Global Sourcing Trends
2014 Hot TopicsRe-Shoring/Near-Shoring Trends
Implications for AAPN
Prepared for:
2014 AAPN Annual MeetingMiami, FLMay 2014
Roger J. GilmartinManaging Director
O'Rourke Group Partners LLC 1
Trans-Pacific Partnership (TPP) Timing, Terms—Far Reaching Consequences
Re-Shoring/Near-Shoring & New Textile Investments
O'Rourke Group Partners LLC 2
2014 Sourcing Issues Hot Topics
TPP-Its all about Vietnam. Key rung on the ladder of planned
industrialization. Employs 2.5 million direct + indirect. 10% of the Industrial Work Force. 3 million by 2020. Every US$ 1 billion creates 150,000 new jobs. Significant in-balance between textile &
garment capacity. 75 to 80% of fabric is imported. Mostly China
O'Rourke Group Partners LLC 3
TPP-It’s all about Vietnam
Yarn +Fabric imports from China > US$ 4 Billion
US Yarn+ Fabric exports < $100 million. A “command economy”. VINATEX 28 Mills, 44 Garment Companies 160K tons of yarn, 280 million sq meters of
fabric, 330 million garments. 3500 stores 210,000 employees.
O'Rourke Group Partners LLC 4
TPP- It’s all about Vietnam.
Claim that Government owns less than 5%
Blatant distortion of the truth. Employment not profit is the target.
O'Rourke Group Partners LLC 5
Today, the main US Regional FTA Partners (Mexico, CAFTA-DR, Peru, Colombia), successfully compete with low cost Vietnam due to tariffs/duties currently in place. Removal of Vietnam duties effectively
eliminates any cost competitive reason for sourcing in the region, unless: Initial duty reduction is very low. Total duty phase-out is very long term. Yarn forward rule prevails.
O'Rourke Group Partners LLC 6
TPP – It’s all about VietnamImpact to US & Regional Partners
Vietnam hourly labor cost (and other Asian countries) increasing at faster pace than US regional partners: Time is our friend. Effective Vietnam labor CM cost same
as Nicaragua by 2018. Long term duty phase out will target high cost
China apparel sourcing. China is already over! Less impact to our Regional Partners in this
hemisphere. O'Rourke Group Partners LLC 7
TPP – It’s all about VietnamImpact to US & Regional Partners
O'Rourke Group Partners LLC 8
Apparel Manufacturing Labor Costs2012 -Average Hourly Cost with Social Charges- US $
Source: O'Rourke Group Partners Factory Audits
Vietnam (Bangladesh & Cambodia) Labor Productivity approximately 45%-55% of International Standard. Vietnam (CM) will be comparable to Nicaragua by 2018.
CAFTA-DR/Mexico Labor Productivity approximately 75%-85% of International Standard.
TPP Potential Rules of OriginImpact to US & Regional Partners
Single Transformation (Vietnam still feels likely). Yarn, fabric inputs may be from ANY source country (i.e.
US, China, Pakistan, India, etc.) Regional apparel cost competitiveness eliminated. Significant regional apparel/textile production (and
employment) losses. Yarn Forward (USTR Support to Date; Likely to Prevail).
Yarn, fabric inputs must originate from one or more of the 12 TPP PARTNER countries. Potential for less regional production/employment losses. Potential for US yarn exports to Vietnam (and other TPP
countries). Some limited opportunity for US fabric exports.
O'Rourke Group Partners LLC 9
ImpactSingle Transformation Rule in TPP U.S. Textile Industry
Job Losses (direct & indirect): - 165,189Textile Exports to Western Hemisphere: - $3.8 billion
CAFTA, NAFTA, ANDEAN regionJob Losses (direct & indirect): -1,400,975 Exports of Apparel to U.S.: - $4.5 billion
Total Western Hemisphere
Job Losses (direct & indirect): -1,566,164
Eight year projection – note losses continue in following years. Figures do not include collateral damage to other textile sectors (industrial, home furnishings, military) which are likely to be significant as overall industry capacity declines. Many U.S. textile companies serve multiple sectors but require significant capacity levels in order to do so.
TPP - Duty Elimination/Phase Out SchedulesMany Scenarios . . . The Latest . . .
Products by HS code line item, categorized by perceived level of sensitivity, then placed into three baskets: “A” – Least sensitive products; immediate duty-free treatment “B” – Moderately sensitive products; 5 year linear duty phase-out “X” – Most sensitive products; currently about 80 HS codes,
representing nearly 70% of current US regional imports. Likely significant duty reduction day one (20 - 35%? off
prevailing rates), followed by a hold on residual tariff level for extended period: Knit apparel: 10 years, then immediate 0 duty rate Woven apparel: 15 years, then immediate 0 duty rate
Currently under discussion to be included in the “x” basket are mainly MMF knit and woven tops/shirts, woven bottoms, most Cotton knit tops, cotton underwear, cotton jeans, woven pants; some wool products.
O'Rourke Group Partners LLC 11
US Apparel Imports w/o TPPRegional & Vietnam Market Share
O'Rourke Group Partners LLC 12
Regional Market Share Stability Sets In following years of decline driven by Quota Elimination, with China Quota totally eliminated 2009, narrower cost gaps and fast fashion/QR demands.
US Apparel ImportsRegional/Western Hemisphere
O'Rourke Group Partners LLC 13
Assumes Total Annual US Consumption Growth of 2%.Assumes 2015/2016 TPP Signing/Implementation.Duty Reduction Schedule Announced/Known end of 2015.Assumes Vietnam double-digit labor cost increases thru 2018.
In our view, 20% or less Initial Duty Reduction is NOT likely.Such a reduction would likely result in 2018 volume of 4 billion SME.
Regional Stability/Recovery
Minimum Apparel Cost Reduction Potentials Given a 25% Duty Reduction
O'Rourke Group Partners LLC 14
Cost Reduction Points Where Brand Owner/Retail Importers Consider Sourcing Shift
China & Other Asia Suppliers Lose Share to Vietnam,as well as US REGIONAL PARTNERS
Source: OGP Apparel Importer Interviews
Most Vulnerable Categories Given 25% Duty Reduction
O'Rourke Group Partners LLC 15
US Imports
W. Hemisphere Vietnam Non FTA
LDP Cost Reduction Impacts IF 25% Duty Reduction in First Year
Million % % %
SME Share Share Duty
ALL Cotton Apparel > 2813 21.6 8.7 Currently
332Hosiery/socks 375.8 56.5 n/a 13.5 Moderate duty impact; limited category focus
352M/B Underwear 762.6 39.8 13.3 7.4 Limited duty impact but category is a target
338M/B Knit Shirts 628.4 54.3 5.3 16.5 - 19.7 Significant duty impact, but little men's focus
339W/G Knit Shirts/Blouses 355.4 28.2 14.6 16.5 - 19.7 Significant duty & category target
336Dresses 17.7 2.3 11.6 8.4 Limited duty impact but category target
347M/B Bottoms 276.4 25.6 6.4 16.6 Significant duty; denim target category
348W/G Bottoms 163.5 8.7 10.7 16.6 Significant duty; women's target category
340M/B Woven Shirts 48.1 7.3 7.3 19.7 Significant duty; denim & workwear target
341W/G Woven Shirts 6.5 3.2 6.8 15.4 Moderate duty but limited share to take
Total Above 2634.4
% of West Hemisphere Total 94%
Source: OTEXA; OGP Projection based on 9 months 2012 data; US Tariff Schedule 2012
O'Rourke Group Partners LLC 16
US Imports 2011
W. Hemisphere Vietnam Non FTA
LDP Cost Reduction Impact IF 25% Duty Reduction in First Year
Million % % %
SME Share Share Duty
ALL MMF Apparel > 1542 14.4 9.3 Currently
638 M/B Knit Shirts 478.8 60 7.3 32 Significant duty impact
639 W/G Knit Shirt/Blouse 149.3 18 15.5 32 Significant duty impact; category target
652 Underwear 136 18 5 10.5 - 15.6 Moderate duty impact; category target
647 M/B Trousers/Breech/Shorts 122 27 10.3 27.9 Significant duty impact
648 W/G Trousers/Breech/Shorts 82.4 21 17.3 28.6 Significant duty impact; category target
640 M/B Wov Shirts 59.1 44 1129.1¢kg +
25.9% Significant duty impact
641 W/G Wov Shirt/Blouse 13.4 5 13 26.9 Significant duty impact; category target
636 Dresses 47.5 3 14.8 16 Moderate duty impact; category target634 M/B Other Coats 47.9 12 16 27.7 Significant duty impact; category target
635 W/G Coats 28.7 6 18 28.2 Significant duty impact; category target
643 M/B Suits 1.8 13 10 27.3 Significant duty impact
659 Other Apparel 250 10 6.4
Total Above 1416.9
% of Total West Hemisphere 92%
Most Vulnerable Categories Given 25% Duty Reduction
Source: OTEXA; OGP Projection based on 9 months 2012 data; US Tariff Schedule 2012
Commercial Availability Short Supply Inputs – TPP Proposed
The TPP Agreement intends to allow for broader Short Supply inputs from non-TPP (third party) countries, whereby apparel could be made in a TPP country using non-TPP yarn and fabric.
More than 200 products were targeted (but not yet approved). US government intends to eventually segregate Short Supply
products into two groups: Permanent Short Supply Items – Little or no (US) production
exists and/or unlikely candidates for new investment. Temporary Short Supply Items – Those where significant
debate/controversy about products’ availability in US & TPP region, or potential for new investment in such products. Exempt for first 3 years, then revert to yarn forward
requirement.
O'Rourkei Group Partners LLC 17
US Trade Promotion Authority (TPA) Would grant President Obama “fast-track negotiating
authority” on international trade agreements. Administration desires to renew TPA in order to fast-
track the Trans-Pacific Partnership (TPP) trade agreement.
Congress would be required to approve or disapprove trade agreements, with no ability to amend or delay consideration.
NOT likely to go through. Surprisingly, both key Democratic and Republican
groups are now opposing presidential TPA.
O'Rourke Group Partners LLC 18
TPP Status . . . Momentum has slowed considerably. Multiple issues unresolved, beyond textiles/apparel. Japan focus is food-related and automotive. US government still insists a TPP will be in place by year
end. WON’T HAPPEN! Congressional approval will be required; much debate
and resistance expected. Most major participants see 2015/2016 before approval. Meanwhile, textile and apparel investment in Vietnam
continues, and market share grows.
O'Rourke Group Partners LLC 19
What’s going on here? More to come and why?
Gildan $250 million US expansion 3 Other US Yarn Spinning Mills Grupo Karim’s Denim (former ITG Nicaragua) Standard Textile (US towel expansion) Kayser Roth (socks) Culp (mattress covers)
O'Rourke Group Partners LLC 20
Re-Shoring/Near-Shoring & Still-ShoringNotable Regional Textile Investments
Re-Shoring/Near-Shoring ShiftsKey Drivers Remain . . . Net Product Cost relative to Quality and Cycle Time
Requirements--Can compete with Asia: Example Power Supply, efficiency + cost Money Supply, cheap + plentiful State Incentives + Support Beneficial Trade Legislation Fast Fashion: H&M, Zara, Turkey; US pays attention Lead Time/Inventory Requirements Technology Enabling Reduced Cycle Time/PLM Wal-Mart: $25 Billion in the decade? CSR Compliance; “flavor of the month”?
O'Rourke Group Partners LLC 21
Notable RTW/Active BrandsRe-Shoring/Near-Shoring or Still-Shoring
Karen Kane Nanette Lapore Nicole Miller Jason Wu Lafayette 148 Kayser Roth HSM Joseph Abboud AG Jeans Earnest Sew UjEANA Rag & Bone
American Apparel City Lights Fresh Produce Norma Kamali Lululemon Spanx Varsity Brands Teamwork Athletic Augusta Sportswear Wickers Under Armour King Louie
O'Rourke Group Partners LLC 22
Next Source Hot Spot: Ethiopia Textile + Garment Industry Growth: #1 Target for the
government. Private Sector is the driver of Industrialization strategy. Duty Free access to US + EU, 16 Bi-lateral FTA’s “Water Tower of Africa”; Organic Cotton Energy: 5 cents/kwh Labor: 25 cents/hour Financing: 70% loan to 30% Equity Creation of Industrial Zone by Turkish Companies AYKA ADDISS AKBE; $175 million.
O'Rourke Group Partners LLC 23
AAPN Member Considerations TPP: A “Watershed” for our Industry.
Get involved in the process or others will determine your fate.
Re-Shoring/Near-Shoring You already have the business model:
Easier, Faster, Safer, Better and Frequently, Direct Cost Competitive
Your “Rediscover the Americas” market development vision is spot on and the timing is right.
O'Rourke Group Partners LLC 24
O ’Rourke Group Partners, LLC109 N. Derby Avenue
Ventnor, NJ 08406
917-567-3540www.ORourkeGroupPartners.com
Roger J. [email protected]
O'Rourke Group Partners LLC 25
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