Widespread risks from the coronavirus continue as the outbreak has disrupted global supply chains across most industries.
The impact on the supply chains has been widespread within the autos, electronics, capital goods, commodities and the apparel sectors, which are seeing both a slowdown in sales and in availability of parts, according to the latest research from Panjiva, the supply chain intelligence unit of S&P Global Market Intelligence.
“While many firms are using expedited deliveries to maintain their supply chains, second-order effects are also emerging with the apparel industry now seeing a shortage in materials due to an earlier lack of supplies from China. Global supply chains are expected to take an extended period to fully recover,” Chris Rogers, supply chain research analyst at S&P Global Market Intelligence, said.
Second-order effects
Many garment factories located outside of China still rely on the production powerhouse for the raw materials they need to manufacture finish goods, driving the so-called second-order effect of the COVID-19 pandemic.
“At a high level the Cambodian government has warned about a second-order effect for customers of Cambodian factories resulting from fabric shortages from China,” a Panjiva study on the supply chain said.
“Levi Strauss and Adidas have rapidly increased their imports to the U.S. from Cambodia recently–while their sourcing of completed goods is diversified, they may not be so in fabrics,” Panjiva added, noting that Uniqlo parent Fast Retailing has “already seen a slip in shipments of at least two weeks despite aggressively moving its sourcing to Vietnam from China.”
Asian revenue v. Asian supply chain
Though virtually every apparel retailer is scrambling to limit its exposure as the outbreak grips the global economy, Panjiva’s data says supply chain exposure in Asia matters more than revenue exposure in the region’s retail sector.
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Comparing data from Ralph Lauren and Vera Bradley, Panjiva concluded that the former “outperformed” the consumer durables and apparel sector by 14.6 percent with 1.55 twenty-foot equivalent units, or TEU as a measure of cargo capacity, per million cost of goods sold, or COGS, and 16.5 percent reported Asian revenue exposure. On the other hand, Vera Bradley underperformed by 14.2 percent with zero percent reported Asian exposure and 12.41 TEU per million COGS. That means Vera Bradley has no exposure in terms of Asian retail, though supply chain exposure was high.
Panjiva’s data also indicated that Ralph Lauren’s import mix changed over the past two years, with seaborne imports down to 25.4 percent of the total in 2019 versus 34.6 percent in 2018.
The same was also true in consumer staples, where membership warehouse club Costco Wholesale Corp. outperformed the sector by 16.5 percent with 0.29 TEU per million COGS and 0.09 percent reported Asian exposure. Data also showed that imports from Asia fell 10.7 percent year-over-year in the three months ended Feb. 29, 2020. Pricesmart Inc. had zero percent reported Asian exposure, but it underperformed the sector by a negative 13.3 percent. That’s because its Asian supply chain exposure was much higher, at 1.43 TEU per million COGS.
Panjiva concluded that taking imports from Asia as a portion of the global total would show the proportion of international trade from Asia, but could overestimate the effect on companies that have little exposure to international trade in general. The trade firm believes using containerized freight imports, as measured by TEUs, from Asia against a neutral measure of a company’s supply chain, in this case the cost of goods sold, is a more nuanced measure across an apparel company’s business.