 With half of all global businesses suffering supply chain disruptions in 2021 (McKinsey) it’s no wonder that apparel companies are rethinking their supply chain. The apparel supply chain is drastically behind in technology adoption and the disruptions of 2021 exacerbated this failure to innovate. Are things improving? Let’s take a closer look at where the supply chain is headed in 2022. Fashion's Supply Chain is on the Move Many apparel brands have already been seeking options outside of China the last few years as they've been pressured to avoid the human rights abuses from shoppers and new government regulations. But with the constant supply chain shutdowns over the last two years, the need to have their clothing made closer to home has become a top priority. According to McKinsey’s 2021 Survey, 71% of the Chief Procurement Officers reported their plans to move up to 25% of their supply chain nearshore. This means countries outside of Asia like Turkey, are being ranked in the top five most promising sourcing locations for the first time in over a decade [behind Bangladesh and Vietnam and displacing Myanmar, Ethiopia, and India]. This dramatic shift in sourcing can be attributed largely to the astronomical increase in shipping costs which has risen six times from China to Europe and ten times to the US West Coast since the beginning of the pandemic (McKinsey). “Harbor shutdowns, port congestion, container shortages and capacity issues in sea and air freight are putting the fashion industry under massive pressure,” Karl-Hendrik Magnus, a senior partner at McKinsey and the leader of its Apparel, Fashion & Luxury practice, said. “For the first time, shipping disruptions are becoming the biggest cost driver.” So when you couple this with the aforementioned geopolitical factors such as the Uyghur Forced Labor Prevention Act (legislation that bans imports from Xinjiang) and incoming environmental regulations (such as the EU’s proposal for a world-first carbon border tax and new restrictions on emissions from ship engines) and nearshoring suddenly becomes the only option. The Pros and Cons of Nearshoring for Apparel Brands Nearshoring has many advantages, the most obvious being shorter shipping times and significantly lower shipping costs. Having your supply chain close by also enables real time communication with vendors and makes factory visits much easier enabling you to strengthen relationships and have greater oversight on production. Not to mention the social and environmental benefits: fewer greenhouse gas emissions, greater visibility over ethical factory standards, and improved traceability. However, nearshoring does come with some drawbacks: wages may be less competitive and a lack of skilled labor may require significant investment to build capacity. Nearshoring also doesn’t solve the problem of raw material shortages which are currently one of the biggest factors in production delays. Where are Apparel Brands Moving Their Supply Chain? Eastern Europe and Northern Africa is the preferred option for Western European companies. Benetton has already started shifting their supply chain from Asia to Croatia, Hugo Boss to Poland and Turkey, while Inditex (Zara’s parent company) is now sourcing from Morocco and Turkey. Turkey is a popular choice due to its strategic location (between east and west), its skilled workforce, access to raw materials and diverse product offering. It also accommodates low minimum order quantities which is great if you are an emerging brand. It's worth mentioning that Portugal is another popular nearshore destination with a skilled workforce, closer time zone and communication practices in addition to the obvious benefits of closer shipping routes. US companies are considering Central and South America for nearshore activities due to its proximity, strong labor market and advantageous free trade agreements. Textile exports from this region have already risen 56% since 2020 and are only expected to continue (Sourcing Journal). Spurred along by the Biden Administration, private companies are investing in infrastructure in the region to create employment. Parkdale Mills - a North Carolina based manufacturer which produces spun yarn and cotton products- is one such company. It has plans to invest $150 million in a new spinning facility in Honduras that will shift 1 million pounds of yarn per week away from supply chains in Asia making it an attractive nearshore hub. Nearshoring not only does it make economical sense but it also has the potential to be better for people and planet. THR3EFOLD is dedicated to helping you establish a strong ethical supply chain. We can connect you with our growing list of ethically certified factories based nearshore in Europe, and Central and South America. Our digital platform makes it easy to track production and communicate with factories.
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