Pressures in China Abating

Pressures in China Abating
Some vendors say factories prices are easing up in China.

LOS ANGELES — One upside to the global recession is that footwear production and shipping costs are heading downward — at least temporarily.

Vendors interviewed last week said shipping rates, component expenses and factory costs, which had been on the rise, are now declining.

“When you look at the supply chain and what’s happening with the recession, rates are being reduced globally and every part of that supply chain is affected,” said Matt Priest, the newly minted president of the Footwear Distributors & Retailers of America. “I don’t think there’s any kind of manufacturing base that hasn’t been hit. Orders are reduced and trade is down.”

Many vendors were reluctant to go on the record out of fear of appearing opportunistic during a difficult time. But one athletic shoemaker, who asked not to be named, described a dramatically changed manufacturing climate. For the first time in years, Chinese workers are standing outside factories looking for work, he said. What’s more, the migration of factories from Southern China to the rural North has come to a halt as business has declined.

Opinions differed on how much factory rates are declining, but Priest said anecdotally, he’s heard between 20 percent and 40 percent.

But Joe Ouaknine, CEO of Titan Industries Inc., said better-grade factories are offering less-generous deals, at around a 10 percent discount. “They don’t have as much work, so they’re willing to work with you,” he said.

But Nate Herman, senior director of international trade for the American Apparel & Footwear Association, said some of the best producers are actually faring quite well and not lowering prices. “A significant number of factories have closed, so what has happened is that footwear companies are trying to find what they believe to be the most reliable suppliers,” he said. “Certain suppliers have seen an uptick, so they don’t feel they need to lower their prices at all.”

Regardless, all agree that getting shoes to the U.S. is cheaper for the time being.

According to a monthly ports report from the National Retail Federation and IHS Global Insight, container volume at U.S. ports was down 31.3 percent in February from a year ago. Also in February, U.S. ports handled just 847,832 units, the lowest number since March 2002. A year ago, the ports transported 1.23 million units.

“Shipping rates are definitely down, and capacity is also shrinking,” said one anonymous vendor. “In June, we’ll negotiate next year’s contract, and it’s easier to negotiate better rates when times are bad.”
However, Priest said ocean freight carriers also are scaling back on the number of ships they operate and taking other measures to keep demand for space competitive.

That is why Ouaknine was disinclined to make too much out of seemingly shrinking numbers, convinced that prices elsewhere in the supply chain could eat into savings. “When something goes down, you pay something else instead,” he said.

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