Apparel Supply Chains Hit by Perfect Storm as Costs Rise on Multiple Fronts
Global apparel supply chains are under pressure. Finished goods have been taking longer to reach their destinations as shortages of containers and outbreaks of COVID-19 have halted operations and caused delays at ports. Prices of cotton and other textile materials are rising, energy costs are soaring and costs of freight are escalating. Moreover, the passing into US law of the Uyghur Forced Labor Prevention Act (UFLPA) in December 2021 places the onus on importing companies to ensure that “goods mined, produced, or manufactured wholly or in part with forced labour … are not imported into the United States”. The Act was signed following allegations that Uyghur Muslims were being subjected to serious human rights abuses in Xinjiang province, China, and companies seeking to continue importing goods made in Xinjiang must provide “clear and convincing evidence” that the goods were not manufactured with forced labour.
As such, the Act shifts the burden of proof away from customs officials. In order to ensure compliance with the Act, companies may be forced to introduce comprehensive supply chain mapping and intensify their due diligence processes if they wish to continue sourcing from the region. Reluctance by companies to do so could take a huge proportion of the world’s cotton supply off the market as Xinjiang province accounts for around 90% of the cotton produced in China and 20% of the cotton produced worldwide.
Table of Contents
- Setting the Scene
- Delays at Ports
- Rising Costs of Fibres and Other Textile Materials
- Impact of the Uyghur Forced Labor Prevention Act (UFLPA)
Executive Summary
Global apparel supply chains are under pressure as prices of fibres and other textile materials rise, energy costs soar and costs of freight escalate, according to the report “Talking strategy: apparel supply chains hit by the perfect storm as costs rise on multiple fronts”.
The global cotton price - as measured by the Cotlook A Index - almost doubled between April 2020 and December 2021, from 64 US cents/lb to 120 US cents/lb.
Finished goods have been taking longer to reach their destinations as shortages of containers and outbreaks of COVID-19 have halted operations and caused delays at ports. In fact, in many destination ports, the average median times spent by containers in depots - referred to as “dwell times” - reached near-record levels in 2021 as a result of severe congestion.
To add to the apparel industry’s woes, companies importing apparel and other textile products into the US market which contain materials sourced from Xinjiang province in China face a new hurdle as a result of the Uyghur Forced Labor Prevention Act (UFLPA).
Under the UFLPA, companies that want to continue importing goods made in Xinjiang must provide “clear and convincing evidence” that the goods in question were not manufactured with forced labour. This places the onus on companies rather than customs officials.
However, global apparel supply chains are notoriously complex and it is often impossible to trace the origins of materials used in the manufacture of a garment. This will make it immensely difficult for companies to guarantee with confidence that the products they are supplying do not contain materials sourced from Xinjiang province in one form or another.
To ensure that they comply with the UFLPA, apparel brands are likely to play safe and source from locations which they can be confident do not use materials made in Xinjiang province. This would limit significantly the amount of cotton available for their products because Xinjiang province accounts for around 90% of the cotton produced in China and for 20% of the cotton produced worldwide.
In this scenario, the amount of cotton available to apparel brands could be reduced by 20% or more and, as a result, it is likely that cotton prices would rise. Ultimately, such a rise could lead to significantly higher apparel prices in retail stores.
