South China Sea Conflict Could Rattle U.S. Footwear Companies

Experts warn of new signs that an intensifying conflict in the South China Sea could hurt shoe companies.

About 95 percent of U.S. footwear flows through or adjacent to the waterway that is encircled by China, Indonesia, Malaysia, Vietnam, Brunei and the Phillippines, according to the Footwear Distributors & Retailers of America (FDRA). In recent months, the FDRA has said that China has ramped up its efforts to lay claim to the South China Sea and its various islands, cays, shoals and reefs.

For the footwear industry, the issue comes down to ease of navigation, experts say.

“Over the past few months, China has gone beyond claiming islands and reefs to sending ships out and having them pump concrete into the reefs, creating port areas for military ships and eventually military personnel,” said Andy Polk, VP of communications and outreach at the FDRA, noting that such activities escalated around March.

About $5 trillion in trade flows through the body of water, according to the U.S. government’s estimates.

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If conflicts over the area continue, the FDRA warns, American footwear companies could see increased rates for cargo insurance due to heightened risks associated with transportation through the South China Sea, as well as disruption in shipping channels.

Those delays, Polk said, could rise to a level similar to those of the West Coast ports fiasco, which stalled shoe companies’ operations significantly in late 2014 through the first half of 2015.

The unrest comes at a critical time for trade and sourcing, said FDRA President Matt Priest.

“China is losing market share, and Vietnam is gaining that market share,” said Priest. “The U.S. and China are both reasserting themselves in the region, and Vietnam is caught in the middle. Meanwhile, the Trans-Pacific Partnership is being negotiated — and very noticeably does not include China.”

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