August’s statistics were impressive: 59 million sweaters, 16 million pairs of men’s trousers, tonnes upon tonnes of assorted winter fashions. To call the EU’s imposition of textile quotas on China a supply chain bottleneck is an understatement.
By late August, textile stocks worth e1.3 billion and growing were piled up in European ports, impounded by customs officials since the quotas were introduced in June. While textile producers in France, Spain, Italy or Portugal may have been rubbing their hands with glee at such a protectionist move, retailers throughout the EU are faced with empty shelves, price rises and some expensive litigation to try and win compensation from Brussels for their losses.
Not only did the move display a lack of understanding by the bureaucrats of today’s clothing and textile buying patterns – and the volume of orders already placed on Chinese factories – but it also demonstrated just how essential good supply chain systems and real-time information flows have become.
EU trade commissioner, Peter Mandelson, agreed terms with Chinese commerce minister Bo Xilai on June 10. The quotas took effect on June 11 by which time tonnes of winter fashions destined for European markets were already either on the high seas or in the final stages of production. The EU compromised by allowing entry to goods shipped up to July 12 but as trade association spokespeople demonstrated in interviews, few of the retailers involved had any knowledge of exactly where their merchandise was and even fewer were able to take the necessary action of speeding up shipments or rerouting to alternative markets.
A big mess
Even Nostalgi, a small Swedish design company which decided on June 19 to switch shipments of stock nearing completion from sea to airfreight failed to get its goods out of China by July 12. ‘The value of the sweater shipment represents around eight per cent of our annual sales,’ says Nostalgi ceo Andreas Remling. ‘For us that’s a big deal. It’s such a mess and there’s nothing I can do.’
Remling’s retail customers have the tight jeans and skinny ties of the initial design concept already on theshelves but the checked sweaters to complete the look are still stuck in Swedish customs. Nostalgi is currently switching the finishing process of remaining Chinese styles to Hong Kong, where different trading rules apply, to beat the ban.
Equally, if shippers had been able to assess the situation more precisely before the stocks arrived at European ports then some at least could have been forwarded to non-EU markets such as Norway, Canada or Switzerland, where many European retailers also trade.
While the trousers and sweaters quotas are already long since exhausted, those for bras, blouses, knitted shirts and dresses are in the final throes. If – and it can sometimes be a big if – retail buyers know the precise stage of production for their products the finishing process could be moved to Cambodia, Vietnam, Hong Kong or anywhere not affected by the restrictions. These ‘outward processing arrangements’ are already being implemented by the likes of Debenhams which invested in a sophisticated collaborative supply chain platform from Eqos a couple of years back. ‘We have a wide supply base,’ says trading director Adam Creasey, ‘We can crank up sourcing out of Turkey, India and Mauritius.’
But all this requires real-time information and rapid response. This year’s dress quota, for example, is expected to be exhausted by the end of September. Buyers thus need to have precise information about production, shipment dates, and quota availability to assess the risks and costs of changing from sea to air freight, or outward processing to an alternative country in order to avoid their merchandise joining the rest of the container loads in a customs pound.
Inevitably some of the more dubious practices that prevailed in the days when textile quotas were more commonplace – and before the likes of Portugal and Spain joined the EU – are being revived. Goods may make fleeting transits through unaffected countries where a couple of buttons can be sewn on and the country of origin label duly changed, or a hemmed fabric square attached to trousers or skirts to shift them into the ‘sets’ category where different quota rules apply. But with margins under pressure, making sure these additional costs are justifiable requires a real and up-to-date understanding of the situation – which is where the IT comes in.