NEW YORK—We all remember the logistics nightmare during the pandemic. Well, the bad news is that the logistics problem has not gone away.
NEW YORK—We all remember the logistics nightmare during the pandemic. Well, the bad news is that the logistics problem has not gone away. The lead-times and cost per kilogram for freight may have come down slightly, but shipping costs are still a significant percentage of the cost of goods (COG) for any brand. Furthermore, the commercial vessels transporting goods around the world have recently experienced attacks by bombs and drones indicating that trade-route instability is not only still in our future, but that it can be perilous at times. For instance, the unrest in the Middle East due to the Israel-Gaza war has caused Houthi rebels to fire on commercial ships in the Red Sea on route to and from the Suez Canal. A Maersk ship was fired upon, causing the U.S. Navy to intervene and fire back*(1).; the future is uncertain due to both world unrest and global warming.
The easiest and most logical way around this—as well as the ecologically responsible way—is to source as locally as possible in order to contain your supply chain within a region. For example, if you are producing garments in China, then all the components that go into the garments—e.g., the fabric, buttons, thread, labels, and the zipper—should be sourced as close to the factory as possible. It does not make sense to buy components from all corners of the globe if the goal is to reduce lead-times, costs, and more importantly reduce global emissions. While one-stop shopping in China is the easiest thing to do (of course if you know the right people), it is much harder to source certain components in other parts of the world. What is more important than ever now is to support, train, and upgrade raw-materials suppliers in less vendor-dense regions in order to create a same quality end product outside of the production hub that is Mainland China.
An example of regions primed for production growth are Central and South America. Both regions are full of highly skilled factories and workers with generations of experience and know-how, producing a range of products like casual-wear, swimwear, and athleisure, to cut and sew (e.g., dresses, shirts, pants), as well as outerwear, denim, and especially intimates.
While there are not as many mills in South America as there are in China, the mills that do exist have continued to improve their quality; further, they are constantly expanding their weaving and knitting techniques to rival the mills in Asia. Non-fabric sourcing (e.g., buttons, trims, and zippers) in Central and South America has traditionally been difficult. This is a domain where we need to invest in component manufacturing; it would behoove Asian companies to create partnerships with factories in the region in order to produce the same or similar products, thus diversifying their networks and client-bases.
The United States is an interesting case. Prior to the 1990s, there was a great deal of production in the U.S. for both finished garments and raw materials. Due to the creation of NAFTA under President Ronald Reagan, the exodus of manufacturing contracts was swift and severe. Then, during the George H.W. Bush era, the World Trade Organization was created using NAFTA as a template. The WTO initiated many bilateral trade agreements, the most important of which was with China. This was the death knell for U.S. manufacturing; if any factories were still operating, the WTO ensured that they wouldn’t survive.*(2).
The pandemic was a wake-up call, and today American manufacturing is working to make a comeback. Many entrepreneurs are starting to set up next-generation factories with focuses on low emissions, digitization, customization, and localization, to name a few. Once the whole supply chain loop can be as localized as possible, the volume of transporting goods across the globe will come down. If centralization trends like these prove to have staying power, this will be the key to reducing logistics costs for brands in the future. We need to enable raw materials suppliers all over the world to elevate and thrive.
At Angora Group we emphasize this localization approach to our clients, and make it a point to set up a new supply chain in the most efficient way possible. This avoids a costly factory relocation down the road. While this strategy surely takes more due-diligence at the outset, by working directly with the majority of factories in a selected region, we are able to streamline costs, avoid agents, and establish a company with a solid foundation. This also drives business to a whole region, which ensures all partners stay in business. This is key for us, because our goal is to preserve long-term working relationships with partners and create opportunities for them in new ways.
Citations:
- *(1): https://www.epi.org/blog/nafta-twenty-years-disaster/
- *(2): https://www.epi.org/blog/nafta-twenty-years-disaster/
- Cover & thumbnail image by: Reproductive Health Supplies Coalition via Unsplash
