With the year’s first quarter come to a close, the supply chain is taking a good look at its last year and what lies ahead.
Some of what 2016 holds will be more of the same—more quality issues, more ethical challenges and more concern about forced and child labor.
But in its latest quarterly barometer, Hong Kong-based testing firm AsiaInspection (AI) said it sees shifts in global trade ahead and China showing signs of recovery.
Global trade will shift in 2016
“Even more than the slowdown some economists predict, the major event for global trade in 2016 may well be the start of a rebalancing and shift in merchandise flows,” the report noted.
Brazil serves as a prime example as its imports from China (its biggest trading partner) fell by 60 percent year on year in the fourth quarter of 2015. The country’s containerized exports to China and the rest of Asia went up, taking advantage of the real’s depreciation. And tapping into its own unique insight, AI said that the number of inspections in Brazil has tripled in the first quarter of 2016 compared to the same period in 2015, which could signal quality problems.
Turning to China, AI said even though its global economic growth for Q1 remains modest at an estimated 6.7%, it’s still the undisputed leader in volume for product inspections, audits and testing.
“While international analysts worry that continuing ‘growth at any cost’ will deepen China’s existing economic problems, China’s manufacturing sector showed expansion in March, giving rise to hopes for continued recovery,” according to the report.
Growth in Vietnam, Bangladesh and Egypt stoke safety concerns
So far this year, Vietnam and Bangladesh are still the fastest growing exporters among the U.S. top 10 trading partners, but structural risks run high in both places.
AI research shows that Vietnam is the highest risk country for structural issues, with 71 percent of structural audits finding facilities “at risk” or “needs improvement.” As has also been the case in Bangladesh, many of those faults come from unauthorized factory expansions or additions.
After factory assessments by the According on Fire and Building Safety in Bangladesh and the Alliance for Bangladesh Worker Safety uncovered a host of non-compliances, demand for structural audits in the country tripled in the first quarter of this year.
Egypt has also been a point of concern, even though its apparel exports have slumped since 2011, but according to AI, the country could realize new opportunities for recovery with the influx of manufacturers from Turkey and Syria, though safety issues remain. Egypt showed the most growth of structural audits outside of Asia in the first quarter, and half of those audits revealed factories at risk or in need of improvement.
Forced labor among the highest supply chain risks
The movement of Syrian refugees in the last year led to a spike in forced and child labor, namely in Turkey’s garment sector.
“Being the world’s third largest apparel sourcing hub and the largest host of Syrian refugees makes Turkey a location where monitoring is complicated, and exploitation of vulnerable groups all too easy,” the report noted. Demand for ethical audits increased threefold in the first quarter compared to last year as buyers have placed a heightened focus on tracking and curbing unethical labor.
Traceability will also be a top supply chain challenge this year as a greater number of brands get called out for improper supply chain practices whether they knew about them or not.
Apparel brands face quality problems
A sizable 87.5% of apparel brands failed metal control (making sure no unwanted or potentially dangerous piece of metal is left on a garment, like a broken sewing needle) audits in the first quarter of the year alone. In the past, AI noted, apparel brands focused their metal control efforts on product categories where it would be most important, like baby wear and underwear, but the testing and inspections firm has seen a sharp increase in demand for the service across the whole range of garments.