A pending free trade agreement involving the U.S. and 11 other Pacific Rim countries could jeopardize mainland China’s dominance in producing apparel for U.S. consumers.
Vietnam is the country best poised to gain apparel market share in the U.S. if the Trans-Pacific Partnership is completed, according to a Reuters analysis. The agreement, which excludes China, would make U.S. apparel imports from Vietnam duty-free, lending added momentum to the country’s growing competitiveness as a producer nation, driven partly by rising Chinese labor costs.
Vietnam has an established infrastructure for apparel production, and its supply chain efficiency is improving, said JOC.com Economist Mario Moreno.
Negotiators working on the TPP agreement are in Hanoi, Vietnam, this week in an effort to complete the proposed pact by the end of this year. Participating countries are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S. and Vietnam. The participating countries make up about a third of global trade and 40 percent of global GDP.
Apparel exports from mainland China accounted for 32.5 percent of U.S. imports in the first half of 2014 compared to the same period a year ago, according to PIERS, the data division of JOC Group. China’s share of total U.S. apparel imports inched up 0.4 percent within the same period.
Vietnam, the second-largest source of U.S. apparel imports via ocean container, saw its share rise 1 percent to a 12 percent share in the first six months of this year compared to the same period in 2013. Bangladesh is the third-largest source of U.S. apparel imports, followed by Indonesia, Hong Kong, Cambodia and Honduras. Hong Kong’s figures contain many shipments originating in mainland China.
Garment makers are also looking to source more from Myanmar, with the most recent entrant being San Francisco-based Gap. Following the repeal of some U.S. sanctions in 2012, Myanmar has attracted the attention of third-party logistics companies, including Kuehne + Nagle and Yusen Logistics, many of which are serving apparel shippers.
U.S. containerized apparel imports were down 17.2 percent year-over-year in the first half of 2014, according to PIERS statistics. On a year-over-year basis, imports were down 17.9 percent in the second quarter and 16.5 percent in first three months of the year.
“A major driver of apparel imports is disposable income mainly because ordinary clothes aren’t luxury goods,” Moreno said. “Since 2006, growth in real disposable personal income has flattened, and despite the recent decline in unemployment rate, wage growth has been disappointing.”
The third-quarter statistics on U.S. apparel importers will be revealing, as they could show how confident retailers are that shoppers will buy for the back-to-school and winter holiday seasons. There are indications that the majority of holiday good have already made their way through the ports and are in transit to distribution centers, and eventually, store shelves. If that is the case, then the lack of a new U.S. West Coast longshore contract is less of a threat to retailers’ seasonal inventory buildup.