California Apparel News

U.S. apparel manufacturers have started to see last year’s elusive shoppers begin to replenish their closets—and overseas factories are busy pumping out clothes for stores that in March saw double-digit sales increases over last year.

But the result is mounting delays in shipping those trendy blue jeans, jeggings and military-style jackets from overseas producers to the United States.

While consumer spending began to pick up toward the end of last year, container lines, air cargo companies and airlines have been reluctant to add more cargo capacity until they are sure the economic recovery is real.

These companies also are trying to make up for the mountain of debt they incurred over the last two years as freight rates plummeted during the deep recession.

The result is reduced carrying capacity and skyrocketing freight rates. “It went from a total buyers’ market to a sellers’ market, just in the last couple of months,” said Robert Krieger, president of Krieger Worldwide, a customs broker and freight forwarder in Rancho Dominguez, Calif., with several apparel clients.

Delays of as much as one to two weeks as cargo sits on docks or warehouses are not uncommon. One Southern California apparel manufacturer who had a large order with Target Corp. recently saw his ship leave Asia three days late. With his merchandise arriving late at the retailer’s warehouse, Target socked him with an 8 percent chargeback on his invoice, turning his thin profit margin into a loss.

“It’s a mess out there,” said Ruth Siapkis, a logistics expert with OIA Global Logistics, whose Los Angeles office has a number of apparel clients.

If a dearth of cargo capacity weren’t enough, container lines are sailing slower to save bunker fuel, and the federal government is requiring that by Aug. 1, 100 percent of all air cargo hauled on passenger planes flying in and out of the United States must be screened for security purposes.

“We are saying it could be a perfect storm,” Krieger said, noting that August is one of the busiest shipping months as back-to-school and holiday goods flood into stores.Recouping losses

Freight haulers are coming off some of the worst years in recent memory. The shipping industry—whose members include huge container lines such as Maersk Line, Mediterranean Shipping Co., APL and Hanjin Shipping Co.—was bleeding money last year with losses estimated at between $15 billion and $20 billion.

Last year, thousands of container ships, or about 10 percent of the world’s fleet, were anchored in waters off the coast of Singapore or the Philippines, as demand dwindled.

Even with fewer ships on the sea, ocean freight rates dipped to unprecedented lows. Last year, a 40-foot container could be sent over the ocean from Hong Kong to Los Angeles for as little as $800.

But container lines are working hard to fill their coffers again. Freight rates are now up to about $2,200 to ship a 40-foot container from Hong Kong to Los Angeles and could go up if capacity gets scarcer. Ships are slow steamed across the ocean to sip less bunker fuel, adding anywhere between one to three days to a trans-Pacific journey.

Container lines have also delayed taking delivery of new and bigger ships ordered several years ago when times were better. Some are swapping out their orders. Instead of buying a brand-new ship that carries 10,000 20-foot containers, they are opting for a smaller ship with an 8,000-container capacity.

“Shipping lines have to be convinced that this demand is not temporary for them to incur the costs of bringing idle equipment back into service,” said Paul Bingham, an economist who tracks the shipping industry for IHS Global Insight in Lexington, Mass.

IHS Global Insight sees inventory growth continuing up to the end of the second quarter, perhaps, but it does not believe it will last until the end of the year.

“Inventory was drawn down sharply during the recession. Once you are restocked, you don’t continue to do that,” Bingham said. “So you get a bit of a swing out of the recession.”

That uptick in inventory building led to a 28 percent increase of international air cargo in March carried in the belly of passenger planes, according to the International Air Transport Association. But airlines increased their international carrying capacities by only 5 percent during that same period.

That reduced capacity is due to thousands of planes, most of them larger passenger and freight planes, that were relegated during the recession to desert parking lots to wait for better times. The flat lands of Victorville and Mojave, both in California, are populated with shiny jetliners sitting wing to wing waiting to be commissioned. Instead, airlines began packing the bellies of passenger planes with cargo, but with fewer passengers, airlines started flying smaller planes.

“A lot of passenger airlines took all of their cargo planes that haul only freight and ate a lot of fuel and parked them in Victorville or other desert oases,” said Guy Fox, president of Guy Fox & Associates, an air cargo consulting firm in Southern California. “But it takes a while to put them back in service—a lot of mechanical work that takes two to three months to be certified [by the Federal Aviation Administration].”

Fox noted that Cathay Pacific, based in Hong Kong, is bringing back three freight planes but they won’t be up and running until August.

Consequently, tight air space has resulted in skyrocketing air freight rates up a minimum of 30 percent over last year.

Michael Weisberg, chief executive of Second Generation Inc., a juniorswear company in Vernon, Calif., that makes the BeBop label, said his biggest challenge right now is mushrooming air freight rates. “I think they are now $5.50 to $6 a kilo, which is 30 to 50 percent higher than six months ago,” he said. That adds as much as $3.50 to $4 to the cost of a pair of jeans, compared with $2 last year. “That’s a lot in the moderate juniors world,” Weisberg said. New security measures

One other concern in the air freight world is the congressional mandate that 100 percent of all air cargo loaded into the belly of passenger planes flying in and out of the United States must be screened to make sure explosive devices and other dangerous items are not inside.

That is up from the recent May 1 mandate that 75 percent of air freight must be screened.

Some shippers are worried this is going to cause a backlog in getting goods on planes. The Transportation Security Administration admits there might be a few glitches in the beginning, especially at larger air hubs, but it is working with freight forwarders and airlines to alleviate any problems.

Freight forwarders and companies shipping their own goods can get a TSA certification under the Certified Cargo Screening Program, which lets them screen cargo so the goods move onto planes faster. To get a certification, TSA must inspect a company’s facilities and verify required security guidelines. Cargo must be secured from the time it is screened until the time it is loaded.

TSA spokesperson Jim Fotenos said 650 facilities in the United States have received the certification. “We are not anticipating significant delays,” Fotenos said. “But at major cargo gateways, there may be slight slowdowns. We are working with airlines and the Certified Cargo Screening Program to minimize the delays.”