roads, bridges, floodgates and river channels, according to Canahuati.

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“The reconstruction process is going to be very delicate,” he said. “Floodgates were broken so we need to do a lot of work to build new ones and on river channels which overflowed.”

Sula Valley is home to many agricultural crops which were mostly ruined, Canahuati said, noting that the hurricanes’ toll was more concentrated on agriculture than manufacturing, at least in Honduras.

Still, roughly 67,000 families lost their homes and are now stuck in shelters around the country. Canahuati noted the industry is working to provide food, shelter and rescue aid for these families, some of which worked in apparel mills.

In the U.S., Steve Lamar, president of the American Apparel & Footwear Association (AAFA), echoed views of the devastation.

“It’s terrible,” he said. “It’s clear that the hurricanes have disrupted production and critical transportation links. In Honduras, operations have been impacted as well as the port and the airport. Roads are flooded or washed out so transporting containers is challenging both within the country and between Honduras and other countries.”

Miguel Ruiz, who heads regional union Coordinadora Regional de Sindicatos de Maquila, said the damage to Honduras’ apparel supply chain looked more severe than Canahuti estimated.

“The main factories in Honduras have been closed because of flooding, including Gildan and Tegra plants, and this is having a cascading effect around the region,” he said, adding that Nicaraguan mills are now missing feedstocks as they are integrated with Honduran counterparts and can’t export their clothes as the Cortes Port remains inaccessible.

Ruiz noted most Nicaraguan plants sit on the Pacific Coast so were not as severely hit as those in Honduras, centered along the Atlantic and Caribbean strip. He noted the region’s customs and logistics infrastructure was also hit.

Based on $6.8 billion in exports last year, Central America ships nearly $570 million to the U.S. each month. The coronavirus was expected to dent shipments by up to 30 percent before the hurricanes made landfall — but with them, exports could now decline another 10 percent, cutting monthly output by nearly half, Ruiz predicted.

“It’s too early to estimate how exports will be affected but I would say a preliminary estimate would be $100 million to $200 million,” he noted.

The Coordinadora has added flood compensation demands to a $20 million “social responsibility” fund it is working to negotiate with U.S. fashion labels to help Central American workers cope with COVID-19 and now the hurricanes’ toll.

He said Gildan has “changed its posture and become more accommodating” to unions’ demands that it compensate 100,000 Honduran sewers who lost their jobs amid widespread lockdowns. “They already agreed to pay workers in Nicaragua and are now showing a willingness to do so in Honduras, which is a very positive thing.”

Dante Mossi, president of the Central American Bank for Economic Integration (Cabei), said that the bank will provide $2.5 billion in “soft” or low-interest loans to help countries rebuild and install more climate resilient infrastructure to guard against future storms or floods. Another $1.7 billion will come from co-financing activities with other multilateral lenders while a $2.5 billion existing COVID-19 aid facility has been extended for another year.

The storms came as Central America was beginning to recover from the pandemic with infections tapering off and rising hopes that the economy would begin to recover. “Countries like Guatemala were surprisingly quick at resuming exports [amid rising U.S. demand] but now these storms will delay shipments, no matter the condition of the actual factories, because a lot of roads and bridges are damaged,” Mossi said.

He said Guatemala’s apparel export supply chain, centered inland in capital Guatemala City, was spared from the hurricanes. The country makes garments for many U.S labels including Disney, Under Armour, Walmart and Nike.