Footwear Insight

40 • Footwear Insight ~ July/August 2021 footwearinsight.com ANALYSIS Supply & Demand By Bob McGee T h e footwear indus- try's tireless efforts to separate itself from other market sectors — lumber and computer chips to name two — in the persistent battle against negative supply chain factors suffered a major blow in mid-July. That's when Pou Chen Corp., part of the largest global manufacturer of ath- letic and casual shoes for international brands in Yue Yuen Corp., suspended operations within its Pouyuen Vietnam factory for 10 days due to an outbreak of COVID cases among its workers. Another Nike contract footwear maker, Chang Shin Vietnam Co. Ltd., also halted manufacturing, and reports of other major brands and companies—Adidas, New Balance, Wolverine Worldwide and Puma among them—being potentially impacted by the situation began to surface along with mounting worry over whether all holiday season and Spring 2022 footwear orders would be delivered to North American retailers. In a statement to Yahoo Finance, Nike, expressed confidence in its ability "to maneuver around" any supply chain setbacks. But long before this latest setback, even before the global pandemic commenced in Q1/20, supply chain was a hot button issue within the footwear industry, and many other sectors for that matter. As footwear retailers complained about late de- liveries and the inability to re-order key styles that were selling through vigorously, vendors scrambled for end arounds to emerging problems. Among them: rising container costs and shortages; port congestion; de- clining available space in warehouses, terminals and distribution centers for housing landed products; and looming rising costs for raw materials such as rubber and resins. "The past 18 months have been chal- lenging for procurement professionals," the website SupplyChainDive recently wrote. "Kudos to those who main- tained supply lines and kept their companies viable and their customers happy." On July 9, Pres. Biden signed an Executive Order asking the Federal Maritime Commission (FMC) to investi- gate practices in the shipping industry and how they are driving up freight costs. While satisfied with the presi- dent's action, the American Apparel & Footwear Association (AAFA) wants the federal government to do more. Currently, the shipping sector sees no relief in the current pricing environ- ment before 2022, which was initially sparked by retailers and manufactur- ers dashing to replenish inventories depleted during the pandemic. By most accounts, shipping lines bet incorrectly at the pandemic's onset by anticipating a recession where demand for goods would wane, thus slashing demand for shipping ser- vices. That scenario did not transpire and consumer demand accelerated. Now, supply chain experts suggest it will take time and investment to build new capacity and expand ports. Through May, container shipments to U.S. ports were up double-digits year- over-year, including a projected 33.8 percent hike in June, and forecasted to increase nearly 17 percent for the full year to 22 million Twenty-Foot Equivalent Units. In mid-June, the AAFA wrote President Biden, urging short- and long-term solutions to the shipping crisis, including the elimination of pu- nitive tariffs on China and the renewal of Generalized System of Preferences (GSP) and the Miscellaneous Tariff Bill (MTB) that temporarily reduces or suspends import tariffs paid on particular products. "This year, instead of getting better the shipping crisis has only gotten worse—leaving critical industries with- out key inputs, creating substantial delays that threaten to leave store shelves empty, and imposing significant new costs on companies at a time when they can least afford it," wrote Steve Lamar, President and CEO of the trade group that represents more than 1,000 brand names in footwear, apparel and accessories. "Container rates are 4x higher than typical," Matt Priest, CEO and President of the Footwear Distributors and Retailers of America (FDRA) recently told Footwear Insight. "And they won't likely recede any time soon." Consider this: According to the Freightos Baltic Index, the average cost to ship a container from China to California in late June was $6,043, up 43 percent since the beginning of 2021 and 344 percent since the start of 2020. Meanwhile, another firm, UK- based Drewry Shipping Consultants, pegs current container shipping costs to West Coast ports at closer to $12,000 with some companies being assessed $20,000 to get their products on an outbound vessel at the last-minute. In early July, Priest pointed out that the number of container ships sitting Supply Chain Issues Will Remain A Major Concern Into 2022 Key season- al product deliveries may be delayed or met with fewer pairs, particu- larly those from small- and mid- sized vendors. However, there should be less discounting and promotional pricing in the months ahead, which means higher margins on what is sold through at retail. Higher freight costs and con- tainer short- ages are likely to persist into 2022, resulting in higher costs for footwear importers that will most likely be passed on, in some measure, to consumers. With in-demand product in short supply, fash- ion-savvy con- sumers will be forced to move more swiftly if they want to snare the latest and great- est footwear introductions.

• Cover