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Supply Chain Outlook: More of the Same?

There’s no doubt that 2021 was a year of headwinds and obstacles, from rising raw material costs to spiraling freight expenses.

According to an expert panel at the virtual Texworld NYC show, the outlook for 2022 looks like more of the same, with concerns about inflation, continued supply chain disruptions and geopolitical turmoil.

“Just when I thought it was going to be a happy new year for most, it appears that the steamship lines and the logistics companies are going to be benefiting the most this year,” Salvatore Stile, president of freight forwarder Alba Wheels Up, said.

Stile said as port congestion continued this year, it was further irritated by the Omicron surge that led to some dockworker and trucker shortages at key port like Long Beach and Los Angeles, but also overseas, especially in China.

“This is really a tough time to be an importer,” he said. “We’re predicting that the rates are going to stay the same or increase. A lot of steamship lines don’t have new vessels coming on board until the latter part of 2013, so you have a capacity issue and a rate issue. I understand that a lot of the steamship lines are setting multiyear agreements with the largest importers able to obtain contract rates, which are going to be substantially higher than last year. These rates have to be passed on to the consumer.”

Stile also said the upcoming Chinese New Year factory closures will have a substantial impact, as well.

“The big question is what’s going to happen after Chinese New Year and how has Omicron has impacted these factories, and also, with the steamship lines, canceling a lot of the vessels to the U.S..” he said. “Where are the factories going to put these products that they have? It’s going to come a point where the factory is going to have to stop producing goods as quickly as they do or totally until they can free up their warehouse space.”

Another potential new hurdle this year is the dockworkers contract negotiations with the West Coast ports for a new collective bargaining agreement coming up on July 1.

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Stephen Lamar, president and CEO of the American Apparel & Footwear Association, said in the best of times, a contract expiration has the potential to be “highly disruptive…and I can assure you, we are not in the best of times.”

Issues likely to be top on the list, he noted, are automation and higher wages.

“These are workers that are really kept our economy going, supplying goods and so forth during the worst of Covid,” Lamar said. “You can see they’re going to be making this request, especially given some of the outrageous profits that we’ve seen some of the carriers post in recent years. We’ve asked the [Biden] administration to keep a close eye on these negotiations, making sure the parties come to the table immediately and that they stay at the table and negotiate.”

There’s no doubt 2021 was full of headwinds and obstacles and the outlook for 2022 looks like more of the same, a Texworld NYC panel said.
Panelists, clockwise from top left: Marc Cohen, Edward Hertzman, Steve Lamar and Salvatore Stile. Courtesy

Discussing the Uyghur Forced Labor Prevention Act just signed into law, Lamar said AAFA’s member said have been focused for many years on making sure that forced labor doesn’t reach their supply chain.

“Our members are constantly looking to use the best technology and practices to stay one step ahead of the those who are intent on profiting off forced labor,” Lamar said. “We welcome the legislation…This was a very important opportunity for Congress to step in and say things have to be done better. It really takes this kind of this whole-world and whole-of-government approach to make sure that these are aligned and pointed in the right direction and we and they all work together.”

Mark Cohen, director of retail studies and an adjunct professor at Columbia Business School, said the supply chain crisis was certainly brought on by the pandemic, with supply and demand thrown extremely off cycle.

“This is a crisis that could last for two or three or even more years and is contingent upon the scientists coming up with a universal vaccine,” Cohen said.

He said it affects all aspect of the business world and society, and is exacerbated by “large numbers of people who refuse to be vaccinated and act as hosts for the virus.”

Cohen said while overall, 2021 was a good year for some retailers because most were able to be to do business with customers because stores were still open and they were discounting merchandise that people desperately wanted. The second half of the year turned out to be “a saving grace,” for stores, he said, because people thought Covid was over and because “there was an enormous amount, billions of dollars, in liquidity the government had pumped into the economy.”

Now, into 2022, there’s a new variant pair raging across the country, flooding hospital with people who are not vaccinated and causing medical crises.

“It’s causing logistics issues…it’s causing enormous concern internationally,” Cohen said. “What if China shuts down in a more comprehensive way as it did in 2020 and there isn’t that flow of cash into the economy? That’s largely over and done with. So, I would say we’re looking at a couple of years of uncertainty.”

As for inflation, Cohen noted that there have been such cycles before and “we shouldn’t be surprised now. The laws of supply and demand are a irrefutable as the law gravity. Supply and demand affects prices…and we’re going to have to live with inflation. It’s going to be out there and retailers are going to have to figure out how to deal with it.”

Lamar said one way to help consumers deal with inflation would be for President Biden to ease or get rid of the Section 301 tariffs on Chinese imports first imposed by the Trump administration and continued by Biden.

“These are tariffs that are paid by us consumers,” he said, adding that the Congress’ failure to renew the General System of Preferences (GSP), the removes tariffs on a range of goods for a host of counties, “may have come at the worst possible time.”

“There’s never a good time for those programs to expire, but at a time when we’re dealing with all these epic freight costs and so on, there’s no place for companies but to eventually pass along the costs except in the form of higher prices.”

Panel moderator Edward Hertzman, executive vice president of Fairchild Media and founder and president of Sourcing Journal, noted there’s been an acceleration of sourcing goods from so-called Tier 1 and Tier 2 countries as a way to get out of China.

“We’ve been focused on the Western Hemisphere trying to encourage more companies to examine nearshoring and to build up the region,” Lamar said.

AAFA is part of the Coalition for Economic Partnerships in the Americas (CEPA), a new group of major American companies and manufacturers dedicated to promoting regional trade and job growth, launched last month.

CEPA aims to help create employment in sustainable, growing industries to realize an inclusive economic model that puts workers first, promotes women’s empowerment and supports greener supply chains. The group will also continue and build partnerships with U.S. and regional companies to grow and realize the full potential of Central America’s apparel industry, and establish incentives to diversify and grow supply chains with America’s trading partners. It also wants to partner with technology and innovation leaders in the Americas and invest in cutting-edge innovation, flexibility, and scalability, and foster the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) to ensure it fulfills its purpose for investors, workers and communities.

With the all the uncertainty and concerns, Hertzman said “we have to remember that the fashion industry is very resilient.”

“We seem to be an industry that’s always faced with new obstacles and challenges,” he added. “It’s also an evolving industry and I think we have to remember number that we will get through this. I think it’s going to be challenging and it’s important that we can together in forums like this to discuss these challenges so that we all know what we have to deal with.”