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Is Fashion Rerouting Product Away from Locked-Down Europe? Here’s What the Data Shows

With all U.S. residents over 16 years old now eligible for a coronavirus vaccine, the majority of states have taken a significantly swifter approach to reopening when compared to most European markets. Although the U.K. just saw its latest four-month lockdown lift on April 12, various restrictions across the continent are still prevalent in France—where a month-long third lockdown kicked off April—and countries such as Germany, Italy, Belgium, Poland and the Czech Republic. In some way or another, these restrictions limit consumers’ ability to shop for fashion and footwear in stores.

Yet despite these differences, shopper demand remains consistent across markets, even as many stores in Europe remained closed. If there’s been one constant, it’s that demand in materials is greatly exceeding supply, offering a ray of hope for retailers that have struggled throughout the pandemic, but causing massive headaches for the supply chain.

But does data indicate that brands and retailers are moving their supply from Europe to markets that are open or opening up?

Companies painted a mixed picture. According to Frank Fisher, vice president of global sourcing for the textile division at Milliken & Company, incoming orders have outpaced the supply of materials needed to feed its manufacturing plants.

“What we’re finding is very little inventory anywhere in the supply chain that goes into making a finished good, plain and simple,” Fisher told Sourcing Journal. “The whole world…went from safety stocks and buffer and fulfilling contracts…to just-in-time.”

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Combined with the ongoing container shortage, the dearth of material inputs had increased lead times from Asia to both the U.S. and Europe by three weeks in many cases. But Fisher did note that it was less economical for the shipping containers to be transported to Europe than it was for them to get to the U.S.

“They can make more money if they went to the Port of L.A. versus heading into Europe,” he said.

Given the market-wide store closures in some European countries, the option of rerouting goods setting sail for the continent to the U.S. would seem to be the better option. Cargo rates on the Europe-U.S. trans-Atlantic route are cheaper at $3,254 per forty-foot equivalent unit (FEU) than its Asia-U.S. East Coast ($6,239 per FEU) and Asia-U.S. West Coast ($5,052 per FEU) counterparts, according to Freightos data from April 8. But the trans-Atlantic route shipping rates rapidly surged by almost 50 percent between March 31 and April 8, signaling a significant boost in demand.

Highlighting the burden of shipments from Asia to Europe, the spot rate for Asia cargo to North Europe is now up 396 percent year-on-year, with rates to the Mediterranean up 317 percent, according to Drewry’s weekly indices. This jump is massive compared from the tallied route totals from Shanghai to New York and Los Angeles, which are up 133 percent and 153 percent year-on-year, respectively.

Yet even with these continued price spikes, it appears more retailers are more or less sitting on these shipments in Asia as opposed to actively rerouting them away from countries quarantining in Europe.

Notably, data from Panjiva, the supply chain research unit of S&P Global Market Intelligence, shows that imports from Europe to the U.S. increased only 1.2 percent year over year in March, suggesting that much of the U.S. import growth has been led by the West Coast ports. Compare that to shipments from China to the U.S., which garnered 177 percent year-over-year growth that same month.

“To date, beyond seasonal patterns, we haven’t seen a dramatic decrease in demand or change in rerouting take place,” Jan van Casteren, vice president of Europe at freight forwarder Flexport, told Sourcing Journal. “Many of our clients still have goods stored in Asia and are anxiously waiting for rates to drop to justify movement of these containers to Europe.”

Meanwhile, Fisher noted that while Milliken has reallocated finished product inventory for clients, shifting from geographies normally outside their purview, it all comes down to consumer demand, and not a need to push product in certain markets.

“We are paying expedited freight to get product there largely to meet the demand of our critical customers that need supply,” Fisher said. “I’ll supply outside of region if I have the product to sell, I’m not doing a fire sale, saying I have a lot of stuff here and I want to move it out. I’m more saying, ‘this is the only place I have it, let me get it over there because that customer is more important right now.’”

Supply chain and procurement consultancy Inverto said it did not have explicit insights or data about whether any apparel orders in Europe were rerouted to the U.S., but noted that fashion retailers it worked with still have full warehouses. Nevertheless, demand across categories has kept supply chains backed up across the region.

“Demand for consumer electronics, sports or garden equipment has even risen noticeably,” an Inverto spokesperson said. “In fact, there are waiting times for some products such as bicycles.”

Suez Canal crisis causes booking delays

The six-day Suez Canal blockage, which delayed shipments of consumer goods from Asia to Europe and North America and further limited container availability after the massive MV Ever Given Evergreen container ship got wedged in the passageway, has been at the center of many of the recent supply chain bottlenecks.

Due to the knock-on impact from the blockage, Maersk estimates a 20 to 30 percent capacity hit in the short term to the Asia-Europe trade, but there is still no guarantee as to how the shock to schedules and capacity will ripple through the trans-Atlantic and Asia-North American trade systems beyond delays of Suez services to the U.S. Faced with the capacity hit, Maersk has temporarily suspended its offering of online booking in some affected markets for its spot product, as well as all short-term contracts.

And on April 1, Hapag-Lloyd announced a booking suspension on eight sailings leaving Northern Europe for the U.S. in the first half of this month due to overbooking.

Lewis Black, president and CEO of mining and shipping company Almonty Industries, noted that his company traditionally took 10 days to ship from Portugal to the U.S., prior to the pandemic, yet now this process takes as long as four weeks. But he noted that shipping containers back to Asia presents an even more difficult scenario, further slowing down the overall supply chain. Almonty can’t secure a booking to Thailand “and the shippers have no idea when there’s going to be availability,” Black said.

Van Casteren said the Suez Canal blockage and the uncertainty about delivery times has continued to delay many shipping decisions like this as rates continue to rise.

“Now, the primary concerns of shippers are ‘Am I able to get my goods delivered where I want them and at the right time?’ and ‘Can I ship my goods at a rate that does not damage my business model?’ van Casteren said.

U.S. import demand reaches all-time highs

While Panjiva doesn’t carry timely enough data for Asia-to-Europe shipments, according to supply chain analyst Christopher Rogers, the firm has highlighted the fact that the U.S. is continuing to break records on the import front in the wake of the sustained demand spikes.

In total, U.S. seaborne imports of containerized freight surpassed 3 million 20-foot equivalent units (TEUs) in March, marking the first time the U.S. imports have topped that number, Panjiva’s data shows.

“The 50.5 percent year-over-year expansion in TEUs partly reflects disruptions caused to imports from Asia at the start of the coronavirus pandemic, while the 36.9 percent expansion compared to March 2019 shows the surge is not just a timing artifact,” Rogers wrote in a blog post. “The current surge in shipments likely reflects the clearing of an existing backlog of vessels as well as underlying demand.”

The average daily handling of 97,300 TEUs during March was also 7.2 percent higher than the peak season shipments in the three months to Nov. 30, 2020.

Shipments to the U.S. linked to consumer discretionary companies doubled year over year in March, with a 91.4 percent jump in imports of home furnishings.

When will demand normalize?

The Covid-driven shift in goods consumption, whether in the U.S. or worldwide, and the ongoing supply chain disruptions, exacerbate the difficulty with gauging when shipping prices will level out and if demand will revert to “normal” levels even as lockdowns end. Drewry said it expects port congestion and equipment shortages to persist through 2021 and for carriers to lock in profits into 2022, thanks to higher annual contract rates signed this year.

“I think this is going to get worse before it gets better,” Black said. “I think the reality is, as the world starts to open up, the U.S.’s vaccination program is heading in the right direction, and in the U.K. people are starting to emerge from the ashes, what they’re finding is that the the infrastructure that has been relatively predictable and reliable for the last 20 years in terms of just moving things around, has essentially in many areas just buckled under the sort of random elements that we’ve all experienced over the last 12 months.”

However, Milliken & Co.’s Fisher said that he expects manufacturing and supply to be “extremely strong” by the third quarter of 2021.

“If everybody gets all of their supply chains back to a pre-Covid level—nobody wants to run a plant at 70 percent, you want to run your plants at 90 percent—they’re gonna have to run flat out for a while just to build some safety stock and catch back up,” Fisher said. “Whether or not the consumer ends up pulling all the end products is still a little bit to be determined depending on region, but we expect manufacturing is going to have to keep going just to begin to dig their way out of the hole of backlog of orders that have come out.”