California Apparel News

LONG BEACH, Calif.—One nugget of good news for apparel and textile importers is that shipping rates along the Asia–to–Los Angeles route should remain at bargain-basement prices for the next few years.

On the spot market, the cost to send a 40-foot container across the ocean from Hong Kong to Los Angeles/Long Beach, Calif., was only $2,085 from mid-January to mid-February. That rate slipped to $1,986 in the third week of February. Compare that to May 2012, when the spot rate was $2,337 for a 40-foot container.

Spot rates are last-minute cargo rates that are usually higher than contract rates negotiated every year between shippers and carriers. Contract rates have been hovering around the $1,400–per–40-foot container mark this last year.

That was the message at the 14th annual Trans-Pacific Maritime conference, held March 3–5 at the Long Beach Convention Center. Hundreds of shippers, truckers, freight logistics specialists, customs brokers, port officials and other transportation-related executives gather at the event every year.

Panelists at the conference noted that rates have remained low because shipping lines have been ordering a slew of new and bigger ships that can carry more cargo containers than the smaller ships used in the past. The bigger vessels mean more-efficient operating costs that reduce fuel consumption per cargo container and handling expenses. Yet demand to use all that vessel space hasn’t caught up with the supply, pushing freight rates down.

New ship deliveries this year will total 1.6 million 20-foot containers, or TEUs, which is a 7.6 percent increase in global capacity. Many of those ships will be able to transport between 10,000 and 18,000 cargo containers.

Yet worldwide cargo-container traffic is expected to only grow at 4 percent to 5 percent in 2014. Michael White, Maersk’s president for North America, said younger ships are being scrapped to make way for the new models. “It is clear that carriers have to take advantage of new technologies,” White said. “The larger vessels will bring about a better economy of scale and fuel economy. If you look at other dynamics, you still have container carriers scrapping vessels that are younger than 20 years old. It is up to all the carriers to deploy capacity in a more agile way for the demand we expect to see.”

Because of the lower cargo rates, many of the shipping lines have not seen a profit in several years. One exception is the Danish shipping line Maersk, the world’s largest container shipping line. It recorded a $1.5 billion profit last year, up from $461 million in 2012.

To save money, many of the shipping lines are forming alliances to share vessels along the various ocean routes. The G6 alliance of APL, Hapag-Lloyd, Hyundai Merchant Marine, Mitsui O.S.K. Lines, NYK Line and Orient Overseas Container Line will travel the trans-Pacific and trans-Atlantic routes. Their alliance is awaiting approval by the U.S. Federal Maritime Commission.

The shipping alliance that will impact the West Coast and the trans-Pacific route the most is the P3 alliance of Maersk, Mediterranean Shipping Co. and CMA CGM. They should start sharing vessels by the middle of this year.

Imports and exports growing

U.S. demand for goods is slowly coming back. Mario Moreno, the economist for the Journal of Commerce, which organized the conference, forecast that U.S. containerized imports will rise 5.9 percent this year to about 19 million TEUs, which is ahead of the 18.4 million record set in 2006. “This will be a new peak,” he said.

One of the product categories that grew nicely last year was footwear, Moreno said. “Last year, footwear imports rebounded 6 percent after a contraction of 12 percent in 2012,” he noted.

The economist said that imports of furniture, household items and auto parts were strong between Asia and the West Coast. But he believes furniture and home-furnishing imports will be down this year because home sales are not expected to be as vigorous with rising mortgage rates and a dwindling supply of housing.

Auto parts should remain a strong category this year because there is so much pent-up demand to buy new cars. In the United States, the average age of a vehicle on the road is 11 years.

Total U.S. exports are predicted to increase 1.8 percent to more than 12.2 million TEUs.

All the economists speaking at the event agreed that 2014 is shaping up to be a positive year for growth despite a few months of severe weather in the Northeast and the Midwest. “2014 has everything going for it but weather,” said Walter Kemmsies, chief economist for Moffatt & Nichol, an infrastructure consulting company.

He sees Europe and Japan’s economies recovering and emerging markets stabilizing. And the United States has regained its role as a key economic force in the world. “The U.S. regained its economic leadership in 2011, and everyone has to look to it,” he said. “The one person you should be listening to is [U.S. Federal Reserve chair] Janet Yellen and the Federal Reserve. [Yellen] holds all the cards on how things could pan out for the next year to year and a half.”

Economists were urging businesses to focus on exports to grow their bottom line. That’s because large sectors of the populations in Europe, Japan and the United States are aging and will be purchasing fewer products as they retire. “I call it the gray tsunami,” Kemmsies said. “But if you can hook your business to what is going on in Asia, you will do very well.”

New frontiers in sourcing

With wages in China approaching those in Mexico, many manufacturers are reconsidering their sourcing strategy and searching for new spots where they can make their products. Some calculate that if Chinese wages continue to go up and freight rates rise, the cost of producing goods in the United States could be on par by 2015 with the cost of manufacturing in China.

According to a survey conducted by AlixPartners, a business advisory firm in New York, many executives believe that the United States and Mexico look more attractive for manufacturing than they did years ago. “Not long ago, getting things across the border from Mexico was problematic,” said Foster Finley, a managing director at AlixPartners. “Now there are all sorts of systems, such as Pacer, a logistics company, that make near shoring possible.”

Manufacturers are also taking into account the two to three weeks it takes to move goods across the water from Asia and the duties paid to import merchandise. The average tariff on a piece of clothing is 17 percent. “The inventory cost of carrying goods across the water is not trivial,” Foster said.

Still, when it comes to producing low-cost goods, many manufacturers are heading to Vietnam. The Southeast Asian country has been making more footwear than in the past and is now the No. 2 supplier of apparel to the United States. Last year, Vietnam’s apparel exports to the United States grew by 13.3 percent.

“Vietnam is really critical,” said Julie Hughes, president of the U.S. Fashion Industry Association. “I don’t see it replacing China, but a lot of production is headed to Vietnam.”

One advantage Vietnam carries is that it is part of the Trans-Pacific Partnership, a free-trade agreement between the United States and 11 other countries that is still being negotiated. Once the free-trade agreement goes into effect, goods from Vietnam will be duty-free. That is a clear advantage over China.

Footwear production is also being shifted to Vietnam. Matt Priest, president of the Footwear Distributors and Retailers of America, said 81 percent of the shoes imported into the United States last year came from China, compared with a high of 92 percent several years ago. Vietnam now accounts for 10 percent of all shoes that come into the United States.