Coronavirus unravels the clothing supply chain
For apparel brands, retailers and manufacturers with supply chains linked to China, the implications of the novel coronavirus (Covid-19) outbreak continue to reverberate. By Leonie Barrie
Factories in China are slowly resuming production following the extended shutdowns imposed after Chinese New Year, but many are operating at reduced capacity with quarantined workers, travel restrictions and material holdups causing further disruption and ongoing uncertainty.
China’s role as the leading supplier of yarns, fabrics, trims, packaging and labels also means supply chain delays for garment factories in other countries that are unable to source the textiles and other inputs that they need.
Indeed, while China had a 31.3% share of world apparel exports by value in 2018, it also supplied an even larger 37.6% of world textile exports – including almost two-thirds of the raw materials used by manufacturers across Southeast Asia. The country’s leading role means it makes 29.8% of apparel imported into the US by value, and around 16% of garments imported into the European Union (EU).
Aside from the human impact, the Covid-19 epidemic is having a major negative impact on the global fashion business. If factories can’t operate they aren’t able to ship products. And if they’re not getting the raw materials they need, there will be missed deliveries.
As well as delays of up to two or three months on the delivery of summer fashion collections, there is also a potential knock-on later in the year on autumn, back-to-school and even holiday goods.
“As well as delays of up to two or three months on the delivery of summer fashion collections, there is also a potential knock-on later in the year on autumn, back-to-school and even holiday goods.”
Also of concern is the prospect of even more severe disruption if factories don’t have the cash flow to survive if they are hit by penalties for delayed delivery of goods, or when it becomes a matter of cancelled production rather than delayed production.
Fashion brands and retailers will undoubtedly be weighing up options to diversify their supply chains by switching to alternative sourcing destinations – such as Latin America, South Asia and Southeast Asia.
But it takes months to onboard factories and shift production to another territory, and they are likely to struggle to find factories that have the scope to take on extra orders. This is because no other countries are equipped to handle the sheer volume of capacity that would be required to move production out of China. Switching sourcing also fails to address the ongoing challenge of obtaining raw materials from alternative suppliers.
Manufacturers in China, the world's second-largest economy, have already endured an enforced three-week shut-down over the extended Lunar New Year holiday as part of efforts to contain the spread of the virus.
But restarting stalled production is easier said than done, with strict travel restrictions meaning workers have been slow to return to the factories. Precautionary measures are also in place to protect people in crowded environments such as manufacturing plants, with concerns that if Covid-19 is found on-site then authorities will shutter the operation for 14 days.
“A shortage of workers and higher costs and shortfalls on the raw material side are among the top challenges facing China’s garment industry.”
A survey of almost 300 apparel companies in mid-February by the China Garment Association found that a shortage of workers and higher costs and shortfalls on the raw material side are among the top challenges facing the country’s garment industry.
But it’s not just manufacturers in China that are impacted. Central American clothing suppliers – who depend on China and Asia for around 40% of the yarn and yarn thread used in the production of finished clothes – are fretting over delays of up to a month on essential Chinese fabric supplies as a result of the coronavirus outbreak.
Factories in Cambodia and Myanmar have warned of temporary closures due to raw material supply interruptions. There are also calls for buyers to discuss the disruptions and difficulties proactively with suppliers, and consider alternative strategies to cushion the blow for factories, such as relaxing lead times.
However, other supplier countries such as Turkey are expecting a jump in orders as buyers look at alternative sources of supply.
Global sea and air freight shipping patterns are also experiencing severe disruption, adding to the complexities of moving Chinese raw materials and finished garments around the world.
Port congestion in China, as well as cancellations to inbound and outbound air cargo shipments from Europe, the US and the Middle East to China and Hong Kong, are causing havoc to supply lines.
Numerous passenger airlines – including British Airways, United Airlines and Cathay Pacific – have suspended flights to and from locations in China, meaning belly cargo capacity is reduced, putting further constraints on the delivery of goods that are late.
Once production eventually starts running normally again, forecasts suggest the backlog of orders will lead to more shipment and cargo delays. Another challenge could be higher freight rates as carriers try to accommodate both the backlog of shipments and new orders placed as factories reopen.
Because China is the workhorse of the manufacturing world, this is a situation where everyone is negatively impacted. All companies can do is closely monitor the situation and look at risk mitigation measures where they can.
Although most are operating in conditions that are far from normal, the restart of manufacturing in the country will boost confidence that the public health crisis – and its economic impact – is at least showing signs of levelling off.
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