Vietnam’s growth as an important supplier in recent years reflects the country’s low labor costs

Vietnam’s growth as an important supplier in recent years reflects the country’s low labor costs

Despite China's continued dominance of US apparel and textile imports, shipments from Vietnam continued to surge last year, reflecting the country's low labour costs and its focus on specialisation, modernisation, and increasing value added.

According to the US International Trade Commission's '2014 Trade Shifts' report, China remained the largest US supplier of textiles and apparel last year, rising by 1.6% to US$47.2bn.

However, imports from Vietnam, the second largest supplier of these products, grew by 14.1% to $9.82bn. The country was responsible for a large share of the overall growth in US textile and apparel imports in 2014, which grew by almost 3% thanks to a continued strengthening of the US economy and consumer confidence.

"Vietnam’s growth as an important supplier in recent years reflects the country’s low labour costs and its industry’s focus on specialisation, modernisation, and increasing value added," says Jackie Jones, international trade analyst. "In 2013, many new textile and apparel plants began production in Vietnam, fuelled largely by foreign investment stimulated by the negotiation of the Trans-Pacific Partnership (TPP) agreement."

According to the Vietnam Textile and Apparel Association, in 2014, around 20 international firms invested in Vietnam’s apparel industry. Foreign companies are said to be earning around $12bn of Vietnam’s $20bn in annual textile and apparel export revenue.

China does, however, continue to dominate exports. But the report suggests US retailers and brands are continuing a long-term trend of diversifying their import sources to countries such as Vietnam, hence its growth, and India, as production costs in China’s textile and apparel industry increase.

While manufacturers in China have increased productivity in a bid to try and offset rising production costs, the country's share of total textile and apparel imports remained at about 39% in 2014, virtually the same share as in 2013.

The diversification of sourcing by the US saw imports from India, the third largest supplier of US textiles and apparel, increase by 7% last year to $7.38bn, accounting for 6% of sector imports. This growth, the report suggests, likely reflects a continuation of certain trends such as technology upgrades and a focus on innovation in product and design.

Total exports
US total exports of textiles and apparel continued to increase by about the same amount in 2014 ($592m) as in 2013 ($543m), growing 3% to $23.92bn.

Just over 81% of these exports consisted of domestic exports, with the remainder re-exports. Fabrics, fibres and yarns (except raw cotton and raw wool), and apparel together accounted for just over three-quarters of the value of US domestic exports in 2014, which were up 1.5% to $20bn.

US domestic exports of fabrics continued to lead sector exports, rising by 2.8% to $6.63bn, while fibres and yarns grew 1.2% to $5.27bn.

"The overall rise in exports of textiles and apparel largely reflected increased shipments to Mexico of broadwoven fabrics," Jones notes. "Although smaller, the increase in US exports of fibres and yarns of 9% ($133m) to Honduras also contributed to the overall increase in sector exports. A large part of these exports were cotton yarn."

Indeed, the report revealed that Honduras was the largest market for US fibres and yarns in 2014, fuelled by investments from US yarn and knit apparel companies.

US general imports (customs value), consisting largely of apparel (74%), were up by 3% last year to $121.7bn, thanks to the continued strengthening of the US economy and rising consumer confidence, as indicated by a 3% increase in personal spending on clothing in 2014.

Finally, re-exports in the US textile and apparel sector accounted for just over 19% of total exports, the majority concentrated within apparel.

"Apparel companies are increasingly importing apparel into distribution centres in US foreign-trade zones (FTZs) for inventory control and distribution, then re-exporting the apparel to Canadian and Mexican markets, with plans to export to other western hemisphere markets in the future," Jones explains.

"Using FTZs allows these companies to cut costs in a number of ways, including importing products into the US free of duty, avoiding the financial burden and paperwork associated with duty drawbacks, reducing merchandise fees charged by Customs, and generally streamlining administrative procedures with Customs."

Click here to access the full report, which this year includes interactive features, including graphics and supplemental data analysis tools.