2022 Sourcing Report by Sourcing Journal

2022 SOURCING REPORT SUPPLY CHAIN WOES AND SOARING PRICES DEFINED THE LAST YEAR. WHAT LIES AHEAD?

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Contents 08

Editor’s Letter

Shipping Notes

Costs Rocket Higher Across the Supply Chain

Trade Outlook: Slow Road to China Reform Leaves Biden Policies in Flux

As Forced Labor Scrutiny Grows, Industry Needs to React

Supply Chain: The Stakeholders’ Perspective

Shipping Costs to Remain Elevated

2 / 2022 SOURCING REPORT

supima.com Blue Hour, Supima Field

Chosen for beauty, function and feel.

Contents 40

Consolidation Blurs Lines Between Retailers, Logistics Players

Made in US Sees Resurgence Amid Supply Chain Woes

50 55 60 71 79

Nearshoring Takes Hold

Amid Bottlenecks, Furniture Manufacturers Look Closer to Home Asked & Answered

From the Factory Floor

Living Wage: A Matter of Survival

4 / 2022 SOURCING REPORT

Himatsingka

Contents 85 88 91

Asia-Pacific Partnership Creates New Global Trade ‘Center of Gravity’ Power of 3? South Asian Nations Look to Link Up

Spotlight: Sri Lanka

Egypt Talks Higher Wages, Changing Norms

100

Cotton Prices to Remain Elevated in 2022

104

Flexport Index to Show Ocean Times Along Trade Routes

106

By the Numbers

108

Staying Connected

6 / 2022 SOURCING REPORT

Editor’s Letter

hew. It can be hard to catch your breath sometimes. The past 12 months since our latest Sourcing Report have been a roller coaster for most, with one challenge after another affecting our matrix. Freight and input costs have continued to skyrocket and uncertainty has become the norm, making adherence to budgets and business planning operations increasingly difficult, if not altogether futile. The industry as a whole has impressed me. While the headlines are constantly touting delays, shutdowns and price increases, the bottom line is that the supply chain continued to function. This holiday season at retail, for example, was the strongest in years. Stores had goods to sell to consumers that were eager to spend. To make this happen, however, many paid exorbitant prices, chartered their own vessels or switched to air freighting. In the short term, this was a success, despite the bite it took out of margins. Long term, however, shouldering these added costs (or passing them on to the consumer) is an unsustainable solution. It is said that necessity is the mother of invention. This has become clear as new logistics platforms that provide more visibility into the supply chain have swelled and brought cutting-edge technology to the warehouse and shipping lanes alike. They

8 / 2022 SOURCING REPORT

have added a layer of transparency to operations desperately in need of it. This need is not solely in the domain of the transporting and tracking of goods but also in regards to their origin. As the US and other governments amp up the scrutiny on forced labor abroad and the path of products along the supply chain from labor to inputs, it is no longer acceptable to turn a blind eye to the genesis of your wares. A system that was largely built with pencil and paper needs a modern day update to remove the shadows that lie over how the products that are imported are being made. This movement is just beginning, and the onus of vetting goods that come to our shores will become only more burdensome to those who are not quick to act. Our industry has burning questions. When will bottlenecks ease? When will costs stabilize? When will we return to ‘normal?’ Sadly, no one can answer these on their own, or with any degree of certainty. What we can do, however, is talk to the experts, those on the ground (and on the seas) and provide insight that can power educated decisions on the best path forward. You’ll find that and much, much more in this annual State of the Industry Report. Be well. Peter Sadera Editor in Chief Sourcing Journal

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SHIPPING NOTES

CUSTOMS AMPS UP SCRUTINY

.S. Customs and Border Protection’s 2021 year-end report illustrated the agency’s ongoing work protecting American supply chains against economic and human-rights threats such as forced labor and counterfeits. Last year, CBP issued seven Withhold Release Orders (WROs) and two Findings to protect American consumers and businesses from receiving nearly $500 million of goods made by forced labor. Those WROs targeted cotton products and tomato products from China’s Xinjiang Uyghur Autonomous Region, silica-based products made by a company that operates in Xinjiang, palm oil from a Malaysian company, and tuna and other seafood harvested by a Chinese fishing fleet, a Taiwan-flagged fishing vessel and a Fijian-flagged fishing vessel. In 2021, CBP detained 1,469 shipments that contained approximately $486 million of goods suspected to be made by forced labor. As Homeland Secretary Alejandro N. Mayorkas has said, CBP will not tolerate forced labor in American supply chains and stands against cruel and inhumane labor practices. “The operational statistics for Fiscal Year 2021 show the breadth and scope of CBP’s mission, which encompasses travel and trade, drug interdiction and border security,” CBP Commissioner Chris Magnus said. “CBP’s mission is vital to making our country safer and more secure, and important to our economic recovery.” In 2021, CBP processed approximately $2.8 trillion of imports, an increase of nearly 17 percent compared to the same period in 2020. Overall, CBP collected approximately $93.8 billion in duties, taxes and other fees on behalf of the U.S. government in FY2021, representing a 133 percent increase over a five-year period. CBP said it works diligently with the trade and the port operators to ensure that merchandise is cleared as efficiently as possible. CBP works with the trade community to strengthen international supply chains and improve border security. CBP also seized more than 83,000 shipments for trade violations in the year. In September alone, CBP processed more than 3 million entry summaries valued at more than $259 billion, identifying estimated duties of nearly $8.4 billion to be collected by the U.S. government. Intellectual property rights violations continue to put America’s innovation economy at risk, CBP said. Trade in counterfeit and pirated goods threatens the competitiveness of U.S. businesses, the livelihoods of American workers, and the health and safety of consumers. — Arthur Friedman

10 / 2022 SOURCING REPORT

Port of L.A. Gets Rail Investment ■ IN A BID TO PROMOTE the efficient movement of cargo as it moves toward a 24/7 framework, the Port of Long Beach is beginning development on new in-terminal rail capabilities using a $52.3 million grant awarded by the U.S. Department of Transportation’s Maritime Administration (MARAD). The Pier B On-Dock Rail Support Facility will enable the gateway to transport more cargo by train, both upping the facility’s productivity and cutting carbon emissions by diverting the task from trucks. The project will be the centerpiece of the Port’s $1 billion rail capital improvement program, designed to reduce truck traffic in the terminals. The funding comes as a part of Transportation Secretary Peter Buttigieg’s effort to unclog the nation’s ports and promote a more streamlined supply chain, using $241 million in grants provided under the Biden administration’s short-term infrastructure improvement plan. “U.S. maritime ports play a critical role in our supply chains,” Buttigieg said. “These investments in our nation’s ports will help support American jobs, efficient and resilient operations and faster delivery of goods to the American people.” The project stands to reconfigure and expand Pier B’s existing rail yard, connecting trains on dock to the Alameda Corridor railway, a 20-mile stretch of track that joins the San Pedro Bay Complex with the BNSF Railway and the Union Pacific Railroad. Currently, Pier B’s rail facility serves as a storage and staging area used primarily for clean diesel locomotives owned by Pacific Harbor Line. No trucks will visit the Pier B facility, the Port said—instead, train segments will be brought to the location to be joined together into a full-sized train. In facilitating the more frequent assembly of longer trains, the facility will streamline rail operations and reduce the need for vehicles inside the complex. The process is cleaner, Port executives said, and lessens the potential for time-sucking backups as trucks idle in wait for cargo. Construction on the facility is slated to begin in 2023, with the first arrival, departure and storage tracks expected to see completion in 2025. More tracks will come online in 2030, the Port said, and the whole project will conclude in 2032. — Kate Nishimura

one Welcome

John!

Failure Rate

Defect Rate

Beyond AQL Rate

16.2%

5.7%

10.9%

-2.1%

-0.6%

Inspections

379 35

Pass

06-Jan

61 56 38

20-Jan

8,995

Defects found

+33.6%

899 CRI 4498 MAJ 3598 MIN

Inspections by Location

67 46

Defect Severity

Fail 21

18 27 5

03-Feb

156 58

17-Feb

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Costs Rocket Higher Across the Supply Chain WHETHER IT’S SHIPPING, RAW MATERIALS OR FINISHED GOODS, EVERYTHING IS GETTING MORE EXPENSIVE. G L E N N TAY LO R

he supply chain woes that defined 2021 have not let up, but just how much has the bill run up for all parties involved? For retailers and suppliers alike, the costs of raw materials, labor and transportation across sea, land and air, as well as external factors like inflation and the ongoing Covid-19 pandemic, have continued to mount. Almost 90 percent of firms reported larger-than-normal cost increases in the fourth quarter—a sharp rise from the second quarter of 2021, according to a November survey of more than 1,100 chief financial officers by the Federal Reserve’ district banks of Richmond and Atlanta and Duke University. The study revealed that 80 percent of companies are passing on rising costs to consumers as they adjust to a surge in inflation. Rumblings of the heightened costs were apparent ahead of the holiday season, as Salesforce projected as early as July that U.S. companies were on track to spend $163 billion more on ocean freight in the second half of 2021 than they did during the same period in 2020. This roughly tripled the costs of the same period last year, the CRM giant said.

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Walmart, Target, The Home Depot and Costco were among the retailers that elected to charter cargo through their own leased vessels in an effort to circumvent many of the ocean freight backlogs throughout the year. The estimated cost to lease a vessel, according to Kearney, can be anywhere from $1 million to $2 million per month, plus operating costs. While this may be astronomical compared to the $9,304 spent per 40-foot shipping container, according to the Drewry World Container Index, it shows that top brands were willing to sacrifice costs up front to get more visibility on product arrival times. While overall costs increased throughout the year, leading to an unprecedented holiday season of expenditures, it at least appears that ocean shipping costs have moderated from their September peak. The Drewry World Container Index, which analyzes spot rates across the eight major East to West ocean shipping routes, declined 10.3 percent to the $9,304 total as of the week of Dec. 23, down from $10,377 per container on the week of Sept. 23. However, the numbers have still grown exponentially from the prior year, more than doubling the

Less than 20 percent of firms surveyed by the Fed banks expect cost increases to abate within six months, suggesting that the costs to the supply chain are here to stay in the immediate term.

same 2020 week with a 119 percent increase. The situation at sea may be calmer, but intermodal freight rates haven’t stopped escalating. Within the U.S. alone, the cost of transporting and warehousing goods posted record annual gain, soaring a record 18.3 percent year over year on Nov. 30, the largest jump since 2009, according to the U.S. Labor Department. Brands like Crocs, Adidas, Wolverine Worldwide and countless others relied more on air freight this holiday season to get products to the consumer quicker. Unsurprisingly, across all major transatlantic flight patterns, the Baltic Exchange Air Freight Index (BAI) indicated that air freight rates peaked during the holiday season, unlike their ocean counterpart. Air freight rates jumped 63.1 percent on a year-over-year basis to $5,254 per shipment on Dec. 13, and inched up 23 percent since Nov. 1 alone, when the per shipment total was $4,247. Air freight shipments have since fallen off as the season came to a close. But

even with the latest BAI data on Jan. 3, 2022, air freight rates are still up 43.8 percent from their totals last year. In total, Salesforce estimated that the combination of the logistics and labor costs alongside inflationary pressures would increase the total cost of goods sold from U.S. retailers and brands by $223 billion, forcing end prices to go up as much as 20 percent. Data across products in fashion, furniture, health and beauty, bed and bath, and electronics suggests the fourth-quarter costs didn’t quite reach that high, but were still substantial. Krish Thyagarajan, president and chief operating officer of retail data analytics firm DataWeave, told Sourcing Journal that average MSRPs across items studied at Amazon and Target were up 15 percent from the year-ago period. The costs associated with raw materials were even higher than anticipated in 2021, with base cotton in the U.S. costing $1.09 per pound for the week ending Dec 30, 2021, according to the U.S. Department of Agri-

2020

CHANGE IN U.S.-BASED TRANSPORTATION, WAREHOUSING COSTS (YEAR OVER YEAR): NOV

1.1%

DEC

2.2%

JAN FEB

2021

MARCH

3.1%

7.6%

APRIL

10.7%

MAY

14.4%

JUNE

15.1%

JULY

AUG

14.9%

SEPT

14.5%

16.7%

OCT

17.9%

NOV

18.3%

Source: Bureau of Labor Statistics

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culture (USDA). The weekly average was up from $104.8 a week prior and from 73 cents per pound reported in the corresponding period a year ago. The December 2021 Semiannual Economic Forecast from the Institute for Supply Management (ISM) indicated in a survey that respondents reported price increases averaging 14.5 percent for the year, well ahead of May estimates of 8.1 percent. Purchasing and supply executives reported 2021 capital expenditures increased 12.1 percent on average when compared to 2020 levels. But a segment within these decision makers expects a higher total: 42 percent of purchasers who reported increased capital expenditures in 2021 indicated an average increase of 37.8 percent. In light of the increasing prices, Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee, said: “Respondents expect raw materials pricing pressure to increase in 2022, as well as improved profit margins…Wages and employment

will continue high rates of growth as hiring slows. Manufacturers also predict growth in both exports and imports in 2022.” And yet, the rise in prices hadn’t seemed to deter consumers throughout the holiday season, as total holiday season sales came in 8.5 percent higher than the year prior, according to data from Mastercard’s SpendingPulse. This came in higher than the anticipated projection of 7.4 percent growth. “From the consumer’s point of view, it’s better to pay higher price and get the product on time, versus waiting for better prices and missing out altogether,” DataWeave’s Thyagarajan said. While the holiday season is over, the costs will continue to pervade. Ikea revealed in a statement to close December that the Swedish home giant is raising prices 9 percent on average for 2022. In one such instance, Ikea raised the price of its flat-pack furniture by 50 percent after Christmas. The costs of the supply chain bottlenecks and the ensuing delivery delays have contributed to potential

2020

CHANGE IN FINAL DEMAND (COST OF FINISHED GOODS) NOV

0.8%

DEC

0.8%

JAN

1.6%

FEB

MARCH

APRIL

2021

MAY

3% 4.1%

6.5%

JUNE

7.6%

JULY

AUG

8.4%

SEPT

8.8%

OCT

8.8%

NOV

Source: Bureau of Labor Statistics

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9.6%

lost revenue as well. In the U.K., the retailer estimates that approximately 1,000 products among 10,000—10 percent—weren’t available in the country at one point last year.

SUPPLIERS POST RECORD PRICE INCREASES Suppliers are definitely feeling the heat of the rising materials costs, as well as production delays that hampered factories amid Covid-19 related lockdowns in countries such as Vietnam, Bangladesh and Cambodia among others. The producer price index for final demand, which measures what suppliers charge for finished goods, soared 9.6 percent in November 2021 from the prior year, according to the Labor Department. That total beats the 8.8 percent increase seen in both September and October and is a record jump since the data was first published in 2010. In particular, the apparel, jewelry, footwear, and accessories retailing segment saw

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final demand grow 15.9 percent on a yearover-year basis. In kind, the Consumer Price Index (CPI) calculated by the Labor Department also hit record numbers, with the metric soaring 6.8 percent from 12 months ago, representing the largest 12-month increase since the period ending June 1982. Less than 20 percent of firms surveyed by the Fed banks expect cost increases to abate within six months, suggesting that the costs to the supply chain are here to stay in the immediate term. Most firms anticipate that the cost increases will last at least another 10 months, if not into 2023. “The share of firms with abnormally large cost increases in at least some of their costs grew from 80 percent to almost 90 percent in just six months,” said Atlanta Federal Reserve economist Brent Meyer. “CFOs indicate that these cost pressures are not abating and will likely be with us for some time. Many firms, especially large firms, are passing on at least some of these cost increases.”

$163 billion Estimated increase in ocean freight costs for US companies in the second half according to Salesforce.

Trade Outlook: Slow Road to China Reform Leaves Biden Policies in Flux AN ANALYSIS OF AMERICAN TRADE POLICIES IN 2021 SHOWS THAT ALL ROADS SEEMED TO LEAD TO CHINA AND ITS TARIFF-FUELED CONTROVERSIES. A RT H U R F R I E D M A N

ll roads led to U.S.-China relations and its domestic and global impact.

U.S-CHINA RELATIONS Last year started out with the inauguration of Joe Biden as President of the United States, inheriting a contentious U.S.-China trade war initiated by his predecessor. Biden immediately said he would keep controversial tariffs in place on a wide range of goods, including apparel and footwear, from China, as “leverage” in trade negotiations with Beijing. Biden also said his Build Back Better agenda would look to protect American workers and industry, while pledging to become more active in rebuilding international alliances. In March, the Senate unanimously confirmed Katherine Tai, who received the back-

17 / 2022 SOURCING REPORT

ing of the domestic textile and apparel industry and import groups, as the new United States Trade Representative (USTR). Testifying before the Senate Finance Committee in February, Tai cited Biden’s pledge to rebuild international alliances and partnerships and re-engage with international institutions. Tai said this extends to “addressing the challenges posed by China.” Tai told the committee that “China is simultaneously a rival, a trade partner and an outsized player whose cooperation we’ll also need to address certain global challenges.” “That means here at home, we must prioritize resilience and make the investments in our people and our infrastructure to harness our potential, boost our competitiveness and build a more inclusive prosperity,” she said. “We must also impart the values and rules that guide global commerce, and we must enforce those terms vigorously.” That same month, the U.S., Canada, European Union (EU) and U.K. announced

AP PHOTO/SUSAN WALSH

sanctions on several Chinese officials in retaliation for what they described as human-rights abuses against Uyghurs, Kazakhs and other Turkic Muslim minorities in the Xinjiang Uyghur Autonomous Region in northwestern China. The U.S. sanctions came days after the Biden administration traded barbs with Chinese diplomats during an Alaska meeting. Secretary of State Antony Blinken said the sanctions were part of the United States’ desire to fulfill a “strong leadership role in global efforts to combat serious human-rights abuse,“ such as those occurring in Xinjiang. “Amid growing international condemnation, the [People’s Republic of China] continues to commit genocide and crimes against humanity in Xinjiang,” Blinken said. “The United States reiterates its calls on the PRC to bring an end to the repression of Uyghurs, who are predominantly Muslim, and members of other ethnic and religious minority groups in Xinjiang, including by releasing all those arbitrarily held in internment camps and detention facilities.” In May, USTR took China to task in its

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annual Special 301 Report on the adequacy and effectiveness of U.S. trading partners’ protection and enforcement of intellectual property (IP) rights. USTR said it has been closely monitoring China’s progress in implementing its commitments under the United States-China Economic and Trade Agreement, also known as the Phase One Agreement. In 2020, China published several draft IP-related legal and regulatory measures and finalized over a dozen, the agency said. “Notably, China amended the Patent Law, Copyright Law and Criminal Law in the past year,” USTR said. “However, these steps toward reform require effective implementation and fall short of the full range of fundamental changes needed to improve the IP landscape in China.” In July, the U.S. Senate unanimously approved legislation to ban the import of all goods from China’s northwestern Xinjiang Uyghur Autonomous Region following growing reports about forced labor and other human-rights abuses against Uyghurs and other Turkic Muslim minorities. The

PRESIDENT BIDEN MEETS VIRTUALLY WITH CHINESE PRESIDENT XI JINPING IN NOVEMBER.

Uyghur Forced Labor Prevention Act creates a “rebuttable presumption” that assumes all products from Xinjiang are made with forced labor–and therefore banned from entering the United States under the 1930 Tariff Act–unless “clear and convincing” evidence demonstrates otherwise. Biden signed the bill into law in December. In August, Tai met virtually with the U.S. Chamber China Center Advisory Board and the leadership of the U.S.-China Business Council to discuss U.S.-China trade challenges and the Biden-Harris administration’s stance on these issues. Tai reiterated USTR’s commitment to addressing China’s unfair trade policies and non-market practices that undermine American businesses and workers. During these meetings, Tai noted that the administration and USTR are conducting a comprehensive review of U.S.-China trade policy, according to a readout from the USTR office. Two months later, during a “Trade Regime Review” of China at the World Trade Organization (WTO), U.S. officials were highly critical of the country’s polices and actions. “China’s industrial policies skew the playing field against imported goods and services and foreign manufacturers and services suppliers through an array of supporting measures,” U.S. Chargé d’Affaires to the WTO David F. Bisbee said. Bisbee said when China joined the WTO 20 years ago, WTO members expected that the terms set in “China’s Protocol of Accession” would permanently dismantle existing Chinese policies and practices that were “incompatible with an international trading system expressly based on open, market-oriented policies.” “But those expectations have not been realized, and it appears that China has no inclination to change,” he said. “Instead, China has used the imprimatur of WTO membership to become the WTO’s largest trader, while doubling down on its state-led, non-market approach to trade, to the detriment of workers and businesses in the United States and other countries.” The United States’ most fundamental concerns with China’s trade regime involve China’s industrial policies, Bisbee told the WTO. While other WTO members also seek

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to help their industries develop, China’s approach is materially different. Beth Hughes, vice president of trade and customs policy for American Apparel & Footwear Association (AAFA), said the organization is “always supportive of administration efforts to correct bad behavior by bad actors.” “We just feel that what’s happening with the trade war with China, these tariffs, we just don’t think they’re effective in the way that maybe the previous administration was hoping,” Hughes said. “We know that our companies are the ones being taxed heavily– we already have really high tariffs on apparel and footwear imports, and then now we have this really, even more.” Hughes said the shipping crisis is “just as big of a deal as when we started the pandemic, and stores and factories were shut down all around the world,” adding that providing “some tariff relief” will alleviate pressure in the industry. “Ways you can do that is eliminate the Section 301 tariffs on Chinese imports, at least by a minimum, start that exclusion process again,” she said. “That just didn’t...cover what we needed it to cover and really started a real exclusion process.” Phil Levy, chief economist at Flexport, said the U.S. demand for goods is causing much of these pressures and problems. “We have seen this very unusually prolonged tilt toward goods over services,” Levy said. “I think that’s what’s been at the heart of this whole supply chain crisis and to see that clear in 2022, we need to see that demand back off. I don’t think this is fundamentally a ‘somebody forgot to flip a switch and make supply chains work better.’ I think that the system has a finite capacity, and that capacity is badly strained.” He believes the Biden administration will face “increasing pressure” to take action on tariffs. “There was [an] explicit promise that this was going to be a fairly short-term measure, that might be painful, but it would pay off,” he said. “I don’t think we’ve seen any payoff, and it’s looking less and less like a short-term measure…I think there’s going to be increasing pressure to recognize it and push toward some sort of conclusion for the tariffs or to show some results.”

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THE REST OF THE WORLD In other key trade areas, in June the U.S. and EU closed the door on their 17-year dispute over subsidies for aircraft giants Boeing and Airbus, putting an end to $11.5 billion in titfor-tat tariffs imposed by the former Trump administration. The U.S. and EU in March agreed to suspend all tariffs for four months as they focused on resolving their long-running dispute. The U.S. and EU reached an agreement suspending tariffs for five years, provided they uphold the terms of the deal. The tariffs impacted a wide range of goods, including fashion items like luxury handbags, wool sweaters and vests, cashmere, and cotton, as well as the luxury tailors of Savile Row. In October, the AAFA hailed an agreement with Vietnam that addressed U.S. concerns in the Vietnam Timber Section 301 investigation and USTR’s threat of tariffs on products such as apparel and footwear. In November, USTR and Japan’s Ministries of Foreign Affairs and Economy, Trade and Industry announced the launch of the U.S.-Japan Partnership on Trade. The initiative reaffirms the shared commitment to strengthen the link between the two countries through regular engagement on trade-related matters of importance to both nations. “This partnership will deepen the cooperation between the United States and Japan that has defined our strong bilateral trade relationship,” USTR Tai said. “Our close collaboration will support the Biden-Harris administration’s development of an economic framework for the Indo-Pacific and help create sustainable, resilient, inclusive and competitive trade policies that lift up our people and economies.” The initial areas of focus for cooperation will include issues such as third-country concerns, cooperation in regional and multilateral trade-related forums, addressing labor and environment-related priorities, a supportive digital ecosystem for all and trade facilitation. That same month, Biden announced that three countries will be terminated from the African Growth and Opportunity Act (AGOA) trade preference program as of Jan. 1, absent urgent action to meet statutory eligibility criteria.

21 / 2022 SOURCING REPORT

“Our administration is deeply concerned by the unconstitutional change in governments in both Guinea and Mali, and by the gross violations of internationally recognized human rights being perpetrated by the government of Ethiopia and other parties amid the widening conflict in northern Ethiopia,” Tai said. “These countries are set to be removed from this program due to actions taken by their governments in violation of the AGOA statute. The United States urges these governments to take necessary actions to meet the statutory criteria so we can resume our valued trading partnerships.” AAFA’s Hughes said Congress needs to pass General System of Preferences (GSP), the Miscellaneous Tariff Bill and African Growth & Opportunity Act (AGOA) renewals that have long afforded duty savings on a wide range of imports generally not produced in the U.S. “We’re really hoping that now that the administration has had a year under its belt, that U.S, Trade Representative Tie start to move forward on trade policy,” Hughes added. “We’re hoping that the U.K. and Kenyan [free trade agreement] negotiations actually start again, and we also think strategically. I know we and a lot of others in the business community and Congress are still calling for us to join the [Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),” noting that there’s significant tariff elimination for apparel in CPTPP. There was also a push to onshore more apparel production to the Western Hemisphere, particularly toward Central America, to expand production under in the region as a commercial and political priority. The efforts and meant to strengthen the region itself and boost sourcing from its main source of raw materials–U.S. textile mills– as well as move manufacturing out of Asia, particularly China. Vice President Kamala Harris announced significant multimillion-dollar investments by Parkdale Mills and six other companies, as part of the administration’s “Call to Action” to the private sector to promote economic opportunity in the region, as her office works to address the root causes of migration. Harris, who is overseeing diplomatic efforts with El Salvador, Guatemala, Honduras

“We just feel that what’s happening with the trade war with China, these tariffs, we just don’t think they’re effective in the way that maybe the previous administration was hoping.” — Beth Hughes, American Apparel & Footwear Association

and Mexico, unveiled several private-sector commitments in December to strengthen economic opportunities in the Northern Triangle. North Carolina-headquartered Parkdale Mills, one of the world’s largest manufacturers of spun yarn and cotton consumer products, will make a multimillion-dollar investment in a new yarn spinning facility in Honduras and make an additional substantial investment to support existing operations in Hillsville, Va. Meanwhile, a new Asia-Pacific free trade agreement beginning Jan. 1 created the world’s largest trading bloc by economic size, according to a new United Nation Conference on

22 / 2022 SOURCING REPORT

Trade & Development (UNCTAD) study. The Regional Comprehensive Economic Partnership (RCEP) includes Australia, Brunei Darussalam, Cambodia, China, Indonesia, Japan, the Republic of Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand and Vietnam, 15 East Asian and Pacific nations of different economic sizes and stages of development. UNCTAD’s analysis shows that the RCEP’s impact on international trade will be significant. “The economic size of the emerging bloc and its trade dynamism will make it a center of gravity for global trade,” the report said.

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As Forced Labor Scrutiny Grows, Industry Needs to React BRANDS AND RETAILERS WILL SOON FIND IT DIFFICULT TO SWERVE RESPONSIBILITY BY PLEADING IGNORANCE. JASMIN MALIK CHUA

ivek Ramachandran, CEO of Serai, a supply chain visibility platform, anticipates a busy year ahead. Governments around the world are enacting or toughening legislation aimed at warding off products made using forced labor. Across Europe, countries such as Belgium, Germany and the Netherlands, along with the wider European Union, plan to hold corporations legally liable for human-rights abuses that occur in their supply chains. In the United States, brands and retailers will have to grapple with a new law that bars imports from China’s northwestern Xinjiang Uyghur Autonomous Region over the enslavement of persecuted Muslim minorities unless “clear and convincing” evidence demonstrates otherwise. “We are getting to a tipping point where companies are genuinely expected to own the actions of their suppliers,” Ramachandran said. The problem, however, is that globalization and the hunt for cheap production costs have rendered supply chains overly complex, fragmented and opaque. The further upstream you go, the less incen-

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tive there is for suppliers to divulge information about what they do and who they work with, he noted. This has resulted in a steep drop-off in visibility after Tiers 1 or 2. In a survey of brands, retailers, suppliers, manufacturers and sourcing agents that Serai and KPMG published in December, less than one in five respondents claimed to have full visibility of all their stakeholders. Even fewer—one in six—said they could trace all the materials used to pump out their products. “That is astonishingly low,” Ramachandran said. “It’s very difficult to own the actions of your suppliers if you don’t know who they are.” As a data-gathering tool, Serai, a subsidiary of HSBC, isn’t here to police supply chains or ensure compliance, he said. But regulators increasingly are. In November, Canada seized a shipment of clothing from China, the first time authorities enforced a rule that prohibits the entry of slavery-made goods since the passage of the United States-Mexico-Canada Agreement, the North America Free Trade Agreement’s successor. Over the past year, U.S. Customs and Border Protection’s (CBP) forced labor inves-

“We are getting to a tipping point where companies are genuinely expected to own the actions of their suppliers.” — Vivek Ramachandran, Serai

tigations have yielded six Withhold Release Orders (WRO), including one on cotton and tomato products from Xinjiang and another on cotton products linked to the Xinjiang Production and Construction Corps (XPCC), a paramilitary organization with a sprawling reach. The Uyghur Forced Labor Prevention Act, which President Biden signed into law in December, expands those directives and shifts the burden of proof from customs officials to the importers themselves. It’s these measures that will test the limits of corporate codes of conduct, which labor campaigners have frequently accused brands and retailers of wearing like armor to deflect allegations of wrongdoing or culpability. Though these sets of voluntary standards and responsibilities are important to have, said Jewher Ilham, forced labor project coordinator at the Worker Rights Consortium, a Washington, D.C.-based advocacy group, they’re meaningless if they don’t translate into meaningful outcomes. “It’s easy to publish an 800-world statement on your website,” Ilham said. “What’s not as easy, but is absolutely doable and crit-

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ically important, is taking precautions and measures to prevent your products from being tainted with forced labor; to really map out your supply chains and verify them. It’s a matter of will. If you claim you don’t know where you’re sourcing from or you don’t know if your items are made with forced labor or not, then you’re choosing not to know.” From India’s Sumangali scheme to debt bondage in Malaysia to the exploitation of Syrian refugees in Turkey, forced labor has long been endemic to the fashion industry, yet it has never received this much prolonged attention. Trade feuds with China aside, it’s likely the scale of the Uyghur’s state-sanctioned oppression that has made the issue more urgent, said Laura Murphy, professor of human rights at Sheffield Hallam University’s Helena Kennedy Centre for International Justice. In an annual human-rights report, published in March, the Biden administration labeled Beijing’s crimes of “imprisonment, torture, enforced sterilization and persecutions” against the Uyghurs as genocide, which China has vigorously denied.

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Murphy said that the Uyghur crisis has “woken up” the international community to the problem of forced labor in supply chains. “I think that the scope and severity of the issue in the Uyghur region have so struck governments and legislators that they are willing to take action that we’ve needed around the world for a very long time,” she said. “Mandatory human-rights due diligence should have been in place already. All countries should have an import ban on forced labor-made goods. Most companies are not going to do this voluntarily. We need governments to say, ‘We expect it, we demand it.’” Without a universal blockade, cotton products from Xinjiang that have been rejected by the United States will still wind up in the global marketplace, Murphy said. They might even be “laundered” back to American consumers through an export strategy that “obscures cotton’s origin.” A study she recently conducted found that Xinjiang cotton can infiltrate brands that have denounced Uyghur forced labor—Calvin Klein, Gap and Uniqlo, included—through intermediary suppliers in Ethiopia, India, Mexico or Vietnam. Even shipments of finished products can easily be diverted elsewhere. “It’s not like the cotton is getting burned in the ports or stored in warehouses until this whole thing blows over,” she said. “That cotton and those cotton-made goods are going to the EU, the U.K. and Australia. Countries that are not banning the import of these products are simply creating an economy in which the U.S. gets primarily goods not made with forced labor and the rest of the world receives the goods made with forced labor. So, there’s a critical need for the whole world to get on board with this ban.” But as more nations begin tightening their nets, so too will the risk of losing a shipment grow. “Having optics into your supply chain is no longer a luxury or nice-to-have in 2022; it’s going to become an operational risk,” said Justin Dillon, founder and CEO of FRDM (pronounced “freedom”), a San Francisco-based traceability platform that works with the Canada Border Services Agency, which he predicts will be adopting a similar enforcement cadence as the United States now that it’s crossed the Rubicon. The stakes are particularly high for fashion. Xinjiang contributes

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85 percent of China’s cotton, which accounts for one-fifth of the world’s supply. Bad PR is another pitfall, as Uniqlo learned over the summer after CBP declared a shipment of men’s shirts inadmissible, citing the Japanese retailer’s failure to provide “substantial evidence” to establish that the entities within the XPCC that processed the cotton into garments “did so without the use of forced labor.” Uniqlo argued that because the raw cotton used to produce shirts did not originate from the XPCC or even from China, they were not subject to the WRO and should be released, to no avail. Having unblinkered visibility is key to making better decisions and avoiding potential snafus, Dillon said. “It has to be a workflow or priority for companies to be able to build that transparency,” he added. “Where most companies need to start with is their own spend data [because] the understanding of what they’re buying and where they’re buying from has traditionally not needed to be very organized. And so there’s a data transformation phenomenon that’s happening right now inside of companies.” Dillon also anticipates something he calls the “network effect” around traceability. “We’ll start to see a bit more pressure on sellers to be able to disclose more about what they are or are not doing or what they plan to be doing in terms of their own supply chain because they’re passing along potential risks to their buyers,” he said. “I really do believe that we’re a part of something that we’re just seeing the very beginning of.” While the readiness level of the average fashion business to cope with regulatory pressure remains “very, very low,” the Uyghur Forced Labor Prevention Act will provide brands and retailers will more clarity about what kind of due diligence will be demanded of them, said Angela Santos, a partner who leads Arent Fox Schiff’s task force on forced-labor risks in the supply chain. Most companies, she said, haven’t dedicated the time or money to map their operations because they haven’t had to. “The forced labor prohibitions have been on books for a long time, but until the last few years, they really were not enforced,” she said. “Now there’s a cost-benefit analysis: Is it possible that my goods will be stopped at the border

“Having optics into your supply chain is no longer a luxury or nice-to-have in 2022; it’s going to become an operational risk.” — Justin Dillon, FRDM

and I won’t have a spring line?” The Biden administration is also poised to provide guidance on the type of technologies the companies can use to mitigate forced labor in their supply chains. Many newfangled systems, such as blockchain or DNA testing, are not only prohibitively expensive for smaller firms but they’re also untested, Santos said. Knowing what to invest in—or skip—will save a lot of grief. “Although [the law] does create a higher burden for importers, it also provides some certainty and structure in terms of what’s expected from customs and then also what’s expected of companies,” she added. Santos believes the United States will take a “holistic” look at forced labor across the globe, not just in Xinjiang. Already, CBP has slapped WROs on three disposable-glove manufacturers in Malaysia after identifying indicators of forced labor such as restriction

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of movement, debt bondage, withholding of wages, excessive overtime and physical and sexual violence. CBP has also staffed up a second forced labor investigations branch within its forced labor division, meaning importers should brace themselves for more enforcement actions outside Asia. “Particularly with this new division, we’re going to see increased forced labor WROs and action in other parts of the world, including in Latin America, the Middle East and Africa,” she said. In other words, brands and retailers will soon find it difficult to swerve responsibility by pleading ignorance. For Santos, the choice is clear: review and rework your supply chains now or face the consequences later. “Companies have to start thinking about this because they don’t want to have empty shelves,” she added. “They really need to know who’s producing their goods down every tier.”

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Supply Chain: The Stakeholders’ Perspective FIVE INDUSTRY EXECUTIVES OFFER AN ON-THE-GROUND VIEW OF THE MOST PRESSING ISSUES. KAT E N I S H I M U RA

s the global economy emerges from the darkest days of the pandemic, all eyes are on the consumer goods supply chain. Brands, retailers, logistics providers—and perhaps most notably, the ports that serve as a gateway to the American consumer—have faced headwinds in the form of short-staffing, congestion and a dearth of equipment necessary to keep operations humming. After another year of turmoil, stakeholders are weighing in with their insights on the current state of the supply chain, and what it will take to regain control and efficiency in the year ahead.

MARIO CORDERO executive director, Port of Long Beach

What are you seeing right now? M.C.: Our terminals and dockworkers are

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moving an incredible amount of cargo. The Port of Long Beach moved a record-setting 8.1 million TEUs in 2020. This year, we will break that record with more than 9 million TEUs. The current cargo surge began in July 2020 and could persist through the first half of 2022. The supply chain disruption we’re currently seeing has been caused by the Covid-19 pandemic which led to the ongoing, unprecedented surge in cargo, the high number of unscheduled vessel calls, a workforce impacted by the virus, and workplace accommodations throughout the supply chain that limit capacity. We must remember that congestion is not unique to the San Pedro Bay port complex; it’s happening at many other ports, and throughout the global supply chain. Many of the supply chain challenges we are witnessing were already occurring prior to the pandemic, but are now magnified due to our high cargo volumes. How is the Port of Long Beach coping with these issues? M.C.: The Port of Long Beach is committed to working closely with port stakeholders to find solutions and to facilitate the smooth,

“Our partner ports in Asia are already working around the clock. To keep pace, we must build a 24/7 culture in the American supply chain.” — Mario Cordero, Port of Long Beach

reliable and prompt movement of cargo through the port complex. We’ve worked with supply chain partners to establish a framework for 24-7 operations going forward, which has already added extra terminal hours to POLB operations. We’ve also created a container dwell fee. It has been effective in getting containers moved more quickly out of our terminals. Across the port complex, we have seen 47 percent fewer long-dwelling containers since the fee was announced near the end of October. We’re also operating the Short Term Overflow Resource (STOR) yard at Pier S, which is handling thousands of containers a day, to help provide additional space for our terminals to take containers. We’ve completed some major infrastructure projects, including Long Beach Container Terminal, where the third phase was opened earlier this year, adding one million TEUs in annual capacity. If you could change one thing, what would it be? M.C.: Our partner ports in Asia are already working around the clock. To keep pace, we must build a 24/7 culture in the American supply chain. We have seen growing consensus that a 24/7 supply chain would be a solution to the level of cargo demand that we have seen recently. The situation is evolving, and we expect to see more links in the supply chain find the means to move cargo around the clock. A trucker can pick up a container at 4 a.m. at the Port of Long Beach today, but until distribution centers and other supply chain nodes are open at this time, it’s going to be challenging to handle the volumes of cargo we are handling now and expect to see in the future.

HAPPY CHAU director of sales, OEC Group What are you seeing now? H.C.: Shipping demand hasn’t slowed down, and in the meantime, we are affected by the historic backlog of container ships at L.A.— Long Beach. Many vessels are not able to

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berth, creating further delay for inbound cargo, which in turn delays outbound cargo as well as empty containers returning to Asia and other ports. Canada shipping and rail are also delayed due to weather disruptions. We are currently preparing our customers for the next rush in shipping from overseas that comes right before Lunar New Year. How is OEC Group coping with these issues? H.C.: Throughout this entire extended period of high volumes, historic congestion, and dwindling container space on every vessel rotation, our team has always advised clients to prepare and discuss their forecasts with us as soon as possible. The earlier we know their exact plans regarding delivery windows, quantity of cargo, points of origin, and final destinations, the better we can prepare ourselves with more time. Even in this market, if our team is afforded enough time, we can accommodate almost any order. If you could change one thing, what would it be? H.C.: Most clients consult with us and communicate early and often, but that doesn’t always work across the board. Other than that, I can’t think of much else I’d change in terms of our approach. Even though it seemed like new issues were popping up every day in 2020 and 2021, our team consistently responded really well. It looks like 2022 may be more of the same.

STEVE LAMAR president and CEO, American Apparel & Footwear Association What are you seeing right now? S.L.: The continued supply chain backups— percolating and worsening every day—have hurt our industry’s ability to stock the shelves for holiday shoppers and are fueling record inflation. While there has been positive progress over recent weeks—including recent action by the Biden administration, and the passage of the Ocean Shipping Reform Act (OSRA21)—we are far from out of the woods

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(or off the water). Further action is desperately needed, including joint action with all stakeholders at the table, to mitigate a shipping crisis that will extend well into 2022 and quite possibly into 2023. How is AAFA and its membership coping? S.L.: AAFA has been incredibly vocal about the shipping crisis, from national media and social media to discussions with the Biden Administration directly. On the cross-cutting issues of Covid-19 and the logistics nightmare, we’ve hosted more than 70 member calls on Covid-19 since 2020 and have had five interactive “Member Roundtables” to address the shipping crisis on a unified front. In 2022 and beyond, we are truly galvanizing the industry to build upon strong supply chain and sourcing commitments— including the highest ethical and responsible standards—so that members, consumers, workers, and the environment will thrive. This includes delivering educational content as we address matters of traceability, authenticity, and safety. What is the most pressing issue that you would change if you could? S.L.: Many issues are on top of that list. Unsnarling the shipping crisis is a key thing we want to fix in the short term. Beyond that, there is a lot that could be done to our nation’s trade policies that would help the country as we are looking for ways to arrest inflationary pressures, such as the removal of the Trump-Biden tariffs. Related to that, several key trade preference programs—the Generalized System of Preferences and the Miscellaneous Tariff Bill—were allowed to expire by the previous Congress and need to be retroactively renewed as soon as possible. Getting the industry fully aligned around common approaches on sustainability, and getting regulators to recognize these approaches, is another critical area where we need action now to address our climate crisis. In truck brokerage, we experienced 32-percent load growth through September 2021 from the previous year, which sharply outperformed the industry average. It’s a sign of growth, and it means that if we focus on improving our offerings, we can deliver

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great service regardless of any chaos. We do this through our world-class productivity: technologies like XPO Connect and automation allow our operations to do more with less and react quickly to market constraints.

SALVATORE J. STILE II president of logistics, Alba Wheels Up What are you seeing now? S.S.: My perception is that the supply chain is trying to recover, but it seems there’s always and impediment turning back any progress. Consumer prices will continue to increase as a result of tight container space, lack of equipment and worker shortages. Additionally, ocean freight rates and domestic matters will continue to place added pricing pressure on consumer goods. I think as long as demand by consumers remains high, there will be premium pricing on trans-Pacific shipping capacity, and companies will need partners that recognize this and know how to deal with it. How is Alba Wheels Up coping with these issues? S.S.: We have certainly had our challenges, but we’ve provided our clients with innovative programs such as Section 321, which applies to products that ship direct to the consumer from origin. If less than $800 in value, those products can enter the U.S. duty-free. They can then be picked from the pier and sent directly to the purchaser, bypassing typical distribution channels and saving weeks off delivery times. Section 321 has been a welcome offset to some of the extra costs incurred by our customers in other parts of the supply chain. If you could change one thing, what would it be? S.S.: It would definitely be to improve the flow of information among all parties involved in the supply chain using a sophisticated block chain. Currently, there’s a lot of wasted time and too much guesswork in

“There’s a lot of wasted time and too much guesswork in many aspects of the shipping industry. All the stakeholders should leverage technology as much as possible to forecast capacity at various points in the supply chain, pinpoint bottlenecks, and react accordingly.” — Salvatore J. Stile II, Alba Wheels Up

many aspects of the shipping industry. All the stakeholders should leverage technology as much as possible to forecast capacity at various points in the supply chain, pinpoint bottlenecks, and react accordingly. The lack of visibility and coordination from end-toend is a root cause of the problem.

DREW WILKERSON president, transportation, North America for XPO Logistics What are you seeing now? D.W.: Transportation providers are facing a bevy of challenges, like backlogs at the major ports, along with equipment shortages. While we face those same challenges, we see some of them as opportunities to innovate within a chaotic environment and be an industry leader. Even with the supply chain disruptions that are occurring, we’re constantly evolving to better serve our customers. Through integration, for example, we’re enabling easier communication between systems, increased efficiencies and better overall network optimization. With pricing, our proprietary machine learning allows us

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to better price the freight by considering dynamic market fluctuation. How is XPO coping with these issues? D.W.: We’ve benefitted from an industry trend of brokers steadily capturing truckload share. The brokers who rely on cutting-edge technology are benefitting the most. This shift toward outsourced freight transportation has accelerated during the pandemic. We’ve benefitted from that because we provide reliable access to capacity and real-time pricing. We’re seeing volume growth in all our lines of business—including solutions like transloading, forward stocking, conversion to the rail, etc.—because customers know they can depend on us in tight or loose markets. Our technology enables visibility through tracking and platforms like XPO Connect, and our proprietary machine learning matching engine helps utilize existing capacity and reduce empty miles. If you could change one thing, what would it be? D.W.: When challenges in the market arise, there’s an opportunity to examine our own behaviors. We can’t control much of what happens outside of us, but we can control how we react. Agility is more valuable than forecasting in times of turbulence.

Shipping Costs to Remain Elevated WITH MORE DATA-DRIVEN PRICING, AND A NEW RELIANCE ON SHIPPING BY AIR, HIGHER PRICES TO TRANSPORT GOODS ARE LIKELY HERE TO STAY. KAT E N I S H I M U RA

021 was a year of cobbled-together contingency plans for many players involved in the supply chain. Longer lead times, container shortages and delays at ports across the globe sent many scrambling to find alternate modes of transport. And as they grappled with limited capacity, desperate shippers paid unprecedented rates to get their goods to U.S. shores. The surge in demand for ocean shipping containers, which began during 2020, compounded throughout 2021. Retailers attempted to get a jump on seasonal imports, shipping greater volumes of goods earlier than they had in the past. Prices shot up over the summer, reaching their peak in mid-September at an average of $11,109 per container, according to Freightos’ global container freight index. That number began to stabilize by mid-December, averaging $9,503— still about 68 percent higher than the same period a year prior.

AIR FREIGHT ON THE RISE As a result of ballooning container prices, brands have been driven to air freighting goods at a higher rate than ever before. During the early 2010s, air freight averaged a

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little over 50 million metric tons per year, and since then, the global volume of has increased steadily, but incrementally, according to data from market data provider Statista. In 2021, however, volume jumped significantly, with a whopping 66.2 million metric tons of goods air freighted, growing by 3.8 million metric tons from pre-pandemic levels. The trend shows no signs of slowing, according to the group’s data. Statista projects that the volume of air-freighted goods will reach 69.3 million metric tons in 2022. Higher demand has, predictably, led to higher costs for shippers. International air cargo rates can range from about $2.50 to $5 per kilogram in a typical season, but that range essentially doubled over the course of 2021, Freightos data revealed. There are plenty of downsides to air-freighting, even during a typical year. Shipping a medium, 2,000 lb. box from Shenzen, China to Los Angeles, Calif. might cost $1,500 by ocean but a whopping $8,000 or more by air. As both modes of transport saw outsized demand over the summer of 2021, though, the price delta between them shrank, while brands’ concerns about obtaining product continued to grow. “Air freight is never the answer—it is always the last resort,” said Brian Glick, CEO

of supply chain software integration firm Chain.io. “There was there was an inflection point where air and ocean almost became interchangeable at the beginning of the summer,” he said, but that time has now passed. Shippers assumed that as passenger flights resumed in larger numbers, air freight rates would fall, he added. “What actually happened was that cargo-only flights are now being replaced by passenger flights, and they’re fighting with passenger baggage for the same space,” he explained. “You will always lose that fight.” Though it is largely yet to be seen how the emergence of the Omicron Covid-19 variant will impact international travel, Everstream Analytics painted a grim picture in a December brief. With upward of 70 countries imposing travel restrictions, the group said it expected cargo capacity to decrease by 30 percent, particularly on key trade lanes between South and North America, Europe and Asia, due to flight cancelations. Between mid-November and mid-December, the cost to air ship from China to the West Coast had already climbed 25 percent, surpassing the

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previous record set during the PPE rush in May of 2020. Beyond the growing inefficiency and expense, there are other, non-monetary costs to air-freighting goods, Glick said. “When you move to air freight, you blow your carbon numbers completely out of the water.” The mode of transport does not represent a long-term option for the bevy of brands and retailers that have made sustainability commitments in recent seasons. But despite the downsides, a notable number of brands have built high-priced air freight into their supply chain strategy, unwilling to risk another season of delayed shipments. Lululemon chief financial officer Meghan Frank said in December that the brand “[continues] to face the same issue as much of the industry, including port slowdowns and increased costs associated with air freight.” She noted that she expects to see air freight pressures peak in the fiscal fourth quarter, but anticipates supply chain challenges— and a reliance on air transport— will persist through the first half of 2022. Meanwhile, Gap threw down $100 million

MANY BRANDS AND RETAILERS TURNED TO AIR FREIGHT IN 2021 TO ENSURE HAVING STOCK ON THE SHELVES.

on air freighting in a bid to circumvent shipping delays during the third quarter alone, and its spending on the effort totaled $450 million for the full year. Still, the Old Navy and Athleta parent incurred a net loss of $152 million, or 40 cents per share, estimating a $300-million quarterly sales miss due to inventory constraints. Athleticwear titans Nike and Adidas both invested heavily in air freight during the holiday season in an attempt to mitigate the impacts of supply chain slowdowns in Vietnam, while Amazon, eager to keep its shipping capabilities in its own hands, augmented its fleet of jets. The e-tailer stands to have 85 aircrafts in its arsenal by next year, and has even hired its own flight crews to bring more product over from China.

WHEN WILL THE SHIP RIGHT ITSELF? While U.S. port congestion is easing with the implementation of a 24/7 productivity framework and the threat of container dwell fees, greater efficiency is unlikely to lead to low prices for shippers, especially in the near term, Glick said. Rates remained extremely elevated at 8-9x the pre-pandemic norm, and goods being shipped from Asia to the West Coast of the U.S. averaged $14,924 per container—a 285-percent increase over the same period in 2020. “There will be, and there already has been, a bit of a dip” in container pricing, he added, which will take the heat off brands to spring for space on aircrafts. However, “the fundamental market structure has shifted, and [ocean] carriers are executing better price discipline.” A small group of competitors are operating with “a lot more data” than they have in the past, and carriers are now in a position to use those insights to maintain favorable profit margins. Gone are the days of glad-handing and

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striking backroom deals with clients, he explained. In line with the industry at large, carriers are adopting tech-heavy processes to manage all facets of business, from operations to pricing. “Instead of using relationship-driven salespeople, they are going to negotiate contracts from a place of data-driven information.” That newfound reliance on analytics is going to keep rates consistently higher than they were pre-pandemic, Glick said. “It’s a market shift that has nothing to do with Covid at all.” The overall uptick in pricing on freight stands to impact smaller shippers disproportionately. “The cost increases are not evenly distributed,” he added. Large shippers with huge volumes and matching industry clout are taking hits far less devastating than businesses looking to ship limited batches of product. “The very small shippers have paid significantly more, which is why you see anecdotal stories out there about $35,000 containers,” he said. “That’s how averages work—a large volume of companies are paying a lot more, and a small number of companies who have a lot of freight are paying a little bit more.” A lack of control over the variables is a key problem. Over the past year, brands have thrown money at the logistics problem in a harried bid to stock their shelves, but the strategy is simply unsustainable, Glick said. “It honestly doesn’t matter whether the time frame to get something from China to your warehouse is 45, 60 or 90 days,” he added. “What matters is that at the beginning of your product lifecycle, you know the answer.” Supply chain players will inevitably find their footing and settle into a “new normal,” he said—and hopefully over the course of the next year. “Will everything always be as consistent and cheap and fast as it was? No,” he added. “But as long as it’s predictable, it’s okay. People need certainty a lot more than they need efficiency.”

“Air freight is never the answer— it is always the last resort.” — Brian Glick, Chain.io

Consolidation Blurs Lines Between Retailers, Logistics Players INDUSTRY STALWARTS HAVE SET THEIR SIGHTS ON LOGISTICS ACQUISITIONS. G L E N N TAY LO R

he bottlenecks that have permeated throughout the supply chain since late 2020 have illustrated the need to shore up logistics capabilities wherever possible. With so much uncertainty remaining on when port congestions will ease, companies across the supply chain, whether it be retailers or freight powerhouses, are taking matters into their own hands by buying logistics platforms in an effort to bolster their fulfillment capabilities and get closer to the customer. The numbers tell the story: these kinds of transactions ramped up heavily in 2021. The aggregate value of transportation and logistics deals skyrocketed 84 percent yearover-year for the 12 months ended Nov. 15, 2021, according to data from audit and consulting firm PwC. While big guns in the retail industry such as Amazon and Walmart have been known for blurring the lines between retailer and logistics provider for years, with Target following suit with its purchase of same-day delivery

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platform Shipt during the 2017 holiday season, the acquisition route is picking up steam among sellers that aren’t just mass merchants. The pressures put on by these companies have backed single-category retailers into a corner, where everyone from apparel sellers to home furnishings merchants is realizing they need to become logistics companies to succeed in today’s environment. American Eagle Outfitters made headlines late in 2021 for paying up for not just one but two logistics firms, first last-mile delivery services startup AirTerra and then online order fulfillment services provider Quiet Logistics. “Amazon has done now where people are saying, ‘If we don’t do this, Amazon will replace American Eagle or Victoria’s Secret,’” said Frankie Mossman, chief customer officer at supply chain visibility platform Overhaul. “I had a conversation not even three months ago, where I was talking to somebody who said that they could not do weekend deliveries. But consumers now get packages on Saturday and Sunday. Delivery

availability has completely changed because of the marketplace model, and this consumer belief that we can get our hands on it.” Glenn Richey, chair of the department of supply chain management in Auburn University’s Harbert College of Business, says to expect more of the same for retailers that have the cash to make an immediate purchase. “The easiest way to handle it in the short term is to buy, because you have this additional appendage of the company that can focus on logistics and transportation issues,” Richey told Sourcing Journal. “So I bet you’re going to see more acquisitions in the future. The other side of that is, though, that there’s already been a good bit of consolidation in the third-party logistics environments. There are not as many candidates for acquisition as perhaps there would have been 10 years ago.” As of now, the operations at both firms aren’t changing under the acquisition, and will continue to serve their current third-party retailer partners. AEO and other retailers prepping to make a similar commitment may have additional opportunities to maximize their own value, and expand its network through the distribution of other brands. “If they’re truly saying ‘We want to be a technology company,’ or ‘We want to be a final mile provider,’ they could actually open themselves up for any kind of clothing retail, or any kind of luxury good item to move through their network under the American Eagle brand to come out and distribute,” Mossman said. “I like it in the sense that people are starting to think creatively about how to digitize in a real, practical way, which is the message you send when you acquire a logistics company. The downside of it is the intention. If you’re not intending to become a logistics company, you’re probably going to fail at it and there’s going to be this tension because it’s not your core of who you are or what you are as a mission statement.” While AEO sought to improve its delivery network largely through software and new tech-enabled distribution centers, another major retailer with a massive store presence is opting to onboard a fleet of more than 1,000 trucks across the western U.S. A regional affiliate of Ashley Furniture’s Ashley Distribution Services acquired se-

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lect assets of transportation service provider Wilson Logistics in an effort to better scale its delivery capabilities across 1,000 Ashley HomeStore locations, as well as independent retail stores carrying Ashley products. Ashley Distribution Services will add nearly 50 percent more transportation capacity with the deal, giving the company nearly 2,000 trucks and 5,000 trailers. The consolidation holds higher stakes than the AEO acquisition due to the significant physical assets involved. This makes the integration of Wilson even more important, because Ashley is now operating the distribution for the trucking providers’ base of clients. Under new management, there can’t be any slip-ups in delivery timing or quality or there is a risk of client attrition. “The consolidations in supply chain management, transportation, logistics, functions, tend to be purchasing of revenue, and so you go and buy that company, and then you immediately get access to those customers that drive that revenue,” said Richey. The hope is that you can go in there clean up the inside a little bit and have it produce better margins and better returns. But it’s a difficult thing to do.” Retailers seeking to make these acquisitions have to acknowledge that there is potential for two very different organizational cultures to collide, he noted. This is where it becomes more important to align the goals

AMERICAN EAGLE OUTFITTERS ACQUIRED BOTH AIRTERRA AND QUIET LOGISTICS LAST YEAR.

of becoming the logistics business it wants to be with the overall strengths of the acquired business. “You can certainly have important people leave and go elsewhere, taking information with them that was vital to the business,” Richey said. “And sometimes we end up also seeing overlap redundancies that are inefficient, so maybe we have two employees in a place where we need one. There are all kinds of factors that have to be shaken out there during those consolidations. It’s tough business, but it’s certainly something that venture capitalists love.” Glenn Riggs, president at supply chain management solution firm Centerboard noted that the consolidation within the industry comes as more companies start to understand how crucial it is for retailers, importers or shippers to have a centralized visibility and planning platforms at their fingertips. “If you are able to detect a challenge early, there can be an opportunity to resume production and meet pent-up demand,” Riggs said. “Selecting a cloud-based logistics management platform offers real-time insights and foresight and helps create a real-time digital twin of the supply chain which enables remote, timely and fact-based orchestration for manufacturing, shipping and buying enterprises.” Maerks, CMA CGM further global ambitions with logistics deals The acquisitions also come at a time when the top international shipping giants are seeing unprecedented revenue due to the constant flow of goods, and have plenty of cash on hand to afford bringing in businesses at a premium. In December, Denmark-based shipping giant A.P. Moller-Maersk acquired Li & Fung Limited’s logistics business, LF Logistics Holdings Limited, for $3.6 billion, in an effort to further capitalize on land-based transportation opportunities in Asia, namely 223 distribution centers across 14 APAC markets. But the LF deal is only one of a few transactions that Maersk has entered in an effort to bolster its global operations, and ultimate-

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ly help its own customers increase supply chain speed and visibility amid the continued rise of e-commerce. Since August, the titan has acquired three e-commerce logistics firms: U.S.-based Visible Supply Chain Management, Netherlands-based B2C Europe Holding B.V. and Portugal’s fashion-oriented warehousing startup Huub. Alongside Maersk, CMA CGM beefed up its own arsenal in acquiring e-commerce contract logistics and omnichannel fulfillment businesses from Ingram Micro, including cloud-based logistics technology program Shipwire, for $3 billion. The deal intends to complement the French shipping company’s CEVA Logistics existing e-commerce business and accelerate its growth in key market segments, such as technology, retail and fashion. Burt White, global director of supply chain consulting at shipping and logistics software provider Slync.io, noted that many shippers in today’s high-cost climate are getting frustrated with their third-party logistics providers’ inability to correct and change course as needed. “When shippers take back direct control over their logistics operations, it’s because something is missing from their service providers,” White told Sourcing Journal. “They feel logistics service providers don’t understand their needs or are unable to provide services that can help evolve their supply chain, or they want a direct line of sight to their carriers and vendors. When shippers see their costs or the number of disruptions increase, they naturally start to question whether third-party logistics providers have their best interests in mind.” Alongside shipping costs, control and accountability are an ongoing issue that make shippers want to bring functions like warehousing, transportation or even manufacturing back in house, he noted. “While few shippers have the means to fully reintegrate their supply chains, even taking back a portion of their logistics operations could help reduce risk and improve control in an unpredictable market,” said White.

“If you are able to detect a challenge early, there can be an opportunity to resume production and meet pent-up demand.” — Glenn Riggs, Centerboard

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Made in US Sees Resurgence Amid Supply Chain Woes AS LEAD TIMES GET LONGER AND LONGER SHIPPING FROM OVERSEAS, MORE BRANDS AND RETAILERS ARE TURNING THEIR ATTENTION STATESIDE. KAT E N I S H I M U RA

n a tale of opposites, dozens of ships idle off the coast of Los Angeles holding cargo, while the city’s apparel producers are buzzing with activity. Amid the supply chain crisis that has threatened the inventory of brands and retailers across the country, stateside shops have experienced a resurgence in industry interest not seen since the 1990s. Many companies that have manufactured offshore for decades are refocusing their attention on American producers. Some are desperate to obtain product quickly after months of delayed orders and mounting costs. But others, sensing a sector-wide sea change, are rethinking the value of Made in the USA.

STATESIDE SHOPS GATHER STEAM “The answer is yes—we’re moving to another facility to increase our capacity as we speak,” said Scott Wilson, president of UStrive Manufacturing, when asked if his business had grown amid the pervasive shipping

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delays and production slowdowns impacting overseas trade. The Downtown, L.A. apparel maker is increasing its sewing capacity in an effort to prepare for the deals it has secured for 2022, Wilson said. “We’ve got a couple big brands that are coming back to the U.S. for the very first time, and it’s pretty amazing,” he added. “Some of these brands are very large, been around a long time, and are kind of iconic— and they’ve never made a single thing here.” While some new clients are ramping up with UStrive slowly, committing to just a few SKUs for the coming season, others are “projecting fairly large numbers for next year.” Some have even cited an intention to move up to 50 percent of production onshore, Wilson said. Business has also grown with existing clients eager to capitalize on the benefits of their comparatively healthy American supply chains, their buy-in bolstered by growing shopper interest in domestically made products. Players that have historically produced overseas are “scared to death to move, because they’re so ingrained offshore.” Much of

that fear comes down to price, he explained. But for the first time in his recent memory, Wilson said the sticker shock is not sending them running. Brands may be accustomed to the impossibly-low cost of foreign labor, but the landed cost of goods in 2021 has altered that equation. “I ask them, ‘What does that dress actually cost you, after it’s been delayed, and you had to air-freight it?’” Missed selling opportunities, deep discounts and ballooning spend on transportation have blown up brands’ bottom lines, he said. Suddenly, a 30-percent price increase on production doesn’t seem so menacing. One of the only two zipper makers left stateside, UCan Zippers began seeing growing interest in its products about five years ago, a representative told Sourcing Journal. “Shorter lead times really help when you’re in the garment industry,” he said, especially amid a direct-to-consumer boom that places a premium on speed to market. During the fall of 2020, the company began to notice a trend. “Brands were calling me and saying, ‘Hey, I can’t get my zip-

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pers from this [overseas] company,’” he said. “When you start receiving phone call after phone call with similar stories, it’s easy to put the puzzle pieces together and realize that our very large competitor is having some major issues.” “We’ve inherited about 30 to 50 clients” to date, he added. “Their customers are jumping over to us.” “During this time of Covid, the infrastructure was so broken that people came to realize that we really do need manufacturing based here,” David Roshan, president of Laguna Fabrics, a mill based in L.A.-adjacent Vernon, Calif., echoed. Over the course of the past year, companies have come to see the value in keeping their supply chains close, “both from a sustainability perspective, as well as just to make sure that [suppliers] are able to deliver.” “Right now, we’re seeing a lot of people come back that that we hadn’t done business with in a long time,” Roshan added. The company, which specializes in fabrics for mid-level womens-wear brands that serve department stores like Nordstrom, has seen

LEFTY HAS SEEN A STEADY SURGE IN INTEREST FROM MICRO-ENTREPRENEURS.

major movement from both new and existing customers. Laguna began expanding its operations in Vernon in the fall to keep up with the flow of new business. “Deliveries out of Asia were so far out, and shipping costs kept moving up, and they weren’t able to get goods—so they looked to the U.S., and we were able to produce,” he said of his newly converted clients. The mill’s typical turn time is between three and four weeks, a far cry from the seemingly interminable waiting periods many brands experienced during 2021. “Yarn was on the floor, machines were running and capacity was available,” he said. “So it was an easy decision for some.”

ONSHORING CHALLENGES While business is blossoming, its hasn’t been all roses, Roshan said. Despite a newfound industry appreciation for Made in the USA, there is still a massive dependence on offshore suppliers for the parts and pieces that make up those products. “We’re a novelty house, constantly creating new fabrications in different stitches,” Roshan said of his GOTS-certified operation. While the mill is able to source some basic cotton yarns domestically, Laguna relies on overseas manufacturers for specialized fibers and blends not produced stateside. Despite the proximity to their end market, American producers are finding that some essential components and materials they need to deliver on orders are out of reach—in a container stuck at a port, or on a vessel a world away. “We tried to look ahead, and we purchased a lot of yarn, stocking up to try and get ahead of the supply chain issues,” Roshan said. “But it’s a challenge, and we’re getting caught up in the shipping delays like everyone else.” “Even if something is made in America, there’s so much that might not be made in America, like a zipper or the elastic or some other component,” Marta Miller, owner of L.A.’s Lefty Production Co., told Sourcing Journal. “We’re starting to see crazy shortages—or crazy prices—on those things.” When the price of elastic jumped nearly 40 cents per yard earlier this year, Miller saw the writing on the wall. She decided to invest

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a “chunk of money” into the essentials, filling a storage unit to the brim with materials, cardboard boxes, packing supplies, and other items in short supply. “We can’t get wooly nylon thread, which is what we make leggings out of,” she said. “And you can’t find a YKK zipper anywhere.” Competition for such commodities is fierce, she added, and reminiscent of the “panic mentality” that had shoppers stocking up on toilet paper during the early days of the pandemic. Lefty produces womenswear and swimwear for dozens of department store brands, DTCs and influencer-led capsules, and fields an average of 200 inquiries per month about its services. Though she’s signing about a dozen new clients every four weeks, Miller is anxious about procuring the components she needs to keep operations humming. “I just launched an activewear line with the client, and she sold out in two days— but she can’t get more fabric,” Miller said by way of example. “In normal times I would have had [product] back on the machines immediately.” But four weeks later, Lefty is still waiting on material to produce the next batch of goods. The supply chain meltdown has sent brands scrambling for production partners, and shops like hers are funneling funds back into their businesses in order to meet bur-

“During this time of Covid, the infrastructure was so broken that people came to realize that we really do need manufacturing based here.” — David Roshan, Laguna Fabrics

USTRIVE IS THE FIRST AND ONLY VERTICAL CLOTHING MANUFACTURER IN NORTH AMERICA TO RECEIVE BOTH THE GLOBAL ORGANIC TEXTILE STANDARD AND TEXTILE EXCHANGE’S ORGANIC CONTENT STANDARD CERTIFICATIONS.

geoning demand. “It’s just one of the things we’re doing—not taking the profits we could be taking, and putting it into boxes and elastic so we have the chance to operate.” Now a hot commodity, UCan Zippers hopes to be able to sustain growth despite tenuous links in its own supply chain. “Though most of our stuff is domestic, you still have a couple of pieces that come in raw from other countries,” a company representative said. Zipper sliders are tooled using machinery no longer available stateside, he added, while raw brass, the preferred metal for zipper teeth, is imported from across the globe. “Like anybody else, it affects us to some degree,” he said of the shipping slowdown, but the company has bought deeply into reserves of both products. “I’m constantly watching the availability of yarn, that obviously is the key to everything,” US-trive’s Wilson said. “The scarcity of organic cotton for next year is scary,” the manufacturer added, noting that he has recommended that all of his clients invest in stockpiling material. During the early days of the pandemic, many L.A. producers answered the call to produce much-needed PPE, like masks and gowns, to support front-line workers. Those opportunities have slowed across the board, but Wilson said that the 2020 PPE boom helped him prepare for what’s to come. “We’ve reinvested in expanding our factory, and into buying more fabric,” he said. Last year, UStrive became the first and only vertical clothing manufacturer in North America to receive both the Global Organic Textile Standard (GOTS) and Textile Exchange’s Organic Content Standard (OCS) certifications, distinctions that Wilson believes will become key to doing business with increasingly conscious U.S. brands. “Organic is the buzz now,” he said. “If it’s not organic, the consumer doesn’t want it.” While UStrive sources a portion of its cotton domestically, there simply isn’t enough to sustain demand from U.S. manufacturers, Wilson said—even in a bumper crop season that has seen heightened production across the country. Prices have surged amid the shipping delays from producers in key markets like India and Pakistan, as well as China, once the world’s primary source of cotton.

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USTRIVE SAYS IMPLEMENTING TRACEABILITY TECHNOLOGY IS AN IMPORTANT FUTURE PROJECT.

In December, President Biden signed the Uyghur Forced Labor Prevention Act into law, banning all imports from China’s Xinjiang region unless companies serve up “clear and convincing” evidence that their supply chains are free of slave labor. “No matter if it’s offshore, domestic, whatever—[the shortage] is requiring brands to start actually thinking ahead for the first time,” Wilson added.

PRODUCERS LOOK TO THE FUTURE “I’m definitely busier than I was this time last year with fashion orders,” Lefty’s Miller said. Now that the factory has moved on from crafting masks and gowns, Miller has seen a steady surge in interest from micro-entrepreneurs, like influencers and stay-at-home moms, looking to bring long held visions or new ideas to life. “Ten years ago, a 24-yearold was either working or going to school,” Miller said. “Now, they’re leveraging their Instagram following to start a bikini line.” Instead of trotting out full-fledged collections, these first-time business-owners are starting small, dropping a handful of styles or just one product in multiple colorways that are shipped to their doorsteps in weeks.

“I just did an activewear line for an influencer, and it was five pieces,” she said. Lefty specializes in small batch production, making it possible for clients to test and react quickly to market trends. “She gets a great assortment, she doesn’t spend much, and she gets to prove her concept.” The post-Covid world is actually ripe with possibility and hope for creatives—and their suppliers, Miller said. “You have this new wave of people that kind of want to figure out something different for themselves. And I think that’s definitely here to stay.” When asked whether he believes new clients will skip town once the price to import goods from overseas stabilizes, Roshan said he’s betting on semi-permanence. “I think the ones that are really driven by price—and only by price—are going to move back,” he said, “but there are lot of people that now see the value” of stateside manufacturing. Brands may want a more sustainable product, greater visibility into their supply chain or the ability to react more quickly to shopper appetites, he said. Some simply desire the cachet of a “Made in the USA” tag in their garments. But over the course of the past year, Roshan believes the consumer has come to understand that there’s a human cost to resuming business as usual. “I believe they are willing to pay a little bit more for a high-quality garment, knowing that the people involved

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in the supply chain were paid a living wage.” The sustained growth of U.S. manufacturing isn’t in the hands of brands, according to Wilson. “It’s up to the consumer—it always is,” he said. “The consumer has to has to keep pushing this, and I have a feeling they will.” Newfound interest in the origins of their purchases has led to consumers “reevaluating” their priorities, and the criteria by which they judge a brand. They’re investing in fewer products that are better for the planet and provide a dignified source of income for workers—and they’re no longer content to blindly trust the provenance of goods made overseas, Wilson said. Implementing traceability technology is also future project for UStrive. Moreover, diverting some portion of production to U.S. manufacturers is becoming key to a smart sourcing strategy, he believes, as complications in the apparel supply chain are not likely to resolve overnight. “I see brands that are flexing and moving with this, and these are the things you have to do if you want to be in business.” Of course, Wilson has heard brands promise to prioritize U.S. manufacturers in the past. “But we’ve never been in a situation like this in the past,” he said. “I’ve been in the apparel business my entire life, and this is the first time I’ve ever seen Made in the USA actually mean something.”

Nearshoring Takes Hold AMID SUPPLY CHAIN DELAYS, LABOR FORCE SHORTAGES AND INCREASED SUPPLY CHAIN SCRUTINY, BRANDS ARE MOVING PRODUCTION CLOSER TO HOME. C H U C K D O B RO S I E L S K I

fter countless years of rumblings and promises, the long-heralded rise in nearshoring appears to finally be here. In a McKinsey & Co. survey of 38 chief procurement officers at clothing companies, 71 percent said they plan to increase their nearshoring share, including 13 percent who expect to do so by more than 10 percentage points. Twenty-four percent plan to increase reshoring in their sourcing strategy. For U.S. companies, Central America ranks highest on the list for future nearshoring activities. Roughly eight of 10 North American apparel players—nearly one-quarter of the respondents in McKinsey’s survey are based in the region—plan on increasing their company’s sourcing value share in Central America. McKinsey’s results, published in a November report, align with the latest data on denim imports from the Commerce Department’s Office of Textiles & Apparel (OTEXA). According to OTEXA, overall U.S. blue denim apparel imports increased 28 percent year over year in October, while those from Western Hemisphere countries grew 40 percent. Mexico registered a 43 percent gain compared to 2020. Imports from

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the countries of the Central American Free Trade Agreement (CAFTA) rose 29 percent. Kim Glas, the president and CEO of the National Council of Textile Organizations (NCTO), attributed the increased interest in Western Hemisphere sourcing to three factors: labor shortages due to Covid outbreaks, higher freight costs and the uncertainty related to the reports of forced labor in China’s Xinjiang region. “I don’t see it not being all tied together,” Glas said. The latter of those three factors became particularly pertinent in December when President Joe Biden signed the bipartisan Uyghur Forced Labor Prevention Act, legislation that bans imports from Xinjiang, into law. The act creates a “rebuttable presumption” that all products from Xinjiang have been made under coercion by persecuted Muslim minorities—thereby barring them from entering the United States under the 1930 Tariff Act—unless “clear and convincing” evidence proves otherwise. Previous rules which had targeted cotton products, tomatoes and some polysilicon products had only blocked goods if forced labor was suspected. “I think it’s led to brands and retailers starting to ask more questions about their supply chain, like ‘Where did this cotton come from? How about this yarn?’” Glas said. “I would

say, too, that [sourcing from China is] a highrisk strategy because [the] U.S. government is becoming even more vigilant related to this issue. And it does not appear that the Chinese are recalibrating their approach. In fact, there’s discussion of further retaliatory measures that China will take as a result of this legislation being signed into law.” The U.S. government’s actions on Xinjiang, if fully enforced, provide an opportunity for companies “to shift sourcing closer to home, where they can understand the transparency in their supply chain,” Glas added.

CENTRAL AMERICA Among those advocating for increased manufacturing in Central America is Vice President Kamala Harris, who in December announced new commitments to invest in the region from seven companies, including Parkdale Mills. A North Carolina-based manufacturer of spun yarn and cotton consumer products, Parkdale plans to invest $150 million in building a new yarn spinning facility in Honduras and supporting an ex-

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isting facility in Virginia, the White House said. The investment is intended to support roughly 500 employees at each location. According to the NCTO, the move will shift 1 million pounds of yarn per week away from supply chains in Asia. “Parkdale sees an enormous opportunity for brands and retailers to re-shore and nearshore production supply chains and double the size of U.S.-[Dominican Republic-Central America Free Trade Agreement] trade, because of the rules of origin in our trade agreement and a shift in sourcing by brands and retailers mitigating their supply chain sourcing risks,” Anderson Warlick, chairman and CEO of Parkdale Mills, said in a statement released by the NCTO. “We are excited about what this opportunity means for jobs in the U.S. and the region for this critical production chain and couldn’t be more thrilled to be part of this effort. We look forward to working with the Vice President and her team on strengthening the textile and apparel production chains in the U.S. and region.” In 2021, exports from Central American

SOURCING OF APPAREL IN CENTRAL AMERICAN COUNTRIES HAS BEEN GAINING MOMENTUM.

countries to the United States soared compared to the prior year. Going into the final weeks of the year, the latest data showed textile exports up 33 percent from the Dominican Republic on the low end and up 56 percent from Honduras on the higher end, the NCTO’s Glas said. El Salvador, Nicaragua and Guatemala all landed somewhere in the middle. China and Vietnam, by comparison, were up 25 percent and 15 percent, respectively, she added. Though the continued expansion of manufacturing in Central America will necessitate further investment in local infrastructure—something Glas said the NCTO has been urging governments, including the United States’, to do—the labor market seems to be there. Unlike in the United States, where businesses have struggled to find workers, Glas said there’s a “strong interest” in these jobs, whether that’s raw material, textile or apparel production. Though much of the increase Central America has seen is related to lower-than-usual numbers in 2020, Glas said the NCTO expects 2021 will surpass even 2019. Looking ahead, she believes it is “totally achievable and feasible” to double exports from Central America and Western Hemisphere trade partners in three to five years “if we put the right plans into place to make that happen.” “It’s exciting,” Glas said. “This is all very achievable and it will take all of us to make that happen. And I think hopefully Covid has taught us some critical lessons about supply chains, whether it was PPE or textile and apparel or home furnishing products, that we can’t have all of our eggs in the China-Asia basket, we need to de-risk our strategy and to ensure that we have close proximity to market for products that we either use every day or we need in a health care crisis.”

BRAZIL Savelli (SVL), a Brazilian footwear company that manufactures footwear for its own brands as well as third parties, has seen increasing demand for Brazilian products, particularly from the United States. Bruna Pini Martins Machado de Moraes, SVL’s export manager, said one of the reasons is compa-

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nies’ desire to not rely on one single producer after the pandemic. Those that used to produce entirely in Asia before are now looking to spread out across multiple locations so that they are not impacted should something similar happen. At Pegada, another Brazilian footwear manufacturer, production dropped 20 percent in 2020 as Covid protocols limited the company’s output. This year, however, orders have increased substantially, returning its factories close to full capacity and its outputs back to 2019 levels, CEO Gabriel Ranft said. According to data from the Brazilian Association of Footwear Industries’ (Abicalçados), the South American country exported 110.77 million pairs of shoes from January to November, generating $805.7 million. These totals represented increases of 31 percent and 34.6 percent in volume and revenue, respectively, against the same period in 2020. Compared to 2019, volume grew 5.6 percent and revenue decreased 9.6 percent. Exports to the United States saw even greater improvements, with imports up 59.2 percent in volume year over year to 13.55 million pairs. Revenue from the first 11 months of the year grew 61.3 percent versus 2020 to $204.36 million. In November alone, volume and revenue jumped 138.8 percent and 210.6 percent year over year, respectively. The United States’ share of Brazil’s footwear exports has also increased, Letícia Sperb Masselli, manager of Abicalçados’ Brazilian Footwear Program, said. Historically around 20 percent, that share has climbed to 25 percent. “It’s a lot of brands that used to produce in Asia looking for Brazilian factories to produce,” Masselli said. “This is growing big, and our factories are having to adjust bigger than before the pandemic in order to fulfill that demand.” Though the supply chain issues of 2021 “definitely” helped raise interest in Brazilian manufacturing, Masselli said Abicalçados actually began hearing talk of increased orders late last year. “There is a big movement of people who are talking about outsourcing nearshore,” Masselli said. “Of course, there are some logistics situations that impact all over the world, but the huge [logistics] problems… are manageable when we are closer together.”

“I would say, too, that [sourcing from China is] a high-risk strategy because [the] U.S. government is becoming even more vigilant related to this issue.” — Kim Glas, NCTO

SUSTAINABILITY With environmental concerns weighing more in companies’ strategies, firms in the Western Hemisphere are turning to green practices to differentiate themselves from the competition. Guatemala, for example, has a 70 percent renewable energy portfolio, Glas said. “That’s fantastic as people are looking to continue addressing carbon emissions,” she added. In Brazil, SVL is aiming to make its production “100 percent sustainable” in a couple of years. In the short term, they plan to launch an eco-friendly line in 2022. Pegada, meanwhile, has obtained “many” certifications in Brazil and has joined Abicalçados’ Sustainable Origin Program. “When we started to be approached by in-

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ternational buyers, especially Americans and some European buyers, they would ask us about sustainability,” Masselli said. “It’s been almost a decade now that we [have been] working on a certification of sustainable origin. It does not certify products, it looks at processes. So, we look at sustainability in ways, so it’s not only environmental, but we looked at social, we look at economical, we look at all of that…. We do not certify only the footwear factories, but the entire supply chain.” Though the program is something that Abicalçados has mostly communicated domestically in Brazil, the organization launched it internationally in November at Expo 2020. “It’s going to be something that we will be working on for the next years in communicating this internationally,” Masselli said.

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REAL-TIME VISIBILITY FOR A SINGLE SOURCE OF TRUTH Not having clear visibility along your supply chain can have serious ramifications. When you are making decisions based on old or inaccurate data, the implications can be from mild to wild. Miss a shipping deadline? Lose the business! Have to air freight product in due to misinformation? Bye bye margins! Meanwhile, leaving a retailer’s shelf or website empty without any forewarning doesn’t just squash future business from them, but also sends consumers to the next store or website— and the cost of winning them back is very high. John Robinson, senior vice president, client engagement at Exenta from Aptean, explains how Aptean’s technology can help apparel companies mitigate all these risks. Sourcing Journal: As the pandemic pushed brands and retailers into an increasingly complex omnichannel world, how can digitalization help with retail/brand resilience and agility? John Robinson: It is critical that brands are responsive to market and consumer demands as the timeline for bringing new, on-target products to market is under constant and increasing pressure. Brands must have technology and processes in place to meet these demands with even greater efficiency and ease, while giving teams the proper tools to do more without additional efforts and delays. Brands must also make it easy for consumers to buy online or in store and expect the same great service whether they are picking up in store, having the product delivered, or returning or exchanging. Therefore, having full visibility to orders, available inventory and knowledge on when product is shipped and received is critical to success. These processes must be automated and easy to use for the team and the consumer. A great product with a great consumer experience is the best way to get and keep a loyal customer. Aptean’s slogan is Ready for What’s Next, Now®. With today’s “now” seemingly forever in flux, what are the most urgent aspects your clients need help with? J.R.: Design, product development and sourcing are some of the “forever in flux” challenges that need constant attention and improvement. Getting the right product to market, on time and at the right price, is a daunting task that requires a single version of truth and real-time visibility across the company and globe. Having technology and processes in place to support this reality is critical, but many companies still struggle with disparate systems and processes that don’t give the real-time view and responsiveness. Luckily, Aptean’s technology can help.

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Aptean works with clients in over 20 industries. Which industries, maybe even a surprising one, would you say can teach apparel the most? J.R.: Food and beverage deals with a fast-paced, high SKU count product mix with the additional need for managing a rapidly aging inventory. Add traceability to this and the variables are astounding. However, studies have shown that companies that digitize these processes and invest in technology grow and gain market share at a much greater rate than companies that don’t. Having acquired Exenta in August 2021, how has the scope of your company changed in meeting the apparel industry’s needs? J.R.: We now have access to a broader product portfolio that encompasses a larger footprint in the industry from fleet management, e-commerce solutions, CRM and others. Aptean also has greater resources to speed new products to market along with a global presence that will facilitate growth and support for our international clients. As companies shift to more remote operations, probably permanently, how has Product Lifecycle Management (PLM) changed? J.R.: Being remote makes it paramount for these teams to be on the same platform, regardless of their location. Real-time visibility to the same information is the only way to manage this effectively and competitively. It is also important for product and team managers to know exactly where an item is in the development process without having to call/email/IM each other for updates. This all goes away with Aptean’s PLM solution, which are rapidly becoming ubiquitous across the industry.

Amid Bottlenecks, Furniture Manufacturers Look Closer to Home MEXICO HAS EMERGED AS A KEY PLAYER WITH A VAST WORKFORCE AND PROXIMITY TO THE U.S. JENNIFER BRINGLE

ver the past two years, the furnishings industry has experienced a perfect storm of pandemic closures, supply chain disruptions, logistics bottlenecks and unprecedented demand for product from consumers. With so many companies sourcing product or materials from Asia, extended pandemic-induced closures in China, Malaysia and Vietnam have meant repeated disruptions to an already overwhelmed system. At the same time, delays at American ports—with containers sitting on the water for weeks at a time—coupled with exorbitant increases in freight charges have made sourcing from Asia not only difficult, but untenable for many companies. And while furniture sales have settled slightly, they’re still growing at a healthy pace. According to the National Retail Federation’s November retail sales numbers, furniture and home goods sales increased 18.6 percent year-over-year. On top of that, according to a recent survey by Statista, furniture store sales in the United States were estimated to reach $65.8 billion in 2020, up from $63.6 billion registered a year earlier. By 2021, this value was

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forecast to reach $68 billion, with combined sales for furniture and bedding projected to reach $119.8 billion. In a separate survey, Statista found that furniture and homeware e-commerce in the U.S. accounted for almost 12 percent of total online sales, and furniture and appliances ranks as the e-commerce retail category with the highest compound annual growth rate, outpacing categories such as electronics and apparel. This overwhelming consumer demand coupled with sourcing and logistical issues has left many furniture companies with the unenviable task of explaining to consumers why they can’t get the home goods they ordered in a reasonable amount of time. Some companies have reported lead times stretching months to even a year out. Furniture manufacturers have scrambled to find workarounds to expedite production and delivery of their products. And one of the most viable of these alternatives is Mexico. “Most companies are assessing the concentrations they have in their sourcing,” said Timothy Stump, partner, Stump & Co., a mergers and acquisition specialist for the furnishings industry. “But if you go to Ethan Allen’s recent disclosures, they’re really happy with 75 percent of their product coming

from their factories in North America.” Ethan Allen operates two upholstery plants in Mexico, in addition to a case goods facility in Honduras and six other plants in the U.S. The company also sources from Asia and Europe. During Ethan Allen’s most recent earnings call in October, the company’s leadership attributed some of the business’ quarterly growth to being able to meet demand. “We have taken steps to strengthen the business, including additional work shifts within our North American workshops and continuing our investments in plants in Honduras, Mexico, and also in our various logistics centers,” said Ethan Allen CEO Farooq Kathwari during the call. “And also growing our manufacturing headcount by double digits over the last several months.” Ethan Allen isn’t the only company turning to South of the Border. La-Z-Boy opened an upholstery assembly plant during the third quarter of fiscal year 2021 in San Luis Rio Colorado, its second upholstery operation in Mexico. The company also added additional manufacturing cells at its Mexico cut-and-sew center, and additional invest-

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ment is expected next year. Marge Carson ended production in Asia earlier this year, opting to center its operation in Mexico and California, and other furniture brands such as Rooms To Go, Joybird and Standard Furniture are all now sourcing at least some of their product from Mexico. Flexsteel opened its third upholstery plant in Mexico in July, with another slated to open in Mexicali in 2022. “Mexico has not been immune to supply chain issues, but our presence there certainly has helped mitigate other risks,” said Tim Newlin, vice president of product management, Flexsteel. “We have had less shutdowns and disruptions in production in Mexico, and our team members have been able to travel to our facilities. We have also been able to better control our distribution costs and our logistics flow over this time period.” International Direct Furniture recently announced plans to add 50,000 square feet to its Guadalajara plant to accommodate its expanding upholstery business. “We see there’s an opportunity in uphol-

MEXICO HAS ATTRACTED MORE FURNITURE MANUFACTURING THE LAST TWO YEARS.

stery, and we are aware the lead times are longer,” said Diana Zaldivar, vice president of sales and merchandising, International Furniture Direct. “And we know this is probably temporary, but we have the resources to expand and we like challenges.”

SCALING OPPORTUNITY While many furniture companies are looking to Mexico in an attempt to sidestep supply chain and logistical challenges with Asia, the biggest unknown is whether or not the country is ready to handle a major influx of manufacturing business. “(Mexico) absolutely is a viable alternative—the question becomes scale and how much can be moved and how quickly,” Stump said. “The China and Vietnam factories are huge with thousands and thousands of workers. And for the most part, the Mexico facilities are smaller with 200 to 500 employees. And that’s great, but if you’re looking to move $100 million in production, will they be able to scale to that?” Stump, who works with companies interested in setting up shop in Mexico, recently traveled to the country to assess the feasibility of adding production there. As he toured Tijuana and other areas, Stump said he noticed general improvements in infrastructure and resources, including better roads, which points to better capacity to handle an increase of business. “In the factories, we saw a lot more CNC equipment than I had before,” he said. “They’re spending money on labor, but also machinery, and that’s a big plus.” The investment in labor comes at a time when not only Asian countries are having issues because of COVID lockdowns, but facilities in the U.S. have struggled to hire and retain workers. “Mexico has a capable workforce and well-established supply chains,” Zaldivar said. “It has been easy for us to know where to find the workforce, and we’ve been pretty much able to control the supply chain, as well.” The key, according to Stump, is deciding whether the low-cost maquiladora-style factory on the border makes more sense or if it’s better to invest more capital in building a loyal workforce elsewhere in the country.

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“Historically, the labor in the maquiladoras tends to be more transitive,” Stump said. “They’re on the border, so it’s looking at how do you hire and retain people and reduce turnover versus heading into the interior in places like Monterey where you can have a real factory community.”

MATERIAL EXCHANGE Opportunities for partnership with Mexico not only lie in American companies sourcing product, but in Mexican factories importing raw materials from the U.S. At the most recent High Point Market in October, representatives from the North Carolina Furniture Export Office organized an event designed to connect decision-makers from furniture manufacturing facilities in Mexico with hardwood lumber producers based in North Carolina. During the event, visitors from Mexican factories toured sawmills and lumberyards in the High Point area, as well as in Western North Carolina. The tours were designed to give those manufacturing representatives an idea of what’s available for import. “Some of the companies that attended had never been to a sawmill or lumber yard, and they were super excited to see what that is and how the process works on our side,” said Liz Isley, director, North Carolina Furniture Export Office. “It was a great opportunity for our North Carolina companies to get in front of them and have a conversation and explain they’re interested in working in Mexico and supporting their efforts.” North Carolina produces around 2.3 billion board feet of lumber each year, which outpaces in-state lumber consumption by about 700 million board feet, according to a recent report on the industry by North Carolina State University. “We’re identifying potential partners that are currently being served by Asia that are a little closer to home,” Isley said. “We are in a really great position to supply Mexico with lumber and try to capitalize on the delays from Asia.” The one drawback Isley sees of this potential partnership is scale. “The orders are going to be such that the Mexican companies are going to need to get

“Mexico has not been immune to supply chain issues, but our presence there certainly has helped mitigate other risks.” — Tim Newlin, Flexsteel

inventory of wood, and they need to be in a position to accept the lumber that is delivered,” she said. “A lot of times they do smaller loads, and it’s tough to justify that sale for our producers.”

NEXT STEPS If the pandemic has taught furniture manufacturers anything, it’s that the old adage of not keeping all your eggs in one basket certainly applies to sourcing. And as companies look at alternatives to Asia, many are looking to diversify their sourcing partners going forward rather than simply moving from one market to another. “The smart companies are stepping back and taking a holistic approach,” Stump said. “Concentrations can be good, but they can also interject risk. It has just gotten harder to run a business, and I think we’re getting back to some basic business fundamentals and risk management.” Stump added that while Mexico certainly offers a great deal of opportunity for furniture manufacturing, it doesn’t have the capacity at this point to totally replace Asia. “We see the huge factories in China and Vietnam, but there are starting to be some really big factories in Mexico, and that’s great,” Stump said. “But it’s still cumbersome to create the maquiladora with the licenses and accounting procedures to set it up, and I don’t see that getting any easier. Mexico is

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very rigid in their regulatory world.” But for companies already operating in Mexico, like International Direct, the benefits far outweigh the drawbacks. “There are a lot of natural resources, and there’s a stable and reliable supply chain,” Zaldivar said. “And the workforce is reliable, and obviously it has lower production costs than here in the U.S.” And Zaldivar said that especially now, with supply chain disruptions affecting so many, being able to deliver product faster has been a huge advantage. “We’ve been able to shorten lead times,” she said. “Our warehouses are now shipping six weeks out, and that also helps our dealers a lot when bringing merchandise for stock or special orders.” While Mexico won’t completely replace Asia for furniture industry any time soon, the inroads it has already made leave the country poised to become a significant player going forward. “There’s a lot of interest in Mexico, and Mexico is in a unique spot and has the opportunity to really assist us in manufacturing,” Isley said. “They’ve got such a vast workforce, and they also have capacity potentially to assist our furniture manufacturers that maybe are currently manufacturing in Asia but are looking to nearshore opportunities or add opportunities closer to home. Mexico has the ability to do that if they can meet our standards.”

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EFFICIENTLY SCALING MULTIMARKET SOURCING AND SELLING By 2030, more than 75 percent of companies in the S&P 500 will have been displaced by competitors that more effectively serve and retain consumers. Investing in digital capabilities that connect partners and processes around core business goals is a catalyst for revenue stream and business model innovation. Nate Fleming, chief marketing officer of Bamboo Rose, explains that companies who don’t invest in these hybrid business technology strategies today will neither hit their short-term margin and growth goals, nor diversify revenue streams and innovate on their business model to stay in business long-term. Sourcing Journal: As retailers struggle to manage increasingly disparate sourcing geographies, selling channels and target markets, how can they gain a holistic view of their activities to maintain efficiency and margins? Nate Fleming: Our clients are desperate for a complete view across their sourcing partners and geographies that shows how decisions made early in the product lifecycle will impact their product margins and time to market based on where it’s being sold. They need capabilities that automatically expose how different sourcing and design decisions impact product cost to ensure they’re making choices that align with their company goals and KPIs. Bamboo Rose’s Should Cost Analysis tool helps buyers identify the best supplier offers by using historic purchasing information and current material and component costs to calculate the landed cost of products. Leveraging this intelligence to compare the expected cost of products with available supplier offers enables retailers to make cost-efficient sourcing decisions. What are some ramifications for not having clear visibility along your supply chain? N.F.: The last 24 months have proven that visibility and close collaboration with the business partner community is vital as retailers and their partners adapt to supply chain disruptions, labor shortages, ballooning raw material costs and emerging Environmental, Social and Governance (ESG) regulations. Many clients have leveraged these market instabilities as a point of competitive differentiation through the agility and visibility they achieve via Bamboo Rose, and they have been able to reallocate goods to new distribution centers as e-commerce sales surged. They also secured production and labor commitments with vendors early while delaying key design decisions on product runs until they got a full picture of consumer expectations and demands across target markets.

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As shipping prices escalate, how can digitalization help brands and retailers looking to cut upstream costs? N.F.: Digitalization gives retailers the opportunity to undercut the competition by cutting costs from the sourcing and design process. The Should Cost Analysis capability is crucial for retailers looking for a competitive advantage. Leveraging this capability to negotiate the best possible supplier lets retailers boost margins while meeting consumer quality expectations. As a result, they can avoid raising consumer prices while maintaining margins amid rising shipping costs—critical to maintaining customer wallet share. How have your client/customer attitudes shifted in 2021 and what makes you most optimistic about 2022? N.F.: Our clients have become much more eager to engage on transformative initiatives that connect directly to their corporate goals. They’re increasingly thinking about the impact of their business on their employees and partners as well as their customers. They’re realizing that to attract the best talent in tight labor markets, they need to provide them with consumer-like technology experiences to help them do their job to the best of their ability. Additionally, clients are thinking more critically about their business partner strategy. By driving more transparency and equity with their supplier base, they’re able to maintain the margins and inventory levels that their competitors cannot while also scaling ESG initiatives. The events of the last couple years have whet the appetite for change, and we’re honored to be a key part of that process. For some clients, that means exposing mature pieces of their value chain as a monetizable B2B service. For others, it’s setting up deeper product transparency and supply chain traceability to support ESG initiatives.

ASKED & ANSWERED LEADING EXECUTIVES DISCUSS SUPPLY CHAIN ISSUE AND THE BENEFITS OF ADAPTABILITY.

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Navigating Obstacles The ‘Express’ Way WITH A PIVOT TO MORE DENIM THE RETAILER HAS SEEN POSITIVE CONSUMER RESPONSE. V I C K I M. YO U N G

hen Tim Baxter joined Express Inc. as CEO in June 2019, one of his first initiatives was a new corporate strategy called Expressway Forward. The transformation blueprint was unveiled in January 2020, and was a fourpronged plan that included engage new customers, reinvigorate the brand, execute to accelerate sales and profitability, and a focus on product first. Here, Aparna Tewari, senior vice president global sourcing, production and supply chain at Express Inc., elaborates on the new focus on product, as well as how sourcing and supply chain initiatives play a role in the reinvigoration of the Express brand. Sourcing Journal: Tell me about the product line before the Expressway Forward initiative? What were some of the key fabrications used? Aparna Tewari: Before the Expressway Forward strategy was launched, our lines were primarily core products, the fabrications were more basic and commodity-driven compared to the breadth and diversity in our assortments today. SJ: The new line appears more versatile. How has reimagining the product line

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impacted your sourcing procedures? A.T.: The new product assortment is indeed elevated, while still offering excellent value. We also built speed as our go-to-market calendar was reimagined. This had a significant impact on our sourcing strategy. First, we had to build a much more agile sourcing process that could react to the trends closer to or within the season. We developed and are now executing to different development pathways that allow this speed in our process. We built a differentiated sourcing strategy model for each of our product categories to execute to this, identifying vendors by category who are able to deliver to this. Another goal was to have a good balance of suppliers who not only provide value but also have strength in innovation and can execute the product that delivers on our Express Edit design and merchandising philosophy. In a post-Covid world, it has also been critical for us to have a diversified sourcing strategy so that we are not too dependent on any one vendor or country and are able to most effectively mitigate the risks that now exist. Fashion and newness are absolutely essential to delivering our product vision and brand promise, and meeting our customers’ needs, and this strategy will help us deliver even with the uncertainty that exists today in sourcing.

“We pride ourselves on our great relationships with our mill partners which have helped us a lot during this challenging time.” — Aparna Tewari, Express Inc.

SJ: Denim wasn’t a key category until the product line revamp and now it’s a big driver of sales. Tell me about the thinking behind the new focus on denim? What about the thinking behind adding stretch to the line? How did that come about? A.T.: Comfort, alongside fashion, has been the key attribute that our customers are looking for, especially as we take steps to reemerge from the pandemic and finally get out of our sweatpants. In order for us to deliver that, we have added stretch to our product, particularly in denim, not only in the fabric but also in the waistbands of our FlexX denim. FlexX denim utilizes ultra-stretch fabric technology to fit up to 3 sizes in one single pair. This was done after a lot of research and development by our talented raw materials team, our design partners, our technical design team and our merchants. We are so excited with the final product and our customer is responding very favorably. SJ: How did the denim revamp impact sourcing? And do you use the same fabrication for both the men’s and women’s denim collections? A.T.: Fit and quality are critical for denim. We had to ensure that our vendors are calibrated to execute to the new shapes and silhouettes. That took our identifying the bestin-class factories and laundries. We also had to have factories who are able to platform fabrics and are able to chase as we needed. We try to have a healthy balance of fabrics that are dual gender and some fashion fabrics that are gender specific. SJ: Given the difficulties getting raw inputs for some categories, has this been a problem for your planned denim options? And if so, how have you been able to navigate it? A.T.: We pride ourselves on our great relationships with our mill partners which have helped us a lot during this challenging time. Our production teams work closely and diligently with our suppliers to platform fabrics ensuring we are covered for the season. This strategy has also helped us to mitigate some of the risk from the macroeconomic challenges that we are currently seeing. SJ: In your revamp, the Body Contour collection for women seems to really

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resonate with customers. Was this primarily a shift into form-fitting silhouettes, or did you also have to change your choice of fabrications? A.T.: It was both. Fit and fabric are both key components of the collection. SJ: Can you say a bit about the men’s suiting business? How has Express updated this category? What about the sourcing of fabrications used? AT: The distinction in our men’s suits is building comfort into this category. Knit fabrics, fabrics with stretch that provide comfort for occasion wear. This, along with the industry-leading fit and make, is what sets us apart from the competition. SJ: Have ongoing Covid case spikes, especially overseas, presented issues or made it difficult to source the fabrications that

A LOOK FROM THE WOMEN’S LINE AT EXPRESS.

you need for categories such as sweaters and outerwear? And if so, how did you adapt to the changes? Are you looking at nearshoring production? A.T.: We have a diverse sourcing base, and this allows us the flexibility and the agility to mitigate issues such as the ones we have recently experienced. Nearshoring is a strategy that we are continuing to leverage. Our sourcing base includes a presence in Mexico and Guatemala, and we are exploring other countries in the Western hemisphere that we can expand into. We have to stay focused and [are] somewhat limited in categories where we can source raw materials in this hemisphere. SJ: CEO Tim Baxter said during the third-quarter earnings conference call that the operations and logistics teams have worked on taking time out of the system, such as from port to distribution center and in processing to get goods to the stores. Can you talk about what was done to accomplish this and whether there might be room to tighten up the timelines even further? A.T.: There were a few things we did to ac-

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complish this. We diversified our carrier network and leveraged team trucks along with the rails to bring goods into the DC (distribution center). We then worked closely with our DCs to reduce the processing time by almost 50 percent. In addition to that we increased deliveries to the stores and added carriers for the e-commerce orders to bring speed in our network. SJ: Was the pulling of orders forward enough to ensure timely deliveries or did you also have to arrange for alternative transportation, such as air shipments? A.T.: We did leverage air for shipping during the peak of the supply chain issues to pull forward orders. SJ: Any thoughts about how long the supply chain disruptions might last? A.T.: We are anticipating the supply chain logistics disruptions to last at least through the back half of 2022. Where sourcing is concerned, while we do anticipate these to last at least through the first and a part of the 2nd quarter, we should start seeing some ease as countries accelerate their vaccine initiatives.

No one knows exactly what this year will bring in terms of supply chain fluidity and shipping challenges, but amid so much disruption, there have been lessons learned and strategies that can be adapted going forward. Peter Hsieh, regional VP, sales and marketing of global freight forwarder OEC Group, says it comes down to smart planning and thinking outside the box. Sourcing Journal: Looking back and ahead, what have we learned from 2021 that can be applied to 2022 to smooth the way for shipping logjams? Peter Hsieh: One of the most important lessons we learned from 2021 is to book as far ahead as you can. Waiting for a better rate or opportunity has proven to be a costly mistake. Maintaining freight velocity is all important, and that can be achieved by sending cargo through secondary gateways and taking advantage of less congested modes of transportation. Shippers that are flexible and keep an open mind toward problem-solving strategies will stay ahead of supply chain congestion.

The LA port workers contract is set to expire this June. What do you think the implications will be? P.H.: These negotiations are expected to be contentious because one of the main issues, automation, is something port workers could interpret as a sign that jobs will be lost. If a strike ensues, repercussions will compound upon existing delays and further slowdowns, or halt important segments of the U.S. supply chain. This could lead to sympathetic strikes across all U.S. ports and other union transportation sectors like trucking and rail because what happens at Los Angeles and Long Beach can happen anywhere. Can brands and retailers ‘technology’ their way out of cargo backups? How can OEC offer visibility via digitalization? P.H.: Technology can help retailers alleviate some of their problems by increasing supply chain visibility and providing real-time order information. That allows for better planning to fill gaps in the supply chain caused by delays while increasing lead times and optimizing new order placement. OEC recently began rolling out an enhanced version of our OEC Portal, a digital service that provides our clients with 24/7 access to all order information, instant communication with OEC representatives, consistent shipment updates and track-and-trace capabilities. This informs our clients on major current logistical events, long-term industry trends and even specific developments that may affect their freight.

More brands are turning to air freight amid ocean issues, but air has its own set of challenges. What are OEC’s strategies to circumvent costs and delays? P.H.: Air freight capacity has become extremely expensive and difficult to secure. Normally, air freight is only used for particularly valuable or urgent cargo; however, some shippers of lesser value items turn to air freight when ocean routing can’t fulfill approaching order windows. With all available air freighters being chartered or otherwise accounted for, strong demand is forecasted to last well into next year. Again, book all of your space—air and ocean—as far ahead as possible. February kicks off with Chinese New Year followed by the Beijing Olympics. What will this mean as brands try to plan for Q1 in an already uncertain time? P.H.: We’re expecting a terrible logjam in Q1 due to capacity restrictions. It’ll be accompanied by production slowdowns from Lunar New Year celebrations and the winter Olympics, but the foremost issue will remain reduced capacity. It’ll have a muted effect on Q1 freight, but cargo from Q4 that has rolled into Q1 will aggravate the problem. Experts are predicting further issues in Q2 as factories ramp up production and increase imports to the U.S.

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If time is money, shipping delays and capacity shortfalls are draining brands and retailers. What are some strategies that can help? P.H.: Today’s pricing is the new normal, and today’s standards regarding service and reliability are new market norms, as well. Adjust your supply chain to absorb more realistic costs and transit schedules. Shippers should be open to spreading their cargo across several trade lanes and ports of entry, as this can help minimize delays from blank sailings and avoid capacity shortfalls.

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STAY FLEXIBLE, OPEN-MINDED TO GET IN FRONT OF SUPPLY CHAIN CONGESTION

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M.Gemi Leans Into Strengths THE LUXURY GOODS MAKER WAS ABLE TO PIVOT QUICKLY TO AT-HOME STYLES AS CONSUMER BUYING PATTERNS SHIFTED. V I C K I M. YO U N G

etails matter for premium direct-to-consumer brand M.Gemi. The DTC luxury company is known for its handcrafted shoes, handbags and small leather goods from Italy. M.Gemi uses the best Italian leathers and relies on a manufacturing model that’s focused on small batch deliveries all-year round. The model speeds up the supply chain process and creates very little surplus inventory. Here, M.Gemi co-founder Maria Gangemi, who is also the brand’s chief merchant, discusses how its model and a reliance on a local network of artisans helped the company navigate uncertain waters from the Covid pandemic and its impact on logistics. Sourcing Journal: As a premium DTC shoe brand handcrafted in Italy, M.Gemi’s production model is centered on working with local artisans. That has helped your firm avoid the sourcing and supply chain snafus from raw inputs to production that has plagued so many. But what about in the early days of the pandemic when Italy was so hard-hit? How were you able to navigate that? Maria Gangemi: The first few days were quite shocking as the initial news of the tragedy in Lombardia came to light. While

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overwhelmed with uncertainty, we were able to navigate the pandemic by largely proceeding with business the way we always had—we stayed committed to our workshop partners, constantly communicating while planning our next steps together. As the dates for reopening continued to move out, we worked closely on various strategies to ensure that we found a way through these challenging times. We did not cancel any of our orders. Instead, we found ways to pre-sell sandals that would ship when Italy reopened, and any leathers and other materials we had not yet cut, we repurposed into more casual fall shoes whenever possible. Zoom and e-mail became our best friends. We used them to create designs for our new remote reality and review samples together. Overall, our small-batch business model—paired with our ability to work on 45- to 60-day delivery timelines—and relentless support for one other is what got us through (and continues to get us through) these unprecedented times. SJ: How does relying on small-batch manufacturing and vertical integration help with consistent deliveries? M.G.: Our plan from the onset was to design, develop, manufacture, and ship weekly. For

“Always stay close to your manufacturing partners. It’s critical to keep talking, even more so during challenging times.” — Maria Gangemi, M.Gemi

us, the key is consistency in our production. We do not start and stop; we work with our artisans every single day. This approach not only helps with consistent deliveries but also with consistency in quality and fit. It’s a constant flow where everyone works every day, all year, and not just seasonally. Even more, all the components—including leather soles and heels—come in regularly from local tanneries all around Tuscany so we can quickly see any changes in lead time and adjust accordingly. SJ: Since the pandemic, have you had to adjust or make any adaptations in your manufacturing process? What about with your vertical integration setup? M.G.: Yes, we have made some adaptations. We are working a little further ahead to order certain components that require a longer lead time. Some EVA and rubber soles, for example, that used to ship in three to four weeks are now six to eight, so we are placing orders like these ahead of time to ensure our manufacturing stays punctual. Because of this, we are buying these types of components in advance. SJ: As a DTC brand, tell me about your innovative design process and how that allows M.Gemi to pivot as needed, based on consumer demands? M.G.: Unlike many fashion brands, we do not design seasonally or even four to five times a year. Our process involves creating a monthly overview while designing and sampling weekly. During Covid, for example, we quickly pivoted to more cozy, athome casual styles such as slides, moccasins and shearling-lined slipper sneakers that were perfect for working from home. Over the last few months, however, we have seen a resurgence with our dress shoes. Every day, we review the data from our sales to reorder shoes and handbags, add new colors, or create something entirely new. We’re lucky to have super-engaged clients, who constantly provide feedback that we can incorporate into our designs in real-time, not next season. SJ: Although handcrafting in Italy allowed your firm to bypass some delays, what

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about issues with freight forwarders? How did you adjust for transportation delays? And did you need to consider alternative freight services? M.G.: Fortunately, we have always used air freight that ships each Friday. Right after the reopening, we did experience some challenges and delays with the limited flights out of Europe. Thankfully, things eventually got better with more flights, especially during the summer. But the costs have increased and continue to increase. SJ: Did you need to do anything special to ensure a good inventory position for holiday? What about at your fulfillment centers? Are current practices different from your pre-Covid days and, if so, what changed? M.G.: To ensure that we have goods for the holidays, in addition to our U.S.-based fulfillment center, we used our fulfillment center in Milan for any of the styles on tighter delivery schedules. Just a short ride from our workshops in Milan, our ful-

A SNEAKER FROM LUXURY DTC BRAND M.GEMI.

fillment center eliminates the risk of any flight or weather-related delays. We were, thankfully, able to live up to the high fulfillment and shipping standards we’ve set for ourselves. SJ: In your experience over the past year, what are the top three points of advice that you could share to help DTC start-ups? M.G.: Always stay close to your manufacturing partners. It’s critical to keep talking, even more so during challenging times. And perhaps most importantly, make sure

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they know that they have your support and that you can find solutions together—even when the solutions are difficult ones. The ability to adapt quickly is also crucial. You need to be ready to pivot and change like we did when we re-strategized to offer more casual at-home styles during Covid. And no matter how much experience you do or don’t have, always stay open to new ideas. Don’t pass up an opportunity to listen and learn from people you respect, especially when they offer an insight different from your own.

SPONSORED

FULFILLING DEMAND FOR SUSTAINABLE FASHION PRODUCTS WITH MMCF As the world seeks solutions to the fashion industry’s problem of environmental pollution, sustainably produced fibers provide a great choice for more sustainable fashion. Birla Cellulose, the pulp and fiber business of India-based multinational conglomerate Aditya Birla Group, is among the largest producer of man-made cellulosic fibers (MMCF) globally. Birla Cellulose fibers are 100-percent nature-based, ideal for apparel, home textiles and nonwoven applications. Additionally, they are ethically derived from natural, renewable resources focusing on sustainability, innovation and partnerships. Here, Mukul Agrawal, chief sustainability officer, Birla Cellulose, explains how the company’s fiber offerings such as Livaeco by Birla Cellulose™, Liva Reviva, Birla Excel™ (lyocell) and Birla Spunshades™ are designed with superior sustainability credentials that fulfill the growing demand for sustainably designed fashion products. Sourcing Journal: What are some initiatives for Birla Cellulose in the man-made cellulosic fiber (MMCF) industry? Mukul Agrawal: All our initiatives are focused around our 5-pillar sustainability strategy comprised of sourcing, manufacturing, products, stakeholders and social responsibility. We aim to achieve EU BAT compliance across our sites by 2022 and three out of seven sites have already achieved this. Circularity is one of the key focus areas for us. We are part of several consortium projects to drive this and working toward next-gen solutions such as Liva Reviva. As wood pulp is a main component of the MMCF industry, how is Aditya Birla working with environmental groups or government agencies to preserve forests, carbon capture, etc.? M.A.: Our key raw material comes from forests and it is important to ensure that we protect the forests—especially the ancient and endangered ones—and preserve their biodiversity. It is one of our highest priority areas and have a very stringent wood sourcing policy. 100 percent of our wood comes from certified sources. Birla Cellulose is ranked globally No. 1 in Canopy’s Hot Button Report for 2021 based on our forest management, forest conservation practices, transparency and next-generation fiber development. Moreover, Birla Cellulose is the only MMCF producer which is carbon neutral—as the carbon sequestered by forests managed by us is more than our combined Scope 1 & Scope 2 emissions.

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Your circular product, Liva Reviva, recently won the UN Global Compact Network India award for supply chain innovation. What makes this unique and what are your 2022 goals for it? M.A.: MMCF process has a unique capability to recycle pre- and post-consumer cotton waste into fresh fibers. Birla Cellulose developed innovative in-house proprietary technology for recycling pre-consumer cotton waste to fresh viscose fibers, akin to regular fibers and launched commercially as “Liva Reviva” with 20 percent feedstock as pre-consumer waste in 2019. The recycled fiber Liva Reviva is RCS (Recycled Claim Standard) certified. Birla Cellulose is aggressively working on scaling the next-generation fibers—100,000 tons by 2024 and increasing the recycled content and increased use of post-consumer waste. How are you working to reduce water usage and waste? M.A.: Birla Cellulose applies 4R Principles (reduce, reuse, recycle and regenerate) in its operations for closing the loop on water, resulting in several technological breakthroughs which have reduced water consumption significantly. Our target is to reduce our water consumption by 50 percent in viscose manufacturing process by 2025 over the baseline of 2015, and we have already reduced this by nearly 40 percent. Another breakthrough we recently achieved is the implementation of Zero Liquid Discharge (ZLD) at Nagda, our oldest site. We are the first in the global viscose industry to adopt ZLD. Post ZLD, overall 92-94 percent water is recovered from effluent and used back in the process, significantly reducing the requirement for fresh water. Our latest product offerings, such as Livaeco, consumes 58 percent less water as compared to generic viscose based on Higg MSI tool provided by SAC. What are the top concerns you’re hearing from your customers about 2022? How are you working to allay those concerns? M.A.: Brands and consumers are looking for more sustainable, versatile fibers and MMCF is the apt solution. Made in closedloop process, MMCF are biodegradable in a very short span of time (in few weeks) and also do not have any harmful impacts on soil, marine and water environment.

ASKED & ANSWERED

Travis Epp on Applying Learnings AN EXPERT IN THE ACCOUNTING AND MANUFACTURING FIELDS, THE EXECUTIVE WEIGHS IN ON THE BEST STRATEGIES TO ENSURE CONSISTENT CASH FLOW. V I C K I M. YO U N G

ravis Epp is an audit partner at EisnerAmper and partner-incharge of the manufacturing and distribution group at Eisner Advisory Group. Epp oversees a team that works closely with private middle-market companies to understand what drives their businesses and how to tailor specific strategies for each firm. Here, Epp talks about manufacturing in general, and synthesizes some of the key learnings across sectors that can serve as “best practices” for companies as they navigate through the ongoing Covid pandemic. Sourcing Journal: As we look out at the current landscape, are there any learnings for companies based on how they tried to get product in for the holidays or what they are doing now for spring shipments? Travis Epp: I think one of the things that people need to do is just go back and fully understand each of the products that they were trying to sell through and make sure they understand the margin and the pricing. As we’ve seen from some of the manufacturers, what they needed to do was to pick and choose what products they [are willing to] manufacture. And [retail] customers have definitely focused on these high-mar-

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gin items that will sell through as opposed to just trying to generally have everything in stock. I think each of the retailers really need to make sure they continue to focus on what are the products that really derive value for them, and maybe not have everything that they always provided before. SJ: Are you seeing companies make adjustments to what they did before the pandemic? For example, there’s been talk about reshoring and nearshoring, as well as buying raw inputs to hold and then ship to where they are needed. T.E.: There’s definitely been a lot of discussion on this. And I think it’s not simple to do. We’ve definitely seen customers try and switch foreign suppliers from China to other countries to sort of manage costs like tariffs and also get the inventory. But we haven’t really seen from my perspective a whole lot of reshoring yet. As I look at our customer base, it’s just amazing how you see the raw materials, or even some of the finished goods, seem like they predominantly are coming from foreign suppliers. As somebody said to me, and I think as we see the impact of the whole pandemic, we really have outsourced the manufacturing floor to other countries. And it definitely is alarming I think for us as con-

“I don’t think businesses had really given any thought to a pandemic strategy before. So I think, just by having gone through the pandemic, our thinking process would be a little bit different going forward.” — Travis Epp, EisnerAmper

sumers as to some of those products that are no longer produced here. And I think we need to reshore some of those activities. I know the (federal) government wants to assist with that. I haven’t seen a whole lot to really help the middle market to bring that manufacturing here today. SJ: How hard has it been for some of your customers to try to switch suppliers from China to elsewhere? Is it that the other countries don’t have the infrastructure? Or is it because you wind up getting other hiccups that you don’t or can’t plan for? T.E.: I think part of it is that when you’re comfortable with a supplier and it happens to be in China, you know in terrible times what you’re going to get [and] when you’re going to get it. When you try and shift to another supplier in a different country, assuming its a different manufacturer, that means building a different relationship [and] getting to know the supplier who you maybe don’t have a past experience with, which is always a concern. And yes, infrastructure is a challenge as well. SJ: One of the things that we’re seeing now are spikes in infections from Covid variants. If there are new port shutdowns or another round of lockdowns, are we any better prepared now than we were before given our experience from the initial Covid wave? T.E.: I think we are better prepared. I don’t think businesses had really given any thought to a pandemic strategy before. So I think, just by having gone through the pandemic, our thinking process would be a little bit different going forward. As I alluded to earlier, maybe you focus on certain goods which will give you a higher return. And another area where some companies have sort of changed what they’ve done to the best of their ability is to start getting into inventory management systems. As you know, just-in-time is a very popular method of managing working capital and a lot of manufacturing entities have tried to do that over a number of years. We are aware of a number of our clients who, given the pan-

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demic, have decided that to manage that risk to meet client demand and build inventory to have higher levels on a continuing basis. So, some clients have done that. If they have been able to source the raw materials and the finished goods, some clients are better [having more] inventory [because] that should help them to meet demand if there is a pandemic and the supply chain is impacted. There are costs in building up your inventory because that leads to warehouse challenges as in the Northeast where there’s a bit of a tight demand on warehouse space. There’s pricing, and then you also have to deal with the operational challenges of managing and manufacturing the inventory in a tight labor market. SJ: What do you think are the three biggest learnings or takeaways that companies have learned from having gone through the pandemic in terms of how they look at their business going forward? T.E.: One of the things I think is most beneficial to companies is that they have to have the right management team who can address challenges that are unforeseen—I think it’s critical. Two, I think the way that they manage their inventory and the sourcing and supply chain on a go-forward basis must be examined on a constant basis. Three, companies need to make sure they’re focused on managing their costs so they can continue to make the appropriate margins on a go-forward basis. SJ: What would you say were the top two recurring mistakes that you have seen companies make across the board? T.E.: That’s a tough question. I think not being prepared for these unexpected events because being able to think out-of-the-box is obviously key. Another challenge has been the shortage of people in the workforce. What will the factory floor in the future look like? And will that expedite a change to more of an automated or robotic process? We’ve definitely had conversations with our clients where they have expressed concern on the wage demands and loyalty of current and future employees and the challenges that can create.

FROM THE FACTORY FLOOR SOURCING JOURNAL TAKES YOU ON THE GROUND AND ACROSS THE GLOBE.

FROM THE FACTORY FLOOR

Turning to Technology 4A YARN DYEING, WHICH PRODUCES GARMENTS FOR THE LIKES OF ZARA AND H&M, IS USING TECHNOLOGY TO ENHANCE PRODUCTIVITY. M AY U S A I N I

few minutes before 8:30 a.m, just after the morning rush of workers making their way to their workstations, a calm descends at the 4A Yarn Dyeing factory in Savar, the Dhaka suburb where many Bangladeshi apparel and textile factories are located. Some verses of the Koran are recited, then the national anthem plays as management and workers alike stand, hands on hearts. “It gives a sense of national pride and togetherness and some time at the workstation before the workday really begins,” Abdullah Hil Rakib, owner and managing director of the factory, told Sourcing Journal. As he arrived, Rakib took a moment to greet the workers and joined the national anthem himself, before a town hall where workers from different areas come to share their thoughts and grievances. The focus at the plant has turned to 2022, with workwear, rainwear and technical garments the key products. As the year rounds the corner, the global calendar is omnipresent: the Chinese New Year and holidays in February means all supplies from China need to be in house; production for the majority of the European brands and retailers is already on plan for the next season. “For Covid-19 we were initially frozen, factories shut down, customers canceled, everybody was panicked. Within this year, everyone realized they had to live with this. In 2022, they are trying to refill their capacities so pressure is more and the cost of pro-

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duction is up,” he said. This location covers 450,000 square feet, with a new seven-story factory opened last December. The main factory itself debuted in 2009, and although its name still keeps the yarn dyeing title, the facility now produces more than six million garment pieces a year for brands like CK, Tommy Hilfiger, Zara, New Yorker, Costco Wholesale, Didriksons 1913, Intersport, H&M, Matalan, Craghoppers and Mango. During a year disrupted by Covid, the company has also focused on leveraging technology to enhance its global reach. “Technology that is also focused on increasing productivity to help monitor industrial systems...will be completed through the factory by early next year,” said Rakib, who is clearly pleased with the changes. “It is not only a way of gauging productivity, but also a way of rewarding those who are doing better, usually a supervisor or a manager was required to check, and it could have a human bias for or against a worker. Now the machine itself helps them understand their targets and how to achieve them better.” “From a human resource perspective, it helps to see what a person can do, and who is not doing their job; from the industrial engineers perspective it helps to know where the system is unbalanced, where the machine layout can be improved,” he added. Yet, in a country where jobs are sorely in need, is more automation the best path forward for Bangladesh? “The way I see it if you can use the tech-

“The way I see it if you can use the technology, you grow your capacity, not reduce the number of people working there.” — Abdullah Hil Rakib, 4A Yarn Dyeing

4A YARN DYEING PRODUCES MORE THAN SIX MILLION PIECES A YEAR FOR BRANDS LIKE ZARA, H+M, MATALAN, CRAGHOPPERS AND MANGO, AMONG OTHERS.

nology, you grow your capacity, not reduce the number of people working there. We are targeting garment exports of $50 billion by 2025—to achieve this we have to grow our capacity. If we can produce two million pieces at this time, then the same factory, with the same machines can produce three million if we manage our productivity better,” he said. Lucky Akhtar, who works on the factory floor as a senior sewing operator, said she isn’t mad at or frustrated with these changing systems and machines. “I don’t have the urge to fight with them,” she said. “But there are times when the Wifi is down and then the machine doesn’t count the work that I have done.” Overall, though, she said the change in technology that she has begin using at home—she has a Samsung smartphone, uses Facebook and checks her salary deposits online—has already carried her further than the 400 miles she traveled from the provinces to Dhaka for this job and she is ready to integrate it into her work life. Line managers at the factory are also taking in these changes with interest. Productivity has been an enduring problem in many countries, and a concern in Bangladesh as well. According to the Asian Productivity Organisation data for 2019, the hourly productivity of Bangladesh was valued at $3.40, compared to $11.1o in China, $15.90 in Sri Lanka and $12.30 in Indonesia. While Rakib said that those calculations were based on incorrect information, it is hard to argue that several other countries

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achieve higher productivity. Working toward that end, the Bangladesh government has set a target of increasing productivity per work hour by 5.6 percent on average per year between 2021 and 2030. While productivity and technology are factors, Rakib said that he is mindful of the many other things that constitute the factory floor. “It is important to keep worker happiness in mind,” he said, joining them for lunch at the factory with dal (lentils), fish, vegetables and the staple of rice. Rakib is also director of BGMEA’s new R&D and Innovation Centre opening in February. The center plans to enhance industry best practices through training, workshops and knowledge of industrial relations, business ethics and practices, and related topics. “It was an awakening over the last few years for many factories, and many of us have moved to more innovative processes for safety as well as for production. Digitization is important, but the most important thing for innovation is to keep an agile attitude,” he said. Keeping this attitude alive takes the innovation concept to different human levels: time management, and sometimes as he noted, work-life balance. “Time management may well require the greatest innovations,” he said, noting the travel required to manage the more than $200 million in turnover for the group’s manufacturing segment. “This includes complaints from my daughter about not spending enough time at home.”

FROM THE FACTORY FLOOR

Navigating the Pandemic THE FORUM GROUPE, KNOWN PRIMARILY FOR SWIMWEAR, HAS RETAINED ITS PRODUCTION CAPACITY AMID COVID SETBACKS AND GOVERNMENTAL UPHEAVAL. M AY U S A I N I

ess than 20 miles from the airport in the Southeast Tunisian seaside resort town of Monastir, the Forum Groupe factory specializes in swimwear in a facility mostly spread over one floor, except for the second-level administrative offices. That is where you’ll find Forum Groupe CEO Lamberto Poli, who remains upbeat about production despite the challenges of the past 18 months. Though Tunisia is one of Africa’s worst-hit Covid countries, and embroiled in political uncertainty since President Kais Saied dissolved parliament and dismissed the prime minister in July, the flow of goods continues unabated, he said. On Oct. 11, the country appointed its first woman prime minister, Najla Bouden Romdhane, and installed a new government. Given that she is the 10th prime minister since the 2011 revolution that brought democracy to the country, many have missed a sense of stability coupled with mounting frustration over economic woes. At the new cabinet’s swearing-in ceremony, the president said he is “confident we will move from frustration to hope,” something that the more than apparel industry’s 200,000 laborers in some 2,000 factories are watching keenly.

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Approximately 1,580 of these factories are centered on exports, down from 1,656 prior to the pandemic. Poli noted the Forum Groupe neither closed during Covid, nor suffered from a lack of orders, having quickly switched to medically necessary products for a time. “Nothing changed. There aren’t more police in the street, for instance,” Poli said. “What has changed is the state of expectations. Great things are expected from the leaders now, and people believe that change must come.” Pragmatically, he added, changes won’t come instantly. “You cannot imagine a 180-degree change in a very short period. It is not possible for the economy. Tunisia as a system cannot change everything.” Although Tunisia remains one of the top apparel suppliers to the European Union, many brand representatives have been hesitant to travel there, prompting manufacturers, like the Forum Groupe, to maintain an office in Europe. “This ensures that any of our brand partners can conveniently reach us,” Poli said, referring to the firm’s Italian quarters. His sense, after more than 14 years leading the company in Tunisia, is that a combination of emotional intelligence and adaptability is key to production. “Here in

“I think the most difficult thing was to establish the way of communication. Those who come here with arrogance are not able to make it work. You have to show that what you are doing is the right way, and good communication is essential because you are talking to people with different traditions and different ways of thinking.” — Lamberto Poli, Forum Groupe

the Mediterranean the only way to survive is to have innovation, and a great capacity to adapt,” he told Sourcing Journal, emphasizing the focus on quality control in different spheres of the factory. The factory houses the entire manufacturing process, from cutting to production, until the dispatch of the finished products, with special attention to packaging, labeling and quality control. An additional factory, 40 miles away in Squassi, adds on to the 3,200-square-meter space in Beni Hassen. Brands sourcing from the factory include Armani, Elizabeth Hurley Beach, Guess Inc., Aquasphere, Canepa, Be Loop, Zerod and Asos, among many others, with a production capacity of 800,000 pieces per year. On the factory floor is Souhir Ben Amor, manager of the cutting department, promoted to the position after 12 years at the company. “One of the difficult things about my job as manager is that I have to tell the people who were my friends what to do. I had to change with the job—to become more bossy,” she said. Poli too has had difficult moments, not necessarily related to Covid. “I think the most difficult thing was to establish the way of communication. Those who come here with arrogance are not able to make it work. You have to show that what you are doing is the right way, and good communication is essential because you are talking to people with different traditions and different ways of thinking,” said Poli, the factory’s lone Italian. “If you want to be successful you have to be adaptable and open to change yourself.” “I use emotional intelligence, which is an interpretation and how to manage emotion,” he said, and “the most modern way of conducting business.” Other big picture problems are the same that have led to the growing frustration and changes in political leadership in the country: bureaucracy, for instance, which Poli pointed out, four times worse than it is in Italy. At the Forum Groupe factory, however, technology has helped. “In September 2015 we bought the bonding machines,” Poli said, describing the set-up as a small department of very expensive but complete machines

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able to build swimwear without even 1 centimeter of thread. “We have learned everything from scratch because everything is different with this technique: from modeling to packaging and finally to the tenacity of the welds.” As the bikini turned 75 this year in July, Poli observed the gradual shift of orders, with a substantial decrease in bikinis, and an increase in one-piece swimsuit orders. He also noted the growth of the burkini, the more covered swimsuit popular in the Arab states. Having weathered this past year, Poli said that the coming year is expected to bring a 10 percent increase in revenues, with Tunisia maintaining an advantage over neighboring Egypt and Morocco. “The real advantage is the quick delivery to Europe and the labor,” he added. While labor productivity may not be the best, the salary is one-third that of Europe. “We are here for this, to be honest,” he said. But he amended that after a moment’s thought: “One of the treasures of Tunisia is that people are young; it is not an older population like Europe. It is one of the greatest resources of this country—more valuable than petroleum, more than gold, more than anything. They are able and open to learn. “Really the future of clothing is here in Tunisia,” he said.

THE FORUM GROUPE, KNOWN PRIMARILY FOR SWIMWEAR, HAS RETAINED ITS PRODUCTION CAPACITY AMID COVID SETBACKS AND GOVERNMENTAL UPHEAVAL.

FROM THE FACTORY FLOOR

Cairo’s Champsland Inc. THE SPORTSWEAR MAKER IS ON THE REBOUND AFTER A TOUGH YEAR OF CANCELED EVENTS. M AY U S A I N I

orty five minutes from Cairo International airport and 90 minutes from the pyramids of Giza, the problems of a small factory–one of the smallest in the free zone of Nasr–are not totally unlike those of its bigger counterparts. The last 18 months were a struggle through the impact of Covid-19, with budget cuts and a distressing slash in work days. But there are also many innovative changes leading the way forward. To begin with, ITHegypt (International Textile House of Egypt) is starting the year with a name change. As of January, it will be known as Champsland Inc., more fitting with its specific mandate and focus on sportswear. The spirit of Ayman Elbouhy, who spearheads the factory started by his father years ago, is embodied by a new slogan for the company: “No quitters, just champs!” A suitable rallying cry after a tough pandemic year when business was reduced to production three days a week as sporting events were canceled across the world. On the first floor of a three-story building, spread over 1,000 square meters, it is one of 300 factories in the free zone, an ap-

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proximate 100 of which are apparel manufacturers. One of these can be seen through the window, the large factory of Cloverbrook, from which Champsland gets some of its fabric. At Champsland, the search is on for new markets, and Elbouhy is back after two weeks at a trade show in South Africa where a handful of Egyptian apparel makers journeyed, even as the Omicron strain was surging. “We didn’t get much business,” he told Sourcing Journal, “but we understood many things, including the fact that Africa has a lot of markets to explore and where we don’t have enough reach.” “I like making sportswear. But for me the most interesting is the development of the business,” said Elbouhy, speaking of the changing market for athleisure. “We do casual and sportswear, gymwear, handball, basketball, for individuals, clubs, sports academies, schools; customization at all levels; eco-friendly digital printing, embroidery. I enjoy designing new products, finding new fabrics, meeting new suppliers and getting new accessories. This is the fun part of it. Running a factory is otherwise full of lot of troubles.”

“We are trying to move more towards technology, but we still have some financial trouble doing it the way we would like to, to modernize the machines, to digitize everything.” — Ayman Elbouhy, Champsland Inc.

There is a twinkle in his eye as he talks of innovation. “One of the most interesting things that happened recently is we met a new client who is a researcher in a chemical field and had developed a nanotechnology that could be implemented in the fabric while it is being finished so that when you sweat it emits a perfume. You can choose the perfume you want–we used oud. When you sweat it becomes a little more intense. It started in August 2019, and this was developed and submitted for the national rugby team of Emirates. We made them overshirts using this fabric. It was a small order. The drawback is that it lasts only three or four washes then the odor goes away. But that was enough for them,” he said. His penchant for trying new things has been pushed to the fore. Over the past year, impacted by Covid-19, his business made a quick push for the fast growing domestic market in Egypt. With some focused thinking by his two daughters, Nada, and Yasmine, they introduced two new brands, Doe and Viga. “We focused on the online market to grow these brands which we design ourselves for the Egyptian market,“ said Nada Elbouhy, “mainly on Instagram, Facebook and Shopify.” Yasmie Elbouhy echoed her father. “I enjoy the challenge,” she said. “There are so many new things to create and ways to reach consumers both within Egypt and in other parts of the world.” Mahmoud Mostafa, the factory manager, said that having been in the business for 23 years, these changing times are part of the learning process. Keeping an eye on the sweep of the factory floor through the glass walls of the administrative area one level above, he said there are many things to manage, one of the most important being the labor. “One of the toughest things over the last year was telling the workers we could only do three days a week,” he said. Although he has a bird’s-eye view of the floor, Mostafa said that he rarely gets to use it. “Most of the time, I am on the factory floor. There are so many things to resolve,” he said. “We are in a free zone–there are factories are all around us. When a factory has slack time the workers tend to move, they circulate among the factories in the zone,” said Elbouhy. “Our orders dropped to about 25

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percent, which is the main reason we had to work fewer days–this was for about seven or eight months as sports were more heavily impacted, the teams were not gathering, schools were closed.” The recovery from Covid has been good strong these past few months, and with his two daughters at his side, Elbhouly feels OK. “I know I can trust them, and they won’t let me down,” he said. “We are trying to move more towards technology, but we still have some financial trouble doing it the way we would like to, to modernize the machines, to digitize everything. These are all changes that have been caused by Covid,” he said. Yet, Elbouhy is not complaining. With his penchant for the new, be it technology or ideas, he is clear about growth and where it is going to come from. “Over the last year, one of the things we have done is to reach the consumers directly instead of only going business to business. Meanwhile, we are trying to attract new businesses whose quantities are more appropriate for us. We are not ready for Walmartsize orders or 100,000 pieces.” The path ahead is simple: No quitters!

ITHEGYPT WAS RENAMED CHAMPSLAND INC. IN JANUARY.

SPONSORED

SOURCING AT MAGIC SPOTS LOCALIZATION & SUSTAINABILITY AS TOP 2022 TRENDS One strategy on fashion professionals’ minds heading into 2022 is diversification, including scouting new sourcing locations. Andreu David, vice president of SOURCING at MAGIC, sees sourcing localization picking up as brands seek greater control, including improved oversight of product origin. Following President Biden’s appointment of the new Made in America office’s first director, David expects a boost in U.S. manufacturing. Here, he discusses the reshoring resurgence and sustainable innovation. Sourcing Journal: What sectors within SOURCING at MAGIC are growing fastest? Andreu David: Made in the USA and sustainability. Brands and retailers were challenged to explore alternative solutions during Covid-19, which in turn helped uncover new areas to grow or improve their businesses. These will have lasting benefits beyond just “pandemic solutions.” The rise of these sectors is also tied to trends in consumer demand. Consumers want transparency and are looking to support companies that align with their own beliefs. And while not new trends, the pandemic accelerated these inclinations and made them more widespread. This has a trickle-down effect to the supply chain, meaning more brands and retailers are looking to source from companies that can provide these solutions. How is technology reshaping fashion manufacturing? A.D.: While technology in some ways is making us less physically interactive, it is instantaneously speeding up our ability to connect and opening up innovative ways to conduct business. Many of the standards we were accustomed to pre-pandemic will be augmented by the virtual communication and business practices we’ve embraced these past two years. Additionally, graphic rendering and representation, such as 3D printing and the rise of the metaverse, will change product development, manufacturing and marketing, and digital replicas will substitute the preliminary sample and/or fitting. Sustainability is one of fashion’s most pressing priorities. What innovations have the greatest potential to move the needle? A.D.: I see two areas: technology in traceability and circularity. Manufacturers and suppliers of raw materials, fibers and textiles are now incorporating tracing technology into their

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practices, where the plants, soil and water used to grow them are monitored and traced all the way through to the end product. Additionally, fiber companies and garment manufacturers have become more aware of their impact and are recycling, repurposing and/or reusing waste to develop new products. As one of the largest global industries, if we embrace these two practices, we will make huge strides and significant positive impact. We must do it together. Over the past two years, SOURCING at MAGIC has undergone its own adaptation, switching from an in-person event to a digital and now hybrid format. What can attendees expect from the 2022 editions? A.D.: We continue to transform and evolve SOURCING at MAGIC to align with global and domestic market needs. With ongoing post-pandemic logistic and supply chain challenges, and as brands and retailers ramp up their efforts to focus on sustainability, reshoring and nearshoring have become more important. Diversifying your production closer to home not only mitigates logistic and supply chain obstacles, but helps reduce carbon footprints. Together with our partners, AAPN, NCTO, SEAMS and Reshoring Initiative, our February 2022 hybrid event will showcase a curated sampling of manufacturers and suppliers solely focused on Made in the USA. We are equally spotlighting nearshoring options, such as Canada, Mexico, Colombia, Guatemala and Peru. Attendees can expect a deeper dive into these topics, featuring prominent industry leaders and companies in our planned educational session lineup. Back by popular demand, our Sustainable Alternatives Gallery—in partnership with Hey Social Good—will return following our August 2021 event to showcase our exhibitors verified for sustainable and social good practices. This partnership program not only helps streamline wayfinding for brands and retailers as they shop and discover at our show, but for the industry it sets a model of standardization within the supply chain that brands, and retailers can rely on.

Living Wage: A Matter of Survival LABOR ADVOCATES ARGUE THAT VOLUNTARY MEASURES CAN ONLY GO SO FAR AND THAT THE WAY TO ENSURE A LEVEL PLAYING FIELD IS THROUGH FORCED LEGISLATION. JASMIN MALIK CHUA

atrick Woodyard, CEO of Nashville label Nisolo, is tired of watching brands dodge the issue of paying their workers a living wage. Many insist they don’t own their own factories and can’t be held accountable for payrolls outside their control. Others claim that the concept of making “enough” money to maintain a normal standard of living is too much of a moving target to pin down. But the excuses they offer, he said, are just that—excuses, especially when human lives are at stake. The problem, is his opinion, was transparency—or rather, the lack thereof. Together with Barrett Ward, CEO of Able, also from Nashville, Woodyard devised the so-called “lowest wage challenge,” a call to brands to publish their lowest wages at each of their manufacturing locations. This metric, he said, cuts through the noise because it shows how the most vulnerable workers are being treated. If that lowest wage is also a living wage, brands can be assured that everyone else is doing even better. If it isn’t, then com-

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panies can determine how much of a gap needs to be closed without getting too hung up on calculation methodology. Nisolo, for its part, only works with factories in Brazil, Mexico and Peru whose lowest wages are living wages. “The more that we over-complicate it, the further we get from actually solving the issue,” he added. By late 2019, the challenge had marshaled some 25 brands who were willing to go on record about their wages during Fashion Revolution Week the following April. Then Covid-19 hit, sending the industry reeling and prompting Woodyard and Ward to put the campaign on ice. Not only were millions of workers not receiving their usual wages but they were also losing their jobs as orders suddenly ground to a halt. “It seemed tone-deaf for us to press on the issue,” Woodyard said. As the campaign ponders its next steps two years on, worker livelihoods are more tenuous than ever. Protests over unpaid wages have fomented across Bangladesh, Cambodia, India, Lesotho and Sri Lanka. Many of those countries are also struggling with

government-mandated minimum-wage increases that workers say are insufficient and factory owners have refused to pay. Labor campaigners say many governments are already loath to raise their minimum wages to keep pace with inflation because they don’t want to scare off business from multinational brands that are prone to bounce from one sourcing country to another in search of cheaper prices and laxer regulatory oversight. “It really is a race to the bottom,” said Ashim Roy, international secretariat and senior trade union leader at the Asia Floor Wage Alliance, a coalition of groups working to demand that garment workers are paid a living wage. But fashion buyers also need to bear the bulk of the responsibility because it’s their pricing demands that determine the ability of suppliers to comply with minimum-wage laws, Roy said. The margin squeeze has worsened over the years, pushing suppliers to keep wages down, or where that is not possible, to jack up work intensity by increasing production targets. This has resulted in a knock-on effect on workers’ physical and mental wellbeing, including an uptick in gender-based violence and harassment in the workplace. Organizations like the Asia Floor Wage Alliance have argued that brands should be considered jointly liable for any shortfalls in the minimum wage. Last year, several unions filed legal complaints against H&M in India and Asics, DKNY and Levi Strauss in Sri Lanka, referring to them as “shadow employers” that should be held to fiscal account. Roy said they’ll soon be taking the fight to the buyers’ countries of origin since joint liability is a legal concept that is accepted in the United States and Europe. It might be a long shot but workers have run out of options. Studies show that it would cost a brand only between 1 percent to 4 percent of a garment’s cost to ensure living wages, but even that has proven a tough ask. While many companies have continued to bolster their profits during the pandemic, they have been unwilling to pay “even one iota” of a sum that would help make up the partial or non-existent wages workers have faced since the outbreak, Roy said. Companies that have not coughed up for in-progress or complet-

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ed orders they canceled at the outset of the pandemic still abound, as do those that have leveraged the crisis to demand steeper discounts or longer payment terms, exacerbating the economic pressure for suppliers and their workers. Though living-wage benchmarks established by the Asian Floor Wage Alliance and others estimate that wages need to triple for workers to afford a quality of life beyond mere survival, brands have refused to support living wages beyond the most nebulous sense, labor groups say. Proposals for a legally enforceable “living wage contribution” on every order companies place, similar to the current Fair Trade premium some deploy, haven’t had any takers. Despite the majority of brands making some form of commitment to contribute wages that meet workers’ basic needs, few have been able to follow through in any measurable way. “Many brands [state] in their codes of conduct that minimum wages are not enough but rather need to take into account the cost of living and an actual living wage standard,” said David Hachfeld, Swiss coordinator of the Clean Clothes Campaign, the garment industry’s largest consortium of trade unions and advocacy groups. “But these commitments seem not to be worth the paper they’re written on.” In a survey of 108 brands conducted last year by the organization, 93 percent of respondents failed to provide evidence they are paying a living wage to any of their suppliers. Roughly 63 percent did not disclose the names or addresses of their suppliers or only partially complied with the Transparency Pledge, a “minimum standard for supply chain disclosure” that the Clean Clothes Campaign helped spearhead in 2017. Since the pandemic, brands have gone back to the “absolute minimum of just respecting laws,” Hachfeld said. Other basic labor protections have also seen rollbacks, including the right to unionize. Workers more than ever are being forced to accept less pay, longer working hours and precarious employment terms. Wage theft is more rampant than ever, he added. It’s for this and other reasons that lifting minimum wages can be a “blunt instrument” when it comes to promoting better liveli-

“Many brands [state] in their codes of conduct that minimum wages are not enough but rather need to take into account the cost of living and an actual living wage standard. But these commitments seem not to be worth the paper they’re written on.” — David Hachfeld Clean Clothes Campaign

Pandemic-related transportation upheaval isn’t just impacting the flow of finished goods, it’s also hampering raw material movement. To circumvent logistics constraints, one strategy is localizing sourcing. Lenzing Group’s global footprint helps customers get the fibers they need during these challenging times. The manufacturer of ECOVERO™ viscose and TENCEL™ modal and lyocell fibers has a presence across the United States, United Kingdom, Austria, Czech Republic, China and Indonesia, plus its Mobile, Alabama plant is the only wood-based cellulosic fiber production facility in North America. In 2022, Lenzing will grow its footprint further with a pulp mill in Brazil and a lyocell plant in Thailand. Along with expansion, Lenzing’s plans include sustainable progress. Tricia Carey, director of global business development denim and Americas at Lenzing, spoke with Sourcing Journal about carbon reduction and the benefits of quitting plastic. Sourcing Journal: Following recent dire reports about climate change projections, carbon reduction should be top of mind for the fashion industry. How is Lenzing working to reduce its own carbon footprint and those of its downstream partners? Tricia Carey: By implementing its science-based targets, Lenzing Group is actively contributing to combatting problems caused by climate change. In 2019, Lenzing made a strategic commitment to halve its greenhouse gas emissions per ton of product by 2030, with the vision to be climate-neutral by 2050. In September 2021, we celebrated the first anniversary of carbon-zero TENCEL™ branded fibers by expanding this offering to REFIBRA™ technology, addressing the growing industry demand around circular fashion and carbon neutrality. Carbon-zero TENCEL™ fibers continue to gain momentum among industry partners including brands and mills. Our fiber portfolio expansion aims to provide more innovative solutions for fashion brands to meet carbon reduction targets and create sustainable products consumers will enjoy. A recent report from Britain’s Royal Society of Arts, Manufactures and Commerce (RSA) found that half the fast fashion produced today is composed entirely of virgin plastic. How can materials like Lenzing’s fibers help the industry reduce its reliance on fossil fuels? T.C.: Plastic pollution represents one of the great problems of

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our time, with potentially long-term impact on future generations. The current fast-fashion business model has an extremely negative effect on the environment. The use of fossil-based synthetic fibers in clothes has roughly doubled over the last 20 years, representing approximately two-thirds of global fiber consumption today. This share is constantly increasing, according to a recent report from Changing Markets Foundation. Lenzing fibers come from nature and go back to nature. In a study published in October 2021, scientists from the University of California, San Diego’s renowned Scripps Institution of Oceanography (SIO) confirmed that wood-based cellulosic fibers quickly degrade in the ocean at the end of their lifecycle, which makes them a clearly superior alternative to fossil-based synthetic fibers. While wood-based cellulosic fibers fully biodegraded within 30 days, the fossil-based fibers tested were practically unchanged after more than 200 days. As sustainability becomes a greater draw, the risk of counterfeit eco-friendly fibers also grows. How is Lenzing protecting the authenticity of TENCEL™ fibers in the market? T.C.: Authenticity and brand protection are imperative for TENCEL™ branded fibers. All Lenzing fibers have an embedded fiber identification, which can be verified for fabric certification. Brands can apply for a product or marketing license at no fee for branding and assurance of Lenzing quality. Additionally, since 2019, Lenzing has partnered with TextileGenesis, a blockchain-enabled digital transparency platform for the apparel supply chain. This platform allows digitization and traceability of any textile asset such as fiber, yarn, fabric or garment through Fibercoins. Traceability and transparency are interconnected, and now there are physical and digital solutions. What’s in store for Lenzing in 2022? T.C.: As we look towards the future, we will also be celebrating our past as we reach the milestone of 30 years of TENCEL™ lyocell. To reflect on the past and the partnership of our global customers, we will be hosting a series of activities. Additionally, we will continue to grow our consumer awareness through multiple campaigns including Earth Month, The Good Loop and Dress for Your Environment.

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PRODUCTION EXPANSION, SUSTAINABILITY ON LENZING’S AGENDA

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hoods, particularly when progress to date has been so scant, said Jenny Holdcroft, an international labor strategist who helped broker the agreement between IndustriALL Global Union and brands to create the ACT (Action, Collaboration, Transformation) process that pursues living wages through collective bargaining. “The ideal, of course, would be to raise minimum wages up to a level of a living wage, but if you put all your eggs into one basket it’s likely to lead to disappointment,” she said. “But just because it is incredibly difficult to raise minimum wages doesn’t mean that it is even more difficult or impossible to achieve living wages.” The Fair Labor Association, a multistakeholder initiative whose members include Nike, Patagonia and Under Armor, has several cases in point. In a report published in September, the organization revealed that some of its affiliates in China and Vietnam were able to increase wages and decrease excessive overtime by holding regular meetings with worker representatives and engaging more frequently about their purchasing

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plans and production capacity. They dispensed with the piece-rate structure that pays workers by item sewn rather than the hour, invested in new machinery and launched training programs that allowed workers to diversify their skill sets. By doing all this, the Fair Labor Association noted, these factories were able to bump their workers’ net salaries by between 29 to 57 percent over a three-year period, affording them what amounted to a living wage in their region. While the organization didn’t ask brands if they were paying their suppliers more, it found that “a lot of progress can be accomplished through better purchasing practices and better planning,” said Sharon Waxman, its president and CEO. “Making minimum wage is not the goal,” she said. “It’s really a living wage, and the work that we’re doing and really seeing some success with is identifying that gap between the minimum wage and the living wage, collecting the data in a systematic way and seeing how companies can change their practices to help achieve that wage.” To further drive improvements—and

BRANDS AND SUPPLIERS NEED TO WORK IN TANDEM TO IMPROVE EMPLOYEE WAGES.

establish a consistent system of measurement—the Fair Labor Association recently opened up its Fair Compensation Dashboard, which measures average worker compensation against living wage benchmark, to non-member companies. “We’ve done a lot of the work in setting up the system [and] putting the methodology together that really is consistent with best practice,” Waxman said. “We really want other companies to join in the journey.” If there’s one thing Covid-19 has shown, it’s that fair wages need to be structurally embedded into the post-pandemic supply chain, Holdcroft said, and that cannot be done without bringing suppliers, unions and brands to the same table the way initiatives such as ACT and the Fair Labor Association have sought to do. “This is really important because wage discussions have usually been bilateral between trade unions and factories,” she said. “But the supply chain relationship is trilateral. You can’t talk about wages in the garment industry without involving the brands and their payment systems.” That means suppliers need to be prepared to work with other suppliers and brands with other brands because they’re part of a larger ecosystem with no single node working in isolation, Holdcroft said. “It’s a really deep-seated problem,” she added. “The entire garment supply chain has put in place these different wrong incentives for years. And that needs to change if anything concrete and sustainable is going to be done about low wages in the industry.” She noted that brands created the supply chain in the form that it’s in and so they’re the ones that will have to reform it. Labor advocates argue, however, that voluntary measures can only go so far and that the only way to ensure a level playing field

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is through enforced legislation. This spring, Fashion Revolution, a grassroots group, will be rolling out Good Clothes, Fair Pay, a campaign urging the European Commission to introduce legislation requiring businesses to conduct due-diligence measures in their supply chain to ensure workers are paid living wages. It’ll be using the European Citizens Initiative as a mechanism, meaning lawmakers will be required to consider it should it gather more than 1 million signatures. Similar calls have sounded from nonprofits such as The Circle, which published a study with ASN Bank last year asserting that European Union legislation is key to ending the “injustice of poverty wages” suffered by millions of mostly female garment workers around the world. Multi-stakeholder initiatives are important, said Delphine Williot, policy and research coordinator at Fashion Revolution, but brands also have a tendency to “hide behind” these groups rather than conduct the due-diligence work themselves. And without the right levers, most brands will remain stubbornly opaque. A study she helped conduct, for instance, found that only 9 percent of brands disclose the method for calculating and ring-fencing labor costs, including wage rates, overtime and social security. Wage rates shouldn’t be up for negotiation, she added. “We need legislation around purchasing practices because we can see that there is currently such a huge imbalance where there is no leverage from suppliers and therefore no leverage from garment workers to set acceptable working conditions,” Williot said. “From my perspective, I think a business that doesn’t account for fair wages in their supply chains should ultimately not be considered a sustainable business.”

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WHY SUPPLY CHAINS NEED MORE ‘VIGILANT’ ANTI-MOLD STRATEGIES Mold and moisture are a threat to product quality. If organic materials such as leather, wool or cotton become damp, they are susceptible to mold growth. Wet climates can also cause metals to rust and labels to peel. Here, Martin Berman, managing director of Micro-Pak Ltd., speaks about Micro-Pak’s sustainable anti-mold and anti-moisture solutions and what shipping delays and climate change mean for mold. Sourcing Journal: There’s always been the potential for product damage due to moisture, but how are current supply chain disruptions and changing weather patterns raising this risk? Martin Berman: Almost all consumer products are susceptible to damage from mold and moisture, and the risks are exacerbated whenever products are stored or in transit for long periods, because during these times we have less control over environmental conditions. Condensation can be caused by high humidity or shipping conditions. For instance, while goods are at sea, variations in temperatures can create “container rain,” in which moisture condenses then drips onto cargo. Amid transportation delays and port congestion, how should companies adjust their anti-moisture tactics? M.B.: In many cases, products are spending twice as long at sea, where they are exposed to extreme humidity conditions, so there is always the risk of mold or moisture damage regardless of the season. Brands therefore need to be more vigilant in their mold prevention practices. Firstly, factories need to pay extra attention to mold prevention best practices to ensure products are produced in clean and dry conditions. Secondly, use anti-mold products and desiccants from a reputable supplier inside all packaging to protect items during storage and transit. Container desiccants remove excess moisture and prevent condensation forming within the shipping container. Packaging is important, but keeping products dry begins at production. Micro-Pak conducts more than 3,500 factory assessments each year to help suppliers prevent moisture-related issues early in the supply chain. What are Micro-Pak’s latest innovations and how are you addressing sustainability? M.B.: Micro-Pak offers a range of best-in-class anti-microbial products and desiccants that can be used with any consumer

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product to protect it from mold and moisture damage. To help brands achieve their sustainability goals, we have developed Micro-Pak Dri Clay® Kraft, a plastic-free desiccant made from natural clay that is packaged in biodegradable FSC-certified Kraft paper. Dri Clay® is the most sustainable desiccant available, and it also outperforms silica gel, calcium chloride and other synthetic desiccants. Also, Micro-Pak’s anti-microbial MPX2® polybags are now made with 100-percent recycled LDPE (low density polyethylene), and we are constantly increasing the amount of recycled materials in each of our products. We also recently launched a mold testing program where brands can test products for the presence of mold in an easy, fast and cost-effective manner prior to shipping. Why are antimicrobial and anti-moisture solutions a worthwhile investment for retailers? M.B.: When a brand has a mold case, not only do they incur tremendous direct monetary and time losses remediating the products, but they also face significant costs and risks in the form of lost sales, delayed product launches, potential chargebacks and cancelled orders, as well as reputational damage. The ripple-down effect extends far beyond the initial direct costs associated with the mold issue. Micro-Pak’s cost-effective solutions come with a proven track record, as our products are used by leading brands and retailers inside the packaging of over 2 billion consumer goods every year. What impact will climate change and the resulting weather patterns—including flooding and stronger monsoons—have on mold prevention efforts throughout the supply chain? M.B.: We are already experiencing more extreme climactic events, resulting in a rise in mold- and moisture-related issues across many different industries. Companies need to treat mold not as a seasonal problem like they have done in the past, but as a problem that they need to pay attention to year-round. They also need to be more vigilant in their mold prevention efforts at every stage of the supply chain, and they should partner with an experienced mold prevention company like Micro-Pak that can provide professional guidance.

Asia-Pacific Partnership Creates New Global Trade ‘Center of Gravity’ THE RCEP WILL BECOME THE LARGEST TRADE AGREEMENT IN THE WORLD AS MEASURED BY THE GDP OF ITS MEMBERS AND NEARLY ONE-THIRD OF GLOBAL GDP. A RT H U R F R I E D M A N

new Asia-Pacific free trade agreement that went into force on Jan. 1 has created the world’s largest trading bloc by economic size, according to a United Nations Conference on Trade and Development (UNCTAD) study. The Regional Comprehensive Economic Partnership (RCEP) includes 15 East Asian and Pacific nations of different economic sizes and stages of development. They are Australia, Brunei Darussalam, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand and Vietnam. The RCEP is the largest trade agreement in the world as measured by the gross domestic product (GDP) of its members and nearly one-third of the world’s GDP. By comparison, other major regional trade agreements by share of global GDP are the United States-Mexico-Canada agreement

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at 28 percent, the European Union at 17.9 percent, Africa’s continental free trade area at 2.9 percent and the South American trade bloc Mercosur at 2.4 percent, Africa’s continental free trade area at 2.9 percent. UNCTAD’s analysis shows that the RCEP’s impact on international trade is likely to be significant. “The economic size of the emerging bloc and its trade dynamism will make it a center of gravity for global trade,” the report said. Amid Covid-19, the RCEP’s entry into force can also promote trade resilience, according to the report. Recent UNCTAD research shows that trade within such agreements has been relatively more resilient against the pandemic-induced global trade downturn. The agreement encompasses several areas of cooperation, with tariff concessions a central principle. It will eliminate 90 percent of tariffs within the bloc, and these conces-

sions are key in understanding the initial impacts of the RCEP on trade, both inside and outside the bloc, UNCTAD noted. Under the RCEP framework, trade liberalization will be achieved through gradual tariff reductions. While many tariffs will be abolished immediately, others will be gradually reduced during a 20-year period. The tariffs that remain in force will be mainly limited to specific products in strategic sectors, such as agriculture and the automotive industry, in which many of the RCEP members have opted out from trade liberalization commitments. Trade between the bloc’s 15 economies was already worth about $2.3 trillion in 2019 and UNCTAD’s analysis shows the agreement’s tariff concessions could further boost exports within the newly formed alliance nearly 2 percent or approximately $42 billion. This would result from trade creation, as lower tariffs would stimulate trade between members by nearly $17 billion, and trade diversion–as lower tariffs within the RCEP would redirect trade valued at nearly $25 billion away from non-members to members. The report highlights that the RCEP members are expected to benefit to varying extents from the agreement. Tariff concessions are expected to produce higher trade effects for the largest economies of the bloc, largely due to the already low tariffs between many of the other RCEP members. UNCTAD’s analysis shows Japan would benefit the most from RCEP tariff concessions, largely because of trade diversion effects. The country’s exports are expected to rise about $20 billion, an increase equivalent to about 5.5 percent relative to its exports to RCEP members in 2019.

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The report also finds substantial positive effects for the exports of most other economies, including Australia, China, South Korea and New Zealand. On the other hand, calculations show RCEP tariff concessions may end up lowering exports for Cambodia, Indonesia, the Philippines and Vietnam. This would stem primarily from the negative trade diversion effects, the report said, as some exports of these economies are expected to be diverted to the advantage of other RCEP members due to differences in the magnitude of tariff concessions. For example, some of the imports to China from Vietnam will be replaced by imports from Japan thanks to stronger tariff liberalization between China and Japan. The report notes, however, that the overall negative effects for some of the RCEP members don’t imply that they would have been better off by remaining outside of the RCEP agreement. Trade diversion effects would have accrued either way. “Even without considering the other benefits of the RCEP agreement besides tariff concessions, the trade creation effects associated with participation in RCEP softens the negative trade diversion effects,” the report said. As an example, it cites Thailand, where trade creation effects completely compensate for the negative trade diversion effects. Overall, the report found that the entire region will benefit from RCEP’s tariff concessions, with most of these gains resulting from trade diverted away from non-members. “As the process of integration of RCEP members goes further, these diversion effects could be magnified, a factor that should not be underestimated by non-RCEP members,” the report added.

“The economic size of the emerging bloc and its trade dynamism will make it a center of gravity for global trade.” — U.N. Conference on Trade and Development report.

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WHY COTTON REMAINS FASHION’S FIBER OF CHOICE Cotton is the most produced natural fiber globally, and demand for cotton apparel remains high. However, lately it’s become more challenging and costlier for mills, manufacturers and brands to get their hands on the raw material. Kim Kitchings, senior vice president consumer marketing at Cotton Incorporated, attributes the pricing bump to shipping disruption and delays in delivery. She also expects cotton pricing and availability to “normalize” once transportation timelines revert to usual. Here, she details cotton’s enduring place in consumers’ wardrobes and Cotton Incorporated’s digital design moves. Sourcing Journal: Cotton Incorporated’s tagline has long been “The Fabric of Our Lives®,” but why is this even truer today as shoppers are seeking comfort? Kim Kitchings: Historically, “The Fabric of Our Lives®” tagline refers to the comfort and versatility of cotton. From formal wear to athleisure, there is a cotton product and price point ideal for any consumer. That sentiment is just as true today. Amid pandemic lockdowns, the atmosphere of uncertainty sent many consumers looking for comfort in their food, fashion and home textiles. Cotton, which a majority of consumers identify as the most comfortable fiber, figured prominently. The activewear/athleisure category is key here, with 78 percent of consumers saying it is their new casual wear go-to. Forty years ago, we saw the emergence of workplace casual, with cotton-rich jeans, khakis and polo-style shirts taking center stage. Today, we are seeing a similar trend with athleisure—aka “work-from-home casual”—as 52 percent of consumers tell us cotton is their preferred athleisure fiber, citing cotton’s comfort (63 percent) and breathability (50 percent) as top reasons. Cotton remains “The Fabric of Our Lives®.”

Cotton sustainability is governed by numerous certification standards, and recently China launched its own answer to the Better Cotton Initiative. What is the impact of decentralized accreditation, and do you see a future in which there is global standardization in regulation? K.K.: The utility of any cotton certification program is to inform the supply chain. Downstream supply chain links are interested in knowing how their cotton was grown because it is important to understanding overall product impact. Standards typically assign improvement goals or the use of best practices to their certifications. This is a good approach, but limited on a global scale. The variability of growing environments around the world, as well as the ability of cotton growers in less developed cotton-growing countries to embrace new technologies and techniques makes a global standard challenging, and potentially punitive. At the end of the day, it is up to the individual brand, retailer or manufacturer to determine whether this certification or that standard fits best into their own sustainability criteria. And the key to that is understanding the limits and opportunities any certification program represents.

One key change in product development is digitalization, and Cotton Incorporated has responded with its FABRICAST 3D fabric library. Since its launch, how has Cotton Incorporated expanded FABRICAST’s selection? K.K.: The Cotton Incorporated FABRICAST Collection is currently approaching 7,000 cotton and cotton-rich fabric constructions with new additions every year. The company believed the best approach for the industry would be to digitize the newest and more seasonally relevant constructions first. Moving forward, new FABRICAST constructions will take priority for digitization, with classic and archival constructions being added incrementally.

What are Cotton Incorporated’s top objectives for 2022? K.K.: Sustainability and circularity continue to be at the forefront of our research, and the company will support additional research into microplastics and transparency of fiber use. Conducting research in crop protection is more important than ever as producers’ input costs are rising at a faster rate than revenues. Another priority is ensuring there are digital supply chain alternatives as travel continues to be limited due to the pandemic. Finally, we are utilizing a variety of marketing tactics and partnerships to remain relevant in consumers’ lives and to safeguard cotton as the fiber of choice among the supply chain and consumers.

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Power of 3? South Asian Nations Look to Link Up GOVERNMENT AND INDUSTRY LEADERS FROM INDIA, BANGLADESH AND SRI LANKA ARE GETTING VOCAL ABOUT THE BENEFITS OF COLLABORATING TO TAKE ON CHINA. M AY U S A I N I

utting aside petty rivalries and long-held jealousies, India, Bangladesh and Sri Lanka are beginning to realize a combined force could grow the apparel and textile business for all three countries. More than just politics and rhetoric, industry leaders are looking at the bigger picture and seeing how working together could yield greater success than going it alone. The idea was furthered at a conference organized by the Confederation of Indian Industries late last year and reiterated to Sourcing Journal by analysts and industry leaders. The long-held sense of competition is giving way to more collective thinking, according to experts. “The dynamic of global sourcing has been changing,” said Faruque Hassan, president Bangladesh Garment Manufacturers and Exporters Association (BGMEA). “We believe Asia will lead for next few decades. The possibility of a regional value chain with raw materials and marketing can make a global brand.” Taking into account China Plus one—the business strategy to avoid investing only in

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China and diversify into other countries— the emphasis on combining forces to mitigate the situation is growing. “India has a unique capacity in the vertical supply chain starting from cotton to finished apparel and fashion design; Bangladesh does not grow cotton, nor petrochemical fiber, yet we have become the second-largest apparel exporter,” Hassan said, while adding that Bangladesh is the second-largest cotton importer in the world. The urgency to rethink the situation has been felt across all three countries as the pandemic roiled supply chains, with lockdowns, order cancellations, and the two biggest importers from the region, the U.S and European Union, beginning to take nearshoring more seriously. While Bangladesh has somewhat recovered—exports are up 12.6 percent in 2021 at $31.45 billion, from $27.94 billion in financial year 2020 (ending June 30)—this is still below the $34.13 billion registered in financial year 2019. The feeling seems to be similar in Sri Lanka, which saw apparel exports in 2020 drop

“We believe Asia will lead for next few decades. The possibility of a regional value chain with raw materials and marketing can make a global brand.” — Faruque Hassan, BGMEA

to $4.2 billion from $5.3 billion in 2019. Although this year has seen 12 percent growth, and the country expects to reach $5.1 billion by year-end, this figure is lower than the 2019 level, and that has the industry concerned. “We don’t have to do it alone,” said Suchira Surendranath, director strategy and investment for Brandix Lanka Ltd Group, Sri Lanka. “It’s a unique, once-in-a-lifetime opportunity for Asia as a whole, and especially for India to capture a share of the global market without the need to compete only on price. The possibilities for tangible value with a compelling story line are endless if we build a closer collaboration. We can build a regional apparel and textile hub that becomes a preferred sourcing destination.” “India itself may not have access to European Union and the U.S. through preferential schemes, but Bangladesh has access to U.S. and Canada. Sri Lanka has access to Europe and India has access to the Japanese market. This contributes to the balance, as well. We already have all the factors to make this a reality, and with this collaboration we can be on a level playing field with the rest of the world,” he added. One reason for India’s interest in the partnership could be because the nation appears to be losing ground. According to the Indian commerce ministry, textile exports plunged 9.57 percent to $31.69 billion in the financial year 2020-21, ending March 31, compared to $35.04 billion in 2019-20. “India’s lack of resilience was further exposed during the Covid crisis, which saw overall global demand fall by 3.8 percent, with India seeing an 18.7 percent decline in 2020. However, the country’s recent performance in global trade has not been commensurate with its abilities. Exports declined by 3 percent during 2015–2019 and by 18.7 percent in 2020. And yet during the same period, other low-cost countries such as Bangladesh and Vietnam have gained share,” said global consulting firm Kearney. Last week’s Kearney and CII report noted that the textiles industry is the backbone of India’s economy, making major contribu-

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tions to both employment and exports but that India was a clear laggard from 20152019, with textile exports shrinking 0.8 percent in the same period. “All categories mirrored this reduction, excluding home textiles and technical textiles. This ultimately resulted in India dropping from second to fifth among global exporters, with Vietnam (11 percent growth in the same period) and Bangladesh (10 percent growth in the same period) rising,” according to the report. Uncovering the reasons and finding ways to address them would be instrumental in reaching the $100 billion textiles export target that India’s new minister for textiles, Piyush Goyal, set for 2026. “There are times when an industry gets a second chance—a chance to change its growth trajectory and claim its rightful space in the world market. For India, that time is now,” said Neelesh Hundekari, a partner at Kearney. “A South Asia hub is a great idea.” Over the past few years, India stagnated while neighbors like Bangladesh and Vietnam flourished. “What are the root causes? Duty disadvantages? Where we don’t have a level playing field India does suffer,” he added. “The post-Covid world is seeing a realignment of geopolitical relations, and Western economies are reevaluating their business partnerships and investment destinations,” Hundekari said.

INDIA, BANGLADESH AND SRI LANKA’S GOVERNMENT AND APPAREL AND TEXTILE LEADERS BELIEVE THEY MIGHT BE STRONGER TOGETHER THAN ON THEIR OWN.

Apparel and footwear companies need to rethink how they manage supply chain risks in the wake of the disruptions over the past year. By embracing new technologies and leveraging digital platforms that support advanced analytics and artificial intelligence, apparel companies cannot only identify risks faster but also trigger actions proactively to alleviate them. Tobias Grabler, chief operating officer, Topo Solutions, tells Sourcing Journal about the collaborative effort that brands must take in their quest to become more agile in the supply chain. Sourcing Journal: What key lessons should the apparel industry take from the past year, particularly when it comes to handling supply chain constraints going into 2022? Tobias Grabler: The apparel industry saw certain vulnerabilities exposed in maintaining essential operations, and companies will need to make their supply chains more resilient without weakening their own competitiveness. Close collaboration with key suppliers has become even more important to anticipating demand spikes and identifying supply chain bottlenecks. And by ensuring visibility along the whole supply chain and guaranteeing sufficient flexibility, companies can better protect against future disruptions and be more prepared to meet evolving consumer demands. Multi-sourcing and investing in diversified geographical options for new sources of supply are essential in mitigating the risks of supply shortages and ensuring flexibility in the long term. Agility is crucial for organizational survival and success. Our modern world is shaped by disruptions, changing laws and consumer demands. Supply chain leaders need to navigate this uncertain and volatile environment with transparent supply chains, open stakeholder communication and agile supply chain software that can adapt to constant change. What has changed the most, if anything, about how brands should monitor supply chains and gain visibility? T.G.: With trade wars and rising costs, many brands have shifted production from China to other countries like Bangladesh, Vietnam, etc., appointing new suppliers and severing the years of relationships with their suppliers in China. In the light of these macro shifts, brands must build trust and collaborate better with their new suppliers to build strong, long-standing relationships. The way apparel and footwear companies manage their supply chain-related risks has changed completely. Just a few

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years ago it would have been enough to solely perform factory audits of their most important suppliers, but now companies also must address other areas such as meeting new chemical and physical requirements, eliminating waste and non-recyclable packaging, as well as reducing their organizations’ carbon footprint. With remote production monitoring and tracking, brands can have a window into their production facilities, thereby monitoring, identifying and mitigating production and shipping risks. Topo Solutions focuses heavily on remote collaboration. Can you explain why that matters so much for brands today? T.G.: Ever since the pandemic hit, international traveling is still at a standstill, with global businesses even claiming that travel will not resume to a pre-Covid-19 level after the pandemic is over. In this situation, traveling to sourcing countries and suppliers (especially in Asia) is troublesome and in some cases next to impossible. All of this makes communication and collaboration among supply chain stakeholders difficult. Here’s where Topo comes into play—brands can react faster if they can work closely with their internal teams, suppliers and service providers on one platform. Topo also provides a catalyst to this collaboration with instant, traceable communication through a chat (instant messaging) and a video conferencing tool. What is your outlook for the supply chain in 2022? T.G.: Based on our experience and conversations with customers and other stakeholders from the industry, companies need to stay nimble and agile in 2022. We also see e-commerce players becoming stronger than ever and due to their innate technological setups and speed of business that help them react faster to consumer needs.

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SUPPLY CHAIN AGILITY HINGES ON COLLABORATION

SPOTLIGHT: SRI LANKA

Inside Sri Lanka’s ‘Historic’ Garment Worker-Rights Agreement DESPITE THE ENCOURAGING PROGRESS, SOME FEEL THE DEAL FAILS TO ADDRESS A “CRUCIAL” CHALLENGE THAT THOUSANDS OF GARMENT WORKERS FACE ON A REGULAR BASIS. JASMIN MALIK CHUA

ri Lanka’s garment industry late last year celebrated a “historic” new union-employer agreement that labor campaigners say addresses vital human-rights issues for hundreds of thousands of workers. Forged between the South Asian country’s worker unions and the Joint Apparel Association Forum (JAAF), an employer trade group, the Memorandum of Understanding (MOU) lays out for the first time joint support for “fundamental steps” toward improving working conditions amid the Covid-19 pandemic, including the establishment of employer-employee health committees, assurances about the freedom to organize and a dispute-resolution mechanism. “This is the first time an industrial sector is represented in a bipartite agreement with worker representatives,” a joint statement of the signatory unions, including Free Trade Zones & General Service Employees, noted. The MOU “formalizes” cooperation between workers and employers, “laying the foundation” for future cooperation, said Tuli

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Cooray, secretary-general at JAAF. “Collaborations between the employers and trade unions have been critical in elevating Sri Lanka’s human resource practices above many of its peers in the sector and in ensuring business continuity following the pandemic,” Cooray said in a statement. “The protection of employees and their wellbeing is a foremost priority of both the industry and the trade unions; our interests are strongly aligned.” By enshrining key “asks” by union leaders, the deal “goes a long way” to redress the long-standing power imbalance pitting factory owners against workers, Ineke Zeldenrust, international coordinator at the Clean Clothes Campaign, the garment industry’s largest consortium of labor unions and nonprofits, said in a statement. The organization and others have been lobbying for such an agreement for some time. In March, the Clean Clothes Campaign, AFL-CIO, Labour Behind the Label, Workers United, Maquila Solidarity Network, War on Want and United Students

“The protection of employees and their wellbeing is a foremost priority of both the industry and the trade unions; our interests are strongly aligned.” — Tuli Cooray, JAAF

Against Sweatshop criticized Sri Lanka’s garment manufacturers for using the pandemic as a “pretext” to suppress worker rights, including retaliating against union leaders and failing to pay wages in full. Although major brands such as Asos, Gap and Levi Strauss source from Sri Lanka, the “deteriorating worker rights situation in the country has been largely ignored by the international community,” they wrote. Apparel, Sri Lanka’s No. 1 export, accounts for roughly 7 percent of the nation’s $84 billion economy. Half of Sri Lanka’s 300,000 garment workers are employed by Brandix, Hirdaramani Group and MAS Holdings, three of the world’s largest apparel manufacturers. “As a founder member of JAAF, we are happy with the signing of the groundbreaking agreement with the garment worker unions of Sri Lanka and look forward to a collaborative relationship that would mutually benefit all stakeholders and facilitate the development of the apparel industry,” Natasha Boralessa, director of Brandix, told Sourcing Journal. In October last year, Brandix was linked to one of Sri Lanka’s largest coronavirus outbreaks, which labor campaigners blamed on a lack of proper preventive measures, including worker-led health committees that could have sounded the alarm at an earlier stage. Boralessa said at the time that Brandix maintained “strict health and safety protocols” across its 27 locations. Felix Fernando, an executive member of JAAF and group director of lingerie specialist Omega Line, said he hopes the deal will mark a “new beginning in the Sri Lankan apparel sector with regards to having a healthy dialogue with the unions in addressing the areas covered under the MOU.” “I have noted a greater understanding and respect from most of the union representatives on this initiative and hope the signing of the MOU will further enhance the relationship between unions and JAAF in helping the apparel sector and its employees to

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contribute to a better future,” he told Sourcing Journal. While the agreement, in the interest of expediting action, doesn’t yet tackle the more complex issues of systematic underpayment of wages, unions and employers reached an understanding to work collaboratively to address the issue of wage loss during the health crisis, Zeldenrust noted. Workers, she said, do not profit from the growing export rates of Sri Lanka’s industry and continue to pocket poverty wages. “This must most urgently be addressed, both with factory owners and with major brands and retailers that source from Sri Lanka, whose power over prices paid for products and whether to pay for or cancel orders or even take up their business to another country, are crucial factors in wage development in a country like Sri Lanka,” she said. “We hope for a timely and transparent solution to make workers whole that also includes brands and retailers taking responsibility to settle the problem of lost wages.”

A SRI LANKAN WOMAN WORKS IN A GARMENT FACTORY IN MAHARAGAMA, OUTSKIRTS OF COLOMBO, SRI LANKA.

SPOTLIGHT: SRI LANKA

SRI LANKA UNIONS AND MANUFACTURERS COME TOGETHER M AY U S A I N I

purred on to make changes in the garment sector, a memorandum of understanding (MOU) signed between garment manufacturers and the three major trade unions in Sri Lanka is being hailed as historic. It makes official a commitment to work together to maintain continued vigilance on pandemic prevention, discuss issues of mutual interest and jointly participate in addressing grievances. Trade unions will be represented in the Bipartite Health Committees established in each apparel factory. Joint Apparel Association Forum Sri Lanka (JAAF) is the apex body of Sri Lanka’s apparel industry, representing five associations that cover supply chain partners, the export-oriented apparel manufacturers, buying offices and representatives of international brands in Sri Lanka. The MOU also recognizes employees’ freedom of association and their rights to collective bargaining. As Yohan Lawrence, executive member JAAF, pointed out. “It’s a new chapter in terms of social dialogue.” “The major change with this MOU is that both sides are ready to be less adversarial,” Leslie Devendra, general secretary, Sri Lanka Nidahas Sevaka Sangamaya (SLNSS), told Sourcing Journal, “This makes a huge departure from the way it has been between manufacturers and unions until now.”

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A second agreement, as significant as the first, laid out how employers and the unions will collaborate to assess and coordinate their efforts to manage the negative impact of the pandemic on all stakeholders, co-operating as partners to address identified issues and challenges. “The key way forward is bipartite,” Devendra noted. “Bipartite dialogue is the most important aspect of future and better industrial relations in Sri Lanka,” he said. JAAF and the unions will establish a Bipartite Dispute Resolution Mechanism to collaboratively address worker grievances in a transparent manner. Any grievance raised by the unions will be forwarded to the executive committee of JAAF and the Trade Union Collective for review. (The union collective refers to all the unions). After these complaints are discussed with the respective union concerned, they will be resolved within in a one-month period, unless it is mutually agreed to extend that timeline. Here, a tripartite conversation with Sourcing Journal, Yohan Lawrence and Leslie Devendra. Sourcing Journal: What makes this MOU between JAAF and the unions unique? Yohan Lawrence (JAAF): I don’t think it’s something we’ve ever done before. We think of it as a new chapter in terms of social dialogue in Sri Lanka–it’s new territory

for all of us–as an industry body to sign up with trade unions in this way. We’re all excited about it, and I think it will help everybody in the process. Leslie Devendra (SLNSS): The situation in Sri Lanka in regard to industrial relations has been very adversarial between the unions and many of the employers. Of course, there are some employers who have implemented the freedom of association and the right to collective bargaining, but there are many others who historically would have preferred to have a union-free environment in their workplaces. But the Covid-19 crisis made us realize there are some issues for which we have to work together. There are not two sides to this matter: We have to be on the same side to get together and try to fight a common enemy. SJ: Covid-19 has actually been a catalyst for change? Y.L.: Actually, this crisis made both sides realize this fact, and we came together on an agreement on job losses, which prevented thousands of jobs from being lost and also gave the employers a chance to allow some people who did not have work to be at home and pay half the salary. That was the first agreement we arrived at and it worked very well. There were other issues like health committees at work places–we experimented with so many new things during this period. L.D.: What could not be done for so many years has now been done in the midst of this crisis. Of course, we know the results won’t come in 24 hours. We will have to sit down and learn to act in good faith and try to build relationships. If you build a good relationship, even with your worst adversary, it will pave the way for industrial peace. That has been my experience. SJ: Now you’re leaning more toward bipartite (with the unions and manufacturers) instead of tripartite (with the government)? L.D.: Well, we have a lot of labor laws in this country. And the tendency has been for both parties to go to the government and seek their help to solve issues. I think this

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is a very negative attitude to take. The key stakeholders who are the workers and the employers should try to resolve the issues within themselves. I think Sri Lanka’s approach all this time is to go for litigation, go to the labor department and ask them to investigate. Instead, we should try more to keep our problems within the house and try to solve them. Only in the case of total failure of that attempt should we need to go the government and ask for their help. Thereby we don’t breed hatred or an adversarial position, but try to arrive at a win-win situation. Y.L.: It made us realize that we need to work together better directly between ourselves, and resolve issues without involving legal processes and bureaucracies which takes a whole different tone. Legal recourse is always there and one of the options in the MOU says that if there is something we are not able to resolve this is the recourse. But now we will try to resolve things internally before going to courts. Everyone knows it takes time and money to do that. SJ: Do you see this as a paradigm shift, to have many more unions in factories? L.D.: Democracy doesn’t mean we must have unions everywhere. It is the freedom to associate as well as the freedom not-to-associate. If there is a factory, for example there are some where they treat their employees very well, and maybe those employees don’t want a union, that is fine with us. The national average union density is less than 10 percent. And in the free trade zones in the garment industry it is probably less than 1 percent. Garment industry owners fear unions because unions also have a bad image going on with strikes, etc. We have to face that reality. But that image is changing. There are good unions, responsible unions, and while unions often thought of employers in the same way–there are many employers who think of labor as an important resource and with respect. Y.L.: The spirit of it–that we are all willing to sit around the table, that is a huge paradigm shift.

Advanced fabrics have emerged as some of the most coveted post-pandemic items, with technical textiles offering protection and security, nostalgic denim offering emotional and physical comfort, and durable, lower-impact textiles lowering environmental impact. But industry-wide supply chain difficulties and in-person disruptions have made sourcing them more challenging. Here, Cindy McNaull, business development director, CORDURA®, talks to Sourcing Journal about how the award-winning company is smoothing the path and future-proofing the process. Sourcing Journal: 2021 was a crash course in remote collaboration. Now that fashion is more familiar with digital design tools, what should companies do to strengthen their capabilities? Cindy McNaull: During this post Covid-19 environment, we are all having to make some tough choices. For CORDURA® brand the choice was easy—we are not backing down on our commitment to sustainable innovation and creating tools that enable digital transformation and global connectivity. Covid-19 is giving us a chance to reset and rebuild something better than before. Experimentation, agility and entrepreneurial thinking are core values of INVISTA and the CORDURA® brand, and we have a continued focus on developing future-proof transformative tools. One such example has been the 2021 launch of our CORDURA® Fabric Finder, a digital fabric library designed to increase visibility and accessibility to help our global supply chain partners adapt to a changing world. The future for our industry really points to the integration of 3D design software. This is a space we’re watching with interest as companies are looking to this capability to strengthen their design efficiency and effectiveness. As consumers look closer at what their apparel is made of, what type of branding and co-branding opportunities does this present for a name like Cordura? C.M.: Today’s consumers are seeking value in their purchases. We’re all being more selective with the products we purchase, and for the ones that we do buy, we want them to go the distance. Consumers are demanding more from what they wear. Quality is key—from purchase experience to the garment itself. Products made with CORDURA® fabrics are ideally suitable to meet this expectation. As consumers, we’re all going through a lot of personal uncertainty during the pandemic, and branded

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fibers can serve as anchor points that provide tried and proven performance. What key lessons should the fashion industry have learned from this past year? C.M.: Trend indicators suggest that post pandemic, consumers have a heightened awareness in the value of protection. They are also becoming more and more drawn to timeless products that make them feel safer, more comfortable and in control. Durability and reliability are more important than ever. The importance of connectivity in a virtual world continues to grow, as does the power of collaboration to accomplish ESG goals and next steps on our industry’s collective sustainability journey. The future of innovation is collaboration. Teaming up with innovative brands is a gateway to forward-thinking design and the fusion of performance technologies in the bags, packs and apparel of tomorrow. Together with our like-minded mill and brand partners, we collectively offer the “best of both worlds”—softness with strength, fashion and function, durability with definition. This mindset strongly supports our long-standing ethos that “Sustainability Begins With Products That Last™.” What are the top concerns you’re hearing from your customers about 2022? And how will you allay them? C.M.: In addition to the ongoing concerns about supply chain and tradeshow disruptions, we’re also hearing from customers about how important it will be (where feasible) to resume in-person meetings especially for fabric selections and trend insights. We continue to work on our digital tools and customer connection points to navigate the journey ahead. Through the launch of our virtual platform (CORDURA® FABRIC FINDER), we can quickly communicate the latest in CORDURA® advanced fabric solutions and ESG innovations and bring durability to our customers’ desktops.

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SOURCING PERFECT FABRIC IN IMPERFECT TIMES

Egypt Talks Higher Wages, Changing Norms EGYPT’S TEXTILES PLAYERS “ARE MAKING OUR OWN WAY FORWARD BECAUSE WE LEARNT SO MANY THINGS DURING COVID-19,” A CAIRO MANUFACTURER SAID. M AY U S A I N I

en years after the social media-fueled protests and uprising in Egypt booted Hosni Mubarak from his presidential residence at the Heliopolis Palace in Cairo, many still feel a strong sense of a promise waiting to be fulfilled. While the turbulent political landscape might not have turned out quite as protestors envisioned, business in the country has unexpectedly flourished despite the Covid-19 pandemic’s hardest hits. Egypt’s advantages include a strong vertical cotton sector, strategic access to the Mediterranean, the Red Sea and the Suez Canal, a competitive and skilled labor force, trade deals with key partners like the U.S., and an entrepreneurial zeal invigorating the apparel industry. “It is as if we have put aside our wait for government policies to settle down and are making our own way forward because we learnt so many things during Covid-19 about connecting better through the Internet and social media, learning many skills that we never knew about,” said a Cairo garment manufacturer who asked not to be named.

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Government policies might be fickle, but snail’s pace progress is starting to aid an industry that accounts for more than 4.5 percent of the country’s GDP. The government’s intention to double the minimum wage from 1,200 Egyptian pounds ($76.32) to 2,400 Egyptian pounds ($152.65) beginning in January of this year has brought cheer to laborers who have struggled with job losses as factories temporarily shut down or cut working capacity. But the news also brought some garment manufacturers to the negotiating table seeking a lower minimum wage. According to the Central Agency for Public Mobilization and Statistics’ 2018 data, textile sector, including textiles, apparel and home textiles, encompassed 85,000 businesses dominated by privately owned small and medium enterprises. But Covid-19 was damaging. Roughly 50 factories closed down from March through September last year. Many more drastically trimmed working days or were forced to slash their workforce in half. “But very few of our members reported a permanent shut down for Covid,” Rasha Fa-

“One of the strengths the factories in Egypt have is their ability to shift quickly, and the fact that they can work with orders of relatively low minimum quantity in comparison to other countries.” — Yasmine Helal, GTEX.

EGYPT’S GOVERNMENT’S HAS DOUBLED THE MINIMUM WAGE FROM 1,200 EGYPTIAN POUNDS ($76.32) TO 2,400 EGYPTIAN POUNDS ($152.65).

him, executive director of the textiles sector for EgyptTextiles & Home Textiles Export Council (THTEC), told Sourcing Journal. Many companies quickly pivoted, with more than 50 percent producing critical PPE. “Within the textiles sector; spinning mills had a very rough time during Covid, especially when producing such a primary commodity that couldn’t be easily converted into another product. Yet, weaving mills and apparel manufactures succeeded in producing face masks and were a great help for the country to fulfill the domestic needs facing the pandemic,” Fahim said. According to a report by the Global Textiles and Clothing Programme (GTEX) and its related work in the Middle East and North Africa (MENATEX) project, more than 80 percent of companies in the apparel sector cut wages by at least 25 percent. Implemented by the International Trade Centre, the joint agency of the of the United Nations (UN) and the World Trade Organization (WTO) in partnership between the Egyptian and the Swiss governments, the project in Egypt has been working to increase employment and income generation along the value chain. Many hope change is on the horizon. The report outlined manufacturers’ need to embrace flexible production and shorter lead times, as retailers abandon their decades-long chase of cheaper product in pursuit of faster, leaner value chains. Covid-19 has hastened some of these changes.

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“The impact of Covid-19 was severe for everyone, but if I make a comparison with the other countries, it seems that Egypt was responsive in taking the necessary measures to lessen the effects on the apparel sector. We have approximately 35 beneficiary factories taking part in our project but none ceased operations, although in general, there was a slowdown and adjustment of the products being manufactured in the industry,” said Delphine Clement, Project Officer, Fibres, Textiles and Clothing Programme, International Trade Centre (ITC), the joint agency of the UN and WTO. “Egypt was also able to manage the markets—they are oriented towards the U.S., and the demand side, and the phases of lockdown were different in the EU and U.S,” she added. As 2020 drew to a close, many garment and textile manufacturers were already more optimistic, with more than 76 percent projecting a return to pre-Covid levels. There were good reasons for that upbeat outlook— apparel exports climbed 41 percent to $1.7 billion from January to September 2021 over the same period the prior year. The textiles, apparel and home textiles combined saw 26 percent growth over this period, to $2.92 billion, according to THTEC. Egypt’s textiles sector has also jumped feet first into sustainability and innovation. “Besides Covid-19 the sector in Egypt demonstrated a high level of awareness regarding ways to adapt to more sustainable and quality products. This trend has been

accelerated and further reflected, as in this ever-changing industry, fast fashion is also transitioning towards the latest concerns of consumers and markets. How long it will last and how [will business adapt] to the way the market is changing? This will have a huge impact on Egypt,” Clement said. Driving change and innovation is also the evolving ethos from global buyers, as order sizes, payment cycles, delivery terms, styles undergo seismic shifts. “If you are looking for one word that characterizes the industry in Egypt, it is ‘flexibility,’” said Yasmine Helal, national project coordinator, Egypt for GTEX. “One of the strengths the factories in Egypt have is their ability to shift quickly, and the fact that they can work with orders of relatively low minimum quantity in comparison to other countries. This is something that buyers are looking for at the moment, especially after Covid.” While Egypt has an abundant labor force, with more than 1.5 million employed in the apparel industry, Helal said innovation must come from within. “We are supporting the middle management to optimize the workflow, and production line better and to be able to plan higher productivity for the workers,” she added. But change requires both a shifting mindset

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and a rigorous commitment to transformation. “It is not easy for manufacturers who are used to working with a certain way to transform–but the argument for fashion and sustainability is going on all over the world, and factory owners are seeing that the younger generations are not pro-fast fashion. Step by step many of them are trying to adapt and to see how they can work on sustainability,” Helal said. Mohammed Husseiny, an enterprise advisor at Better Work Egypt who has guided factories in Egypt over the past decade, noted that change has manifested in other ways over the years. “In the last 10 years, manufacturers in Egypt have been trying to seek out proper technology to compete with global sourcing models. We have seen new machines and new technologies that support workers and enhance their capabilities. We have seen factories adding operations they would outsource before, like printing, dyeing, knitting. Egyptian manufacturers are trying to add value to their products to compete with other markets,” he said, adding that factories are also working on building capacity to comply with labor standards, a critical factor in the global market. “The industry is moving forward,” he said.

EGYPT HAS AN ABUNDANT LABOR FORCE, WITH MORE THAN 1.5 MILLION PEOPLE EMPLOYED IN THE APPAREL INDUSTRY.

The ongoing bottlenecks that have plagued the supply chain alongside continued travel restrictions have illustrated that brands need more insight into what’s happening at the product origin. In a Q&A with Sourcing Journal, Sebastien Breteau, founder and CEO of QIMA, discusses how brands must approach supply chain testing and auditing today, and how monitoring procedures have changed in recent years. Sourcing Journal: What key lessons should the apparel industry take from the past year, particularly when it comes to handling supply chain constraints going into 2022? Sebastien Breteau: The first lesson is that complex 21st century supply chains cannot be managed by outdated 20th century methods. Those businesses with poorly digitized supply chains struggled the most when the pandemic hit. Digital, tech and data are the way forward. The second key lesson is that ethical compliance should never be put on the back burner. Throughout the pandemic we’ve seen ethical audit scores slip drastically as factories have prioritized other areas, putting already vulnerable workers at greater risk. The apparel industry must be the driver for good practice. How should today’s retailers and brands be handling the testing and auditing process based on the recent supply chain disruption? S.B.: With travel restrictions and continued lockdowns, particularly in key sourcing regions, many brands have been unable to send their own teams to inspect products and factories onsite. A third-party quality control, testing and audit partner can help ensure continued access to factories, as they have a global network of local, boots-on-the-ground specialists who can reach factories, even when the brand cannot. Why is testing and compliance in the supply chain so important today? S.B.: Product recalls are on the rise, in part because of increasingly complex supply chains and tougher legislation around product safety and quality. Compounding this is the fact that brands often sell into many different markets, each with their own regulatory standards. Product testing is a vital step in the development process so businesses can reduce the risk of costly recalls and reputational damage, ensure smooth entry into markets with products that meet local standards and keep customers safe.

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At the factory level, what are the qualities brands should be looking for to ensure compliance? S.B.: Brands should be looking for suppliers who are transparent and open about their practices, and those that are willing to focus on continuous improvement. Bringing suppliers in as partners, rather than having a purely transactional relationship, will help brands make strides in ensuring both their products and suppliers are compliant. Brands must also seek visibility beyond their Tier 1 suppliers. The most critical non-compliance often occurs further down the supply chain at raw material and parts suppliers, where brands have little to no oversight. What has changed the most, if anything, about how brands should monitor supply chains and gain visibility? S.B.: Technology and data are playing a much bigger role than ever before. Digital tools—like our QIMAone platform—enable brands to monitor supplier performance, pinpoint compliance issues, predict high risk orders, map their supply network and foster more open communication with suppliers. This is heralding a shift away from manual supply chain management using spreadsheets and email, to brands having data at their fingertips for much greater visibility. What is your outlook for the supply chain in 2022? S.B.: Factories are facing a backlog of orders and transport routes are snarled up, and unfortunately these issues will not disappear overnight. Coupled with the fact that consumers are only increasing their demand, we can expect global supply chains to remain under strain for some time.

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ADAPTING SUPPLY CHAIN COMPLIANCE TO THE 21ST CENTURY

Cotton Prices to Remain Elevated in 2022 AFTER SURGING TO THE HIGHEST PRICE IN A DECADE LAST YEAR, THE OUTLOOK POINTS TO A CONTINUATION OF THAT TREND. A RT H U R F R I E D M A N

t seems that everything got more expensive in 2021. U.S. spot cotton prices ended the year at $1.04 per pound, 46.5 percent higher than the 71.14 cents a pound posted at the end of 2020, according to the Department of Agriculture (USDA). Spot cotton prices peaked at an average of $1.14 cents per pound for the week ended Nov. 4–the highest weekly average since the week ending July 14, 2011, when the price clocked in at $1.18. Futures prices were even more volatile. March NY/ICE futures dropped from levels near $1.20 per pound in November to around $1.06 in December. The A Index–an average of global spot cotton prices–decreased to $1.19 from $1.25 for the same period. The December 2022 NY/ICE contract, which reflects price expectations after the next harvest for the 2022-2023 crop year, was trading as high as 92 cents per pound in early November, but then fell as low as 86 cents by the start of December. Current values are a little higher, trading near 90 cents, according to Cotton Incorporated’s monthly analysis. The International Cotton Advisory

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Committee (ICAC) said in a year-end report that cotton prices are expected to remain at elevated levels throughout the next crop season. ICAC’s current price forecast of the season-average A index for 2021-22 ranges from 91 cents to $1.19, with a midpoint at $1.04 per pound. Cotton Inc. said some of the gains over the past year and a half may be attributable to the “everything rally” that has spanned financial markets since the Federal Reserve “unleashed an unprecedented expansion of the money supply.” Given concerns about inflation, these measures may wind down faster than previously planned. “The discovery of the Omicron variant was coincident with the steepest daily declines in cotton prices over the past month,” Cotton Inc. said. “Those declines also occurred around the same time that officials from the Federal Reserve said they were considering an accelerated conclusion to their monetary expansion and an earlier start for increases in interest rates.” Challenges to the uptrend could also surface from influences rooted in cotton supply and demand, Cotton Inc. said.

“An old saying in commodity markets is that ‘the best cure for high prices is high prices.’” — Cotton Inc.

THE PRICE OF COTTON ON THE LAST DAY OF EACH MONTH ON THE FUTURES EXCHANGE. $1.15 $1.08

$.88 $.81

$.80

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FEB

$.87

MARCH APRIL

“An old saying in commodity markets is that ‘the best cure for high prices is high prices,’” Cotton Inc. said. “This is because of basic economic reactions. Higher prices can be expected to result in higher acreage and production worldwide. Higher prices can also depress demand.” From this early position relative to the 2022-2023 crop year, the organization said prices for competing crops, like corn and soybeans, have also increased over the past year and a half. Input prices have also risen. In combination, these factors may limit the increase in cotton plantings. “On the demand side, there is uncertainty regarding the strength of the global macroeconomic environment,” Cotton Inc. said. “While world GDP growth is forecast to remain well above average, it is expected to slow in 2022 and beyond. Mill demand may also slow. With the recovery since Covid, there has been a scramble to refill and reposition product pipelines. As those pipelines stabilize and fill, the urgency in order place-

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$.82

$.84

MAY

JUNE

$.90

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$1.12

$1.13

NOV

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$.96

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SEPT

ment throughout supply chains may ease.” Jon Devine, senior economist at Cotton Inc. and the author of its monthly report, told Sourcing Journal that global and worldless-China stocks are expected to remain high in the upcoming crop year and acreage can also be expected to increase. “Mill demand may face headwinds due to higher prices and the withdrawal of stimulus,” Devine said. “There was only a 2 million bale deficit in the current crop year, so a surplus is possible.” Devine said China is at the center of demand questions, noting that the country sold about 6 million bales of cotton out of government reserves between July and November and that the Chinese government may look to replenish those reserves. “If that happens, Chinese import demand could be strong in coming months,” he said. “Chinese cotton prices are high relative to the rest of the world, which may also support Chinese import demand. However, shipping constraints and the availability of import

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BONNIE TAYLOR BARRY/ADOBE STOCK

quota may inhibit buying and shipping.” Devine also cited India as being “the epicenter of the latest surge in prices,” with Indian values reaching record highs. “There have been calls for the government to lift import duties, but the availability of foreign cotton that can be rapidly shipped may be in short supply,” he added. Cotton’s price volatility has likely led to more widespread use of alternative fibers, such as recycled polyester and viscose, but prices for those fibers have also generally been elevated. Guess Inc. said in reporting

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third-quarter results at the end of November that it has cotton contracts that cover its needs for another 12 months and was looking at alternative fabric options for its jeans, such as recycled cotton. Historically, however, when prices for cotton rise, so do the costs of other fibers. The Producer Price Index (PPI) for U.S.made synthetic fibers increased 24.7 percent for the year ended Nov. 30. The PPI for processed yarns and threads rose 28.9 percent in the same period, while the index for finished fabrics increased 13.4 percent.

THE PRICE OF COTTON ROSE MORE THAN 45 PERCENT LAST YEAR.

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A SMART-TO-MARKET STRATEGY BEATS SPEED-TO-MARKET When it comes to quickly responding to supply chain disruptions, merchandisers need to make decisions based on data, not opinions. In the event a supplier or factory can’t deliver a product, merchandisers must be able to re-allocate spend across the rest of the assortment in a way that ensures sales goals are still met. More often than not, however, these decisions are hastily made and based on gut feelings and historical signals, which are becoming increasingly less relevant. Leveraging consumer demand data that spans that specific assortment empowers merchandisers to make informed, strategic decisions when facing supply chain uncertainties. Here, Matt Field, co-founder and president of Maker/Sights tells Sourcing Journal why continuously collecting, analyzing and incorporating consumer data into decision making is the best way for brands to become nimbler and more resilient this year and well into the future. Sourcing Journal: In an industry that normally aims for speed to market, 2021’s shipping and manufacturing slowdowns were a double whammy. What can companies do to de-risk inventory and keep things moving? Matt Field: We’ve seen numerous brands adjust to slowdowns by doubling down on inventory up front or adjusting orders on the fly. Both are necessary with traditional approaches to merchandising, but they expose brands to significant inventory risk. We recommend brands validate high-stake decisions on assortments and buy-depth with consumer demand data prior to SKU adoption—giving merchandisers the data they need to make swift, informed decisions should an issue arise. We advocate for being smart-to-market over mere speed-to-market. It doesn’t matter if you hit shelves first if consumers don’t buy the products you deliver. As shipping prices escalate, brands and retailers are looking to cut costs upstream to compensate. How can digitalization help? M.F.: Significant upstream costs stem from over-sampling, travel and unsold inventory. A substantial portion of samples are created before designs are tested with target consumers. Brands should leverage 3D renderings to gather consumer feedback early in the design process, ensuring underperforming designs are dropped before samples are made. Assortments should be tested with consumers at each stage of the merchandising process so incremental savings accumulate as the line evolves from ideation to final adoption, resulting in

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fewer samples, higher-performing SKUs and better margins. Overhead expenses, like travel, associated with major milestone meetings can also be minimized by taking advantage of technology available today. From video conferencing to collaborative work management platforms and assortment management software specifically designed for retail brands, it’s never been easier to work efficiently and make better, faster decisions without meeting in person. The pandemic proved it was possible. Brands should seriously evaluate antiquated processes before reinstating them post-pandemic. Reducing travel and waste—from unnecessary samples and unsold products that should have never been made—are good for the bottom line and the planet. The pandemic highlighted how many companies have limited inventory visibility. What’s one thing brands and retailers can do right now to improve this? M.F.: Leveraging consumer feedback, brands can better prevent overstocks and out of stocks by proactively assessing the demand for each SKU in specific regions or channels before placing a purchase order. What are the top concerns you’re hearing from your customers about 2022? And how will you allay those concerns? M.F.: Brands are concerned about having inventory available in the right places at the right times. This has been compounded by demand shifting toward direct-to-consumer (DTC) and e-commerce, which are quickly becoming leading revenue sources, making it increasingly critical that inventory be designated for these channels in a strategic, data-driven method. Embracing this shift is a major concern for most executives who have traditionally looked to their wholesale partners for market direction because they’ve lacked sufficient consumer information internally to understand where the consumer is today and where they are going. Brands now find themselves awash with consumer data. They need to figure out how to best leverage that data and incorporate it into decision processes.

Flexport Index to Show Ocean Times Along Trade Routes THE OCEAN TIMELINESS INDICATOR MEASURES THE TIME TAKEN TO SHIP FREIGHT FROM EXPORT POINT TO DESTINATION PORT. A RT H U R F R I E D M A N

lexport has introduced the Ocean Timeliness Indicator (OIT), which measures the amount of time taken to ship freight from the point at which cargo is ready to leave the exporter to when it is collected from its destination port. The ocean shipping world tends to run along “trade lanes,” Flexport noted, with the two biggest ones carrying goods from Asia to North America, and from Asia to Europe, and the OTI captures timeliness on each of these. The Transpacific Eastbound (TPEB) measure hit its longest on record in the last week of November, while the Far East Westbound (FEWB) measure is near its October high. The OTI utilizes data from Flexport’s ocean shipping operations for an expansive view of a container’s journey. Updated on a weekly basis, it shows the time taken to transit from the “cargo ready date” at exporters’ gate to the “destination port departure date” when products are ready to leave the port to go to importers. Measures are shown for FEWB and TPEB routes. For the week ended Nov. 28, the OTI for

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both the FEWB and TPEB routes was at or close to their highest since Flexport’s calculations started in March 2019. TPEB reached a record 105 days, reflecting an increase in the time taken to get from cargo ready to origin departure. Flexport said this would suggest increased challenges in moving products from exporters’ locations to the Asian ports before shipping occurs. The time taken to leave the American arrival port after the shipping vessels’ arrival declined in recent weeks, indicating some success in the debottlenecking projects and incentives initiated by the port operators. FEWB remained at 107 days, just below the record set at the end of October of 109 days. The dip from the earlier peak reflects reduced arrival port handling time offset in part by increased at-sea shipping duration. Flexport today serves more than 10,000 clients and suppliers across more than 200 countries, offering a full range of services, including ocean, air, truck and rail freight, drayage and cartage, warehousing, customs brokerage, financing and insurance, all informed and powered by its software platform.

The ongoing supply chain disruptions—from factory shutdowns and labor shortages to shipping and logistics delays— have accelerated the need for automation, and the only way to achieve supply chain visibility is to connect all the links in that chain. True visibility comes from digitally allowing the seamless flow of data back and forth. “Today’s technology platforms, such as the BlueCherry® suite, allow brands to manage, monitor and report on every aspect of the chain—from shop floor to showroom,” said Paul Magel, president, business applications division, CGS, who explained to Sourcing Journal why supply chain visibility is more crucial than ever. Sourcing Journal: What are some of the ramifications for not having clear visibility along your supply chain? Paul Magel: For retailers it can be not knowing how much inventory you have in stock or when you will be receiving more. For brands, it could be that you are caught unaware of your suppliers’ processes and/or issues. Maybe one of your approved suppliers is subcontracting to another supplier with no digital tracking from where the goods are coming. You won’t have sustainability or compliance data to prove where your goods are sourced, and this could lead to compliance, regulatory and even reputational issues. In addition, without real-time access to production data on your shop floor, you won’t get immediate updates if there is a manufacturing delay or a quality issue, meaning you cannot react quickly enough to meet quotas and satisfy customers. However, by using shop floor control technology, factory managers can quickly be alerted to a stopgap. If a quality problem is identified during an inspection, management can quickly trace the issue back to specific machines and associates, assign rework and catch errors before they become too costly. Brands can automatically synthesize data, helping managers plan production and balance manufacturing lines for optimal output. What are the top concerns you’re hearing from your customers? P.M.: In recent surveys, brands are showing still greater concern in their supply chain to support growth and plans. Top areas for improvement are leaning toward gaining efficiency in sourcing, better business intelligence/analytical capabilities and better management of quality and costs. As with most areas, issues and ways to improve, we are talking about data, data, data.

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Getting that data requires visibility, and digitalization is key to all of it. It’s telling that about half of companies surveyed were actively involved in projects to expand the use and functionality of the major systems: ERP, PLM and shop floor control production management. This will be key to brands gaining the visibility and data to improve their sourcing, management and quality. Like our customers, CGS must also adapt our solutions to meet current and future needs. In late 2020, we introduced BlueCherry Next™, a highly configurable platform that can be personalized and scaled for customers’ needs that can help them react quickly to market changes. We will continue expanding on a low-code/no-code platform that enables businesses to streamline application development and deployment across our suite of offerings.

Even in the midst of continued uncertainty, what makes you optimistic about 2022? P.M.: I believe the world will find its equilibrium in 2022, but the old normal will not equal the new normal. Like a snow globe, we are being shaken up, snow is still coming down around us, and we won’t be in the same place once everything settles. However, we will find that new normal, and it will be different. In the meantime, I try to find the excitement in moving to this new normal together with our valued customers. From a software perspective, we are in the right place to offer the tools and solutions to brands. You can accelerate production, gain more personalization, offer customers a better experience and react quicker to this ever-changing marketplace. The technologies and momentum are here; it’s just a matter of leveraging these technologies and preparing for when the snow finally settles—and for when the next shakeup happens.

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THE URGENCY OF SUPPLY CHAIN VISIBILITY

BY THE NUMBERS END-TO-END TRANSIT TIME FOR CHINA-U.S. OCEAN FREIGHT (IN DAYS) 73

80 70

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40 30 20 10 0

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WORLD CONTAINER INDEX Assessed by Drewry $ per 40ft container $10,000

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21 21 21 21 r-21 r-21 r-21 r-21 -21 -21 -21 -21 l-21 l-21 l-21 -21 -21 -21 -21 t-21 t-21 -21 -21 -21 -21 -22 c c y y v v g g p p n n n- n- b- bn Ja -Ja -Fe -Fe -Ma -Ma -Ap -Ap Ma Ma -Ju -Ju 1-Ju 5-Ju 9-Ju -Au -Au -Se -Se -Oc -Oc -No -No -De -De -Ja 1 2 12 26 09 23 07 21 04 18 02 16 06 14 28 11 25 11 25 08 22 06- 20- 03 17 0

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From supply chain disruptions and unprecedented inflation to continued demand-supply misalignment, fashion industry concerns remain on heightened alert for this year. Here, Himatsingka’s Akanksha Himatsingka, CEO, international operations (home textiles), points out industry bright spots and how they are investing in manufacturing infrastructure and flexibility to meet shifting client demand. Sourcing Journal: Amid global shutdowns and continuing uncertainties, companies sought to diversify their manufacturing suppliers, but were decisions hasty? How can companies invest in their supply chains instead of jumping ship? Akanksha Himatsingka: The industry at large witnessed disrupted supply chains, uncertainties and lockdowns, all which exacerbated operating conditions. At the same time, these issues also created pockets of opportunity and new demand patterns for a certain class of product. While the impact of the pandemic eased during the second half of the fiscal year, there were other challenges that surfaced during this period. Regulatory uncertainties along with heightened levels of inflation, witnessed by various commodities and services, exerted cost pressures on the entire value chain. Cotton, our principal raw material, saw unprecedented levels of inflation during Q4 of FY 21. This was coupled with substantial price escalations in the areas of energy and logistics. On a positive note, the demand for home textile products globally has remained encouraging. Our manufacturing facilities are enhancing capacity utilization across divisions, and we intend to go deeper and are well-positioned with our integrated model, robust infrastructure, strong brands and global reach to enhance market share and tap emerging opportunities going forward. As more fashion brands expand into home textiles, are there sourcing concerns or learnings more specific to home? A.H.: Leading global fashion brands are increasingly leaning toward more responsible sourcing and sustainable product solutions and infrastructure alignment. While certain brands have been more aligned than others, there is greater need of fast-tracked action in this direction. However, conversion to sustainable sourcing is a long-term process. It requires a deep dive into rethinking the journey from the farm to the shelf. The intent to change must become a collective industry effort with common goals and standards. Is concern for sustainable home textiles equal to that of fash-

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ion textiles? How can the industry heighten awareness? A.H.: Sustainability encompasses every element in the process of creation, right from thought to product. A transition to a sustainable apparel and textiles industry would have enormous social and environmental benefits for the global community. The goal is a closed-loop system in which apparel, textiles, home textiles, fibers and other materials retain their value for as long as possible, and waste is minimized and/or repurposed mindfully. There is a shift, but it needs to be wider and deeper. We all know that change isn’t easy, especially at scale. This is where a difference needs to be made. The industry holds the responsibility to reject what cannot be sustained and rethink how, why and what we create and how it defines value for the consumer. Himatsingka is continuously developing enhanced sustainable, performance and hygiene-led solutions aimed at driving consumer choices and stimulating demand across markets. We 15 global continue to collaborate brands with aligned partners that offer sustainable 32 solutions. We are also countries served working toward extrapolating traceability across cotton varietals, thereby 4 manufacturing increasing our traceabilifacilities ty coverage and layering it with blockchain to over provide easy data to our 12,000 retail partners and the associates consumer at large. From raw material shortages to pandemic shutdowns, 2021 was plagued with problems. How can you help your partners mitigate risks? A.H.: Himatsingka has been investing in creating flexible product portfolios where common infrastructure acts as an enabler for multi-product capabilities. This flexible plant design will help us stay relevant to our client preferences as they need to constantly recalibrate product assortments in a high-octane consumer environment. We believe our initiatives to build scale-oriented manufacturing and distribution platforms will position us to tap into larger opportunities that will help us in sustaining growth rates going forward. Himatsingka’s operating know-how in the textile space spans the entire value chain, from source to shelf. We will leverage this to identify growth opportunities that fit our strategy, are in sync with our values, and give us the growth trajectory that we require.

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FINDING OPPORTUNITIES AMID GLOBAL UNCERTAINTIES

Staying Connected WITH E-MAIL COMMUNICATION GOING THE WAY OF THE DODO, HERE’S A QUICK GUIDE TO THE BEST WAYS TO DO BUSINESS COUNTRY TO COUNTRY. M AY U S A I N I

s social messaging apps have quietly infiltrated business communication across Asia, they have quickly become the favored tools for staying connected. Whether it be labor or management, factory owners or non-governmental organizations, everyone can often be found on the same platform. They also signal the changing times: business may still be done on computers, but in Asia it has moved to ever-quicker responses and faster decisions—and the agility of mobile phones. WhatsApp, Facebook Messenger, Viber, Telegram, Line, WeChat and Signal are among the most popular communication tools in Asia, with one of them usually finding overwhelming favor depending on the country. In India, although many different formats co-exist and are popular, WhatsApp is most favored for business. India is the single largest market for the platform, with a 400-million strong user base—more than 20 percent of the world’s total. Each morning, at 7 a.m., Sakthivel Sivaswamy, executive secretary, Tirupur Exporters Association in Southern India, shares some of the highlights of the industry news with the approximate 800 members of the association on WhatsApp. “It’s been more than six years that we started forming groups, and we share messages, circulars, public notices, any press

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information, statistics, news, labor updates. We also share information on social compliance. It is very useful for everyone to know what is happening. We also connect with other textile associations through this,” he said. Far from being limited to a single region, WhatsApp is popular across India, for quick business information, questions and social connections. Neighboring Bangladesh, the world’s second-largest garment exporter was largely on Viber for many years, until it too recently converted to WhatsApp. Ehsan Ul Fattah, former secretary general of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) said that the transition was seamless, as the simple and attractive interface of WhatsApp made the move swift across the industry. “Now, almost everybody uses WhatsApp. It is also a good medium for trainings at factories, where a group can introduce themselves to each other and continue the conversations to understand and stay in touch,” he said. While many people belong to multiple groups, on which industry news is shared, BGMEA often uses the medium to announce special events to its members. Most of the garment industry in Sri Lanka also uses WhatsApp. Other countries have apps specifically tailored and engineered locally. China favors homegrown WeChat (Weixin). Developed

by Chinese multinational Tencent in 2011, it counts more than one billion active users. The chat also incorporates a simple interface for digital payments. In Vietnam, Zalo is most popular— launched in 2012 by Vietnamese tech start up VNG, it has been the local answer to WhatsApp. Features include group chats and video and voice calls. Facebook Messenger also continues to be one of the most-used platforms in the country. According to DI Marketing, 80 percent of smartphone users in Vietnam have Zalo installed on their phones, ahead of Facebook Messenger which

LINES OF COMMUNICATION INDIA

BANGLADESH

SRI LANKA

CHINA

WeChat

VIETNAM

Zalo

SOUTH KOREA

KakaoTalk

SLOVENIA

Discord

ALGERIA

Phoenix

THAILAND

Line

CAMBODIA

INDONESIA

MYANMAR

Viber

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comes in at second place with 73 percent. KakaoTalk is the most popular app in South Korea, the country of its origin, and like Zalo in Vietnam and WeChat in China has a local advantage. Others like Discord in Slovenia, and Phoenix in Algeria are country-specific and popular. Among the many apps in Thailand, the Japan born Line, which was developed in 2011 following the Tohoku earthquake, is the most popular. Thai businesspeople and consumers observed that they liked the multiple features of Line, which include shopping, taxi rides, food delivery, comics, and most of all, the stickers. Customized stickers continue to be a big draw across Asia, especially those that get the pulse of the user, turning the conversation into a visual format. Telegram is the first choice for many in Cambodia, although Line, Whataspp and Viber are also popular. More business gets done on Telegram, especially with the Cambodian government’s early adoption of this service, and its promise of end-to-end encryption for chats and calls. Although many business users lean toward WhatsApp in Indonesia, with political circles favoring it as well, Telegram is overall the most popular app, with 80 million downloads in Indonesia alone and 8 percent of the Telegram worldwide users in this technology savvy country. Myanmar has leaned into Viber as its most favored—as of February 2021 there were 2 million users in the country, which quickly grew to 5 million by July. Viber responded to the market by launching language support tools.

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RAISING COTTON’S VALUE TO SUPPORT SUPPLIERS & SUSTAINABILITY Fashion is weathering unprecedented upheaval. Cotton in particular is grappling with numerous changes impacting the entire supply chain, including order sizes and frequency, logistics and timelines, disrupting the “hyper-efficiency” companies took for granted, and tacking on costs and complexities. Here, Supima president and CEO Marc Lewkowitz discusses cotton costs, the fiber’s place in performance wear, and Supima’s work in fiber authentication. Sourcing Journal: Costs for both raw materials and finished goods have been escalating. What is the outlook on pricing? Marc Lewkowitz: Considering textile products have been deflationary in the U.S. for many decades, it seems the market is reaching an inflection point where the value of products is rising to reflect real costs needed to fulfill brand promises and corporate policies. The textile supply chain has historically and perpetually squeezed suppliers, which is antithetical to the reality of the requests for quality and responsibility. There must be an increase in the value of cotton fiber to support demand. Doing otherwise will simply undermine and compromise the authenticity of any brand or retailer’s claims. The synthetic efficiencies manufactured and engineered into the supply chain to support unsustainable practices, products and prices are no longer justifiable. Supima cotton has recently been used for active apparel, including Peloton’s workout attire. Why is cotton an ideal choice for performance wear and what fiber innovations should designers consider when developing active and athleisure garments? M.L.: In the world of performance fabrics, there are many utilizations for cotton that are well suited to its natural fiber characteristics. For active and athleisure garments, Supima is utilized in outwear fabrications in both waterproof and water-resistant applications. For performance wear applications, Supima and our partner Solucell use a responsible and sustainable polyester variant filament used to make hollow-core spun yarns. The polyester variant is 99 percent recoverable in the finishing process, and as the filament dissolves, it leaves behind a Supima yarn with mechanical performance characteristics that build upon the fibers’ natural properties, producing fabrics that are both moisture-managing and quick dry. Depending on the fabric construction and product intent, the yarn can

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be used in activewear or for thermal regulation properties in fleeces, sweaters and flannels, or enhanced breathability and lightweight characteristics in denim constructions. Cotton source matters more than ever. How does Supima help meet increasing demands for sustainability and transparency? M.L.: Authenticity has long been a mission for Supima. After working with and investigating a variety of platforms and approaches, it was clear the market and our industry needed a true protocol to verify fiber origin. Markers, tracers, additives, blockchain and paper trails all simply fall short. Using a proven forensic science approach with our partner Oritain, Supima mapped out all our cotton-growing regions and sampled cotton extensively across three crop years to establish a robust identification of Supima cotton and its growing locations. Creating this geo-chemical fingerprint of Supima cotton based on trace elements the cotton fiber picks up from the soil, water and environment in which it is grown provides fiber origin verification, allowing for more nuanced, detailed origin identification. Along with authentication, origin is needed for honesty and any meaningful conversation around responsibility and the bold claims the retail industry likes to make about sustainability. What’s in the pipeline for Supima in 2022? M.L.: The Supima crop is special and exclusive in terms of quality, dependability, consistency and authenticity, accounting for less than 0.5 percent of global cotton production. This year, however, the crop size will likely be the smallest of the last couple of decades because of the impacting variables affecting production, weather, markets and the broken and insatiable appetite around consumerism that has eroded inherent value from the supply chain in favor of cheap product. Supima is deepening partnerships and relationships with our brand and retail partners who understand they must invest and support those striving to provide the best possible product.

Sourcing Journal would like to thank our sponsors:

QIMA QIM_19_13217_Logo_QIMA_N&B 19/04/2019 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com

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