The supply chain disruptions in the global apparel trade have continued from last year though the nature of the disruptions have changed. While lockdowns, order cancellations, production delays and logistic uncertainties were major concerns in 2020, this year the challenges are different…in fact, disruption is being reported across the whole chain, from sourcing to last-mile delivery.  The supply chain issues provided a new layer of complexity, and are becoming even more critical as the holiday season looms large and is perceived by many industry watchers as the period when lost ground can be reclaimed!

In order of risk, the major disruptions that are impacting sourcing today are:

• Shipping delays – shortage of containers and congestion at ports
• The cost of transportation and logistics increases by almost 100%
• The cost of textile raw material has gone up by at least 30%
• Apparel factories around the world are short of workers

Congestion at ports, both outgoing and inflowing

As of today, congestions at major ports, are creating unprecedented stress in the countdown to the upcoming holiday season, when retailers and brands can make up to 35 per cent of their annual sales. It is estimated that between 10 and 15 percent of global container ship capacity is floating at anchor. Jampacked container ships stuck in traffic at ports, are choking the economy. Delayed containers have become both a symptom of and a contributor to global supply chain problems.

The situation is so grim that shipping containers can’t be unloaded at the docks fast enough to be sent back to Asia, where they can be used again to export products. According to a report by Reuters in September 2021, China, the world’s largest manufacturer of shipping containers produced 300,000 containers to meet the shortage.

In a recent National Retail Federation survey, 70 per cent of respondents claimed that the logistic journey of a good which previously took 25 days is now expected to take up to 60, because of which they have had to add two to three weeks to their supply chain timetables.

The delays at US ports are being attributed to a significant rise in imports, and not a lack of productivity at the ports. As per port authorities, the US ports will have processed 4 million more TEUs by the end of 2021 than they did in 2020 as retail imports surged despite supply chain delays. The surge in imports and related congestion is also causing issues at the front-end of the supply chain, as cargo owners are having issues securing vessel capacity to ship their cargo to the US.

Significantly, an analysis from Russell, a leading risk management company indicates the probability of two scenarios – scenario one involves US $ 49.4 billion of trade being delayed, including US $ 4 billion of clothing; whereas in scenario two there is a possibility of US $ 90 billion dollars of trade being delayed, which includes US $ 6.2 billion worth of clothing. The data Russell used for scenario one and two are based on 2020 figures.

Though the Southern California ports play a dominant role due to their capacity, in anticipation of further delays, many retailers are already shifting cargoes to ports along the East Coast, Gulf or Pacific Northwest.  For the UK, the impact of Brexit adds another complication. Heavy paperwork and delays at customs for EU lorry drivers are adding up to three weeks to supply chains and tripling costs.

Lululemon, Gap and Kohl’s say they’ll rely more heavily on far costlier air freight to avoid running out of stock during the holiday season. According to sourcing expert, even if production costs remained 20 per cent lower in Vietnam and Bangladesh versus Mediterranean countries, that benefit was offset by longer lead times sparked by supply snags.

Cost of transportation on the rise, no quick solutions

Ocean freight prices are at record highs, with shipping costs on the Asia to US and Asia to Europe routes increasing tenfold since 2019. A 40 feet container from Asia to the US West Coast cost between US $ 1,600 and US $ 2,100 in July 2019, but it’s now between US $ 21,000 and US $ 23,000.

The global supply chain network is on its knees. After a fall in shipping demand during the early days of the pandemic in 2020, a surge at the end of that year led to delays, port traffic jams, and blockages across the world. Now, containers are jammed up in ports due to rising demand and a continuing shortage of dockworkers and truckers resulting in a major disbalance in the demand and supply equilibrium. Prices have increased manifold with widening gap in supply of containers, stuck at various ports

In addition to the worsening port congestion and delays at LA/Long Beach that are keeping Asia-US prices extremely high at more than quadruple their level a year ago, rising oil prices could mean that carriers will further increase fuel surcharges. Experts believe that the continued congestion and shortage of containers may also be responsible for pushing North America-Asia export rates up further.

In response, Italy’s Benetton has decided to bring production closer to home, boosting manufacturing in Serbia, Croatia, Turkey, Tunisia and Egypt, with the aim of halving production in Asia from the end of 2022.  Chief Executive Massimo Renon of Benetton believes that the unprecedent rise in shipping costs are undermining a business model that’s proved popular for the past 30 years. In an official statement, he said: “It’s a strategic decision to have more control on the production process and also on transport costs,” he said, adding the group had already shifted more than 10 per cent of output out of countries like Bangladesh, Vietnam, China and India this year.

Cost of raw materials impacting production cost

Due to the shortage of materials and a strong recovery in demand, the prices of linen, cotton and polyester have risen by more than 30 per cent in the last six months. Cotton shortages are also creating problems. Dirk Vantyghem, Director General of the European Apparel and Textile Federation (Euratex) claims that there are some serious price increases which are making European textile producers nervous. In August, raw cotton prices were 18 per cent above their 2020 average, while in July, cotton yarn average prices were 23 per cent above 2019 levels.

In fact, not only cotton, prices of man-made fibres have also increased substantially – Acrylic + 60 to 70 per cent, Polyester +50 to +80 per cent, Recycled polyester + 60 per cent. This massive price increase is linked to the rise in crude oil prices. Even Linen has increased by +25 per cent and wool by around 10 per cent. Prices of packaging and supplies are no longer fixed and have risen by up to 20 per cent.

In India, the spiralling cost of raw materials is the biggest problem that the industry is facing today. The cost of yarn alone has gone up by over 40 per cent in the past eight months. Not just yarn, every other raw material that goes in apparel has witnessed a price hike which has, in turn, led to an increase in the input costs.

Ironically, the supply chain is so interconnected that each disruption is impacting prices. It cannot be denied that the increase in raw material prices is closely linked to the logistics crises as free movement of material has been disrupted creating shortages. Another reason for the increasing prices is stoppage of production in all manufacturing destinations for long durations due to numerous lockdowns over the last two years. Until the production centre is not running at full capacity for longer period of time, the demand supply equilibrium will remain impacted and prices will reflect market conditions.

Shortage of workers in supply chain

A number of industries in the global supply chain, including yarn spinners and related businesses throughout the fibre/textile/apparel manufacturing process, are facing difficulties in finding sufficient human resources to operate at desired capacities. Many retailers fear that the next big crisis in a series of global supply chain breakdowns will be due to the shortage of workers that could result in major product delays, further putting pressure on an already stretched supply chain.

A lot of this problem is because of reverse migration of workers as they are not keen to get back to production locations as of now. Regular Covid spikes have caused unplanned closure of factories in Bangladesh, Vietnam, India, Indonesia and Malaysia, which has added to the uncertainty. Even China claims that as on March 2021, there were still 2.46 million fewer migrant workers than during the same period back in 2019. Unfortunately, the garment industry is not attracting workers anymore, adding to the crises.

As per various apparel associations in India, there is an acute shortage of those who stitch garments and also those engaged in ironing and pressing of the garments. Governments of worker rich states like UP, Bihar, Jharkhand, Orissa are now skill mapping to provide employment within the state. As a long-term policy this is very good, but as of now the impact is being felt on existing production centres as shortage of labour automatically translates to less production.

Businesses in the fashion industry, are also struggling to find qualified workers. In the US, there have been shortages of truck drivers, warehouse workers and dockworkers due to increased demand, with businesses struggling to find enough workers to deliver their goods. Employment in the retail industry is also down: 400,000 lower than that in February 2020.