California Apparel News

The news coming out of Asia these days isn’t great for apparel importers.

First it was severe acute respiratory syndrome (SARS), the pneumonia-like illness that has killed more than 350 people. Now it’s container shipping rates from Asia to the West Coast, which are going up by as much as 40 percent.

The change comes at a particularly difficult time for the apparel industry, which has become increasingly reliant on overseas factories in China and other Asian countries to manufacture goods at cut-rate prices in a challenging retail environment.

“Everything that has been going on—from dock strikes to SARS and now this—is directly hurting our industry and squeezing the manufacturer,” said Ron Perilman, president and chief executive of City Girl Inc., a Los Angeles apparel company that manufactures misses and contemporary lines including City Girl by Nancy Bolen, Ruby Cho and Marie St. Monet. The company, whose revenues exceed $40 million a year, now imports 90 percent of its apparel from overseas compared with only 10 percent two years ago.

But the world’s major shipping companies, from Maersk Sealand to Evergreen Marine Corp., said they have been squeezed, too.

Last year was an abysmal year for the shipping industry, which was plagued with an oversupply of ships. The lockout of dockworkers at West Coast ports last fall and a sluggish economy in 2002 created a dearth of cargo for the hundreds of ships that ferry between Asia and the United States.

Ocean carriers wanted to raise rates last year, but the supply- and-demand factor stymied that idea.

But this year, companies announced they would raise their freight rates on May 1, 2003, to approach what they had been getting in the late 1990s when the economy was booming.

Shipping lines on average have been charging $1,400 to $1,800 per 20-foot equivalent container unit (TEU). That will increase another $525 per TEU and $700 for a 40-foot equivalent container unit (FEU) shipped to the West Coast.

Containers sent inland will see the rate hiked an additional $675 per TEU and $900 per FEU.

“Our rates are still down from the average rate we charged in 1999,” maintained Scott Dailey, a spokesman for global container carrier American President Lines.

Price deflation

That’s not much consolation for manufacturers who feel they cannot pass any cost increases to retailers, who already are pinching pennies and demanding cut-rate prices.

“This is the only industry where we are having a deflation in pricing,” said Perilman, whose staff has shrunk from 140 to 61 employees in two years as the company has trimmed costs and moved production overseas. “Every time we walk around, we are having to drop prices. In the end, the consumer doesn’t care. They are being shown things at cheaper and cheaper prices, and they still aren’t buying.”

That was evident in year-end sales results at several national department-store chains. Federated Department Stores Inc., parent company of Macy’s and Bloomingdale’s, saw a 3.0 percent decline in same-stores sales in 2002. May Department Stores Co., whose stores include Robinsons- May, saw net sales decline 2.8 percent in fiscal 2002.

Gene S. Kahn, May’s chairman and chief executive officer, said 2002 was a disappointing year for the nationwide retailer.

In such an economic climate, manufacturers are feeling the heat to maintain rock-bottom prices.

“It is really, really tough to go and raise the price on the retail stores right now,” said John Inn, co-owner of Bubblegum USA. “There is always someone who is willing to sell it cheaper.”

The Los Angeles–based juniors company does most of its manufacturing overseas.

“It will definitely hit my bottom line,” Inn added.

Getting creative

The shipping-rate increase is forcing apparel manufacturers to be more creative in their cost-management efforts.

Some are trying to negotiate freight rates that will be slightly lower than the average 30 percent. Others are shopping around.

“We are getting rate estimates from everyone, from old companies to new companies,” said Ed Redding, executive vice president in charge of importing and sourcing at John Paul Richard Inc. in Calabasas, Calif. “We’re looking at different ports to see where the best rates might be. Hopefully, by shopping around, we might be able to lessen the blow.”

Other manufacturers are hoping to negotiate better prices with their textile and trimming suppliers. Some may shift to manufacturing in other regions of the world.

“If people are paying a few extra cents per $40 to $50 sweater, that’s no big deal,” said Ilse Metchek, executive director of the California Fashion Association. “But if they are paying a few extra cents on a $2.50 T-shirt, that’s another issue. In the end, it might be cheaper to manufacture in Mexico or Honduras than in China.”However, there might be some cost-saving solutions that importers can undertake.

Robert Krieger, president of Norman Krieger Inc., a Los Angeles customs broker and freight forwarder, suggested that this is a good time for businesses to review how they ship their freight.

“Even though the rate has gone up,” he said, “you may be able to utilize more cubic meters in a container or ship less loose freight or use carriers that are slower but cost significantly less.”