I feel pretty dumb these days. Help me.
Here is my dilemma: The prices of clothing imported into the United States are falling, and precipitously at some major suppliers, while the prices paid by consumers for the clothing are increasing. You may ask, so what? But I wonder if there is more to the story. We will take a look.
I am not surprised that the prices paid for clothing by consumers in the United States have increased this year. No wonder when I consider all the press on knotted supply chains, labor shortages, Covid lockdowns, and lack of shipping and trucking capacity. In fact, consumer clothing prices are up at a rate of 4.2% for the 12 months ending in August, according to the Bureau of Labor Statistics. In other words, it is a sign of inflation.
And as we all know, most of the clothing sold in the United States is imported. So I looked at the latest import statistics released by the Textiles and Clothing Bureau of the Department of Commerce (OTEXA) and did a little detective. Here’s what I found: Based on OTEXA data, clothing import prices moved in the opposite direction to consumer prices, falling 9.3% for the 12 months ending in July compared to the same period in 2020. This relates to clothing imports from the world in total.
A puzzling evolution
Does this make sense? It may have something to do with diversifying their supplies outside of China, forcing Chinese manufacturers to cut prices to keep their customers. Wow, and have they ever cut prices: The prices of clothing imports from China are down 17.3% for the 12 months ending in July. Additionally, Chinese exporters are grappling with Trump-era tariffs averaging 7.5% on top of regular tariffs, which further adds to my bewilderment.
While imports have slowed since the heady days before Covid, China remains the largest supplier of clothing to the United States. In fact, China continues to dominate the US apparel market, holding nearly 37% of total US imports in this sector for the 12 months ending in July. Which begs the question: what about everyone? Well, clothing prices in the rest of the world are down 6.8% for the same 12 month period ending in July.
I have heard economists say in the past that you treat the relationship between import prices and consumer prices with some caution. This is because there is some uncertainty in any correlation between the two. I agree that you have to be careful when comparing different data sets. The collection, timing or compilation of this data may be based on a different set of assumptions.
Maybe the dollar’s exchange rate has a role to play?
Despite this, I wondered if a strong US dollar had contributed to the drop in import prices. Indeed, foreign contracts are often priced in the local currencies where the clothes are made. A stronger dollar, in this case, will cause the prices of imported clothing to drop when measured in dollars. Although the US dollar has strengthened against foreign currencies in recent months, it is still lower than a year ago. So, no more puzzlement on my part.
What also intrigues me is the increase in raw material costs. Fiber prices are on the rise. Cotton continues to exceed the $ 1 per pound levels and polyester, as you would expect, follows cotton on the upside at the same time.
What about the higher shipping costs?
I have also heard a lot about the increase in shipping costs. Of course, there are many reasons for the rising costs, ranging from a lack of port workers to extraordinary demand. The result? There is not enough shipping capacity to meet demand. Hence the higher prices. According to a recent Wall Street Journal article, “The average worldwide price for shipping a 40-foot container has more than quadrupled over the past year, reaching $ 8,399 as of July 1, according to a world price index compiled by Drewry, based in London. Shipping Consultants Ltd. The measure has jumped 53.5% since the first week of May. Prices listed for shipping from China to major ports in Europe and the US west coast are closer to $ 12,000 per container, according to Drewry’s measure, and some companies say they have to pay $ 20. $ 000 for last minute deals to move goods on outgoing ships.
A missing piece of the puzzle?
So what am I missing? There must be a logical explanation for this. Then it occurred to me. It may sound bizarre, but it is relevant: the import data I mentioned above is for “general imports”, that is, the declared value of goods. excluding insurance, tariffs and freight. But maybe we would see big increases in unit prices if we included the value of general imports and insurance, tariffs and freight. Only that we don’t. Unit prices are still falling.
So, I am puzzled. Either there are a lot of subsidies floating around the world, or companies somewhere in the supply chain are reaping the profits. So somebody, somewhere, fills the void or turns it into a profit. It’s too easy (and unfair) to simply blame greedy brands and retailers. After all, they’re struggling to get their products into the country in the first place. So, something else must be happening.
What about foreign manufacturers? Maybe suppliers share the higher shipping cost etc. ? Or maybe government grants have helped businesses compete better in a hyper-competitive market? I am not so sure. After all, prices in the consumer market are rising and not falling. Or maybe this is the effect of private label sourcing of products directly to consumers? In theory, these items would cost less than products sold in-store through traditional supply chains. But even these products would be affected by the higher shipping costs.
Then I do not know.
Robert Antoshak has over 30 years of experience in the fiber and textile industries. He has held senior positions at the Fiber Economics Bureau as Editor-in-Chief of Fiber Organon, American Fiber Manufacturers Association as Director of International Trade, American Textile Manufacturers as Associate Director of International Trade, Trade Resources Inc. in as President, Werner International as Vice President, INTL-FCStone LLC as Managing Director of Fibers & Textiles and most recently as Managing Director of Olah Inc. Antoshak is a founding member of Vidalia Mills in Louisiana and senior advisor.