China continues to reign supreme as the cheapest supplier of apparel to the US, with its per-unit cost for clothing falling 20% in 2020 to a ten-year low.
According to an analysis by just-style of the latest full-year US import data from the Office of Textiles and Apparel (OTEXA), China’s per-unit cost of garments shipped to the United States came in at $1.79 last year – compared to $2.24 a year earlier.
Of the ten largest apparel suppliers to the US, this makes it by far the cheapest, followed by Pakistan, which at $2.22 is still 21% higher than China on a per-unit basis.
Apparel imports from China are also significantly lower priced than those of second largest supplier Vietnam’s at $3.31, despite Vietnam seeing prices fall by 3.2% on a year-on-year basis.
And for Bangladesh, the third-largest apparel supplier to the US market, the average price per square metre equivalent (SME) came in at $2.76 in 2020, a decline of 6% year-on-year.
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In fact, nine out of the top ten suppliers of apparel to the US saw price decreases compared with a year earlier. After China, the only other double-digit decline was booked by Mexico, whose per-unit prices of apparel imports to the US dropped 18.2%. However, it remains one of the pricier suppliers with a unit cost of $3.23.
The only supplier to see a price rise was El Salvador, which edged up 6.8% to $2.66 per unit.
The most expensive supplier of clothing to the US market was Indonesia at $3.81, even though its average price per SME was 2.1% lower year-on-year.
What led to China’s price plummet in 2020?
China’s market share has slipped from 39.83% in 2020 to 36.6% but it remains by far the largest apparel supplier to the US. It is helped by the size of its supply base, its range of skills, its quality levels, its product variety and the completeness of its supply chain.
The country continues to feel the effect of the two-year-long trade war with the US, which had resulted in tit-for-tat tariffs between the two nations. While a Phase One deal was agreed toward the end of 2019 between the two sides, punitive tariffs still remain on 92% of the clothing shipped from China to the US, and US fashion brands and retailers have been actively seeking alternative suppliers.
The Covid-19 pandemic accelerated this trend. When the coronavirus crisis forced China to shut down early in 2020, factories across the world were denied access to raw materials, meaning garments couldn’t be made and orders couldn’t be fulfilled – pushing US fashion companies to reduce their exposure to China even further. As a result, US clothing imports from China fell 23.4% in 2020 to 8.46bn square metres equivalent (SME) in 2020 compared to 11bn SME a year earlier, and a high of 11.6bn SME in 2018.
But while there are certainly advantages to moving some sourcing orders to other Asian suppliers or even nearshoring to locations such as Central America, China remains attractive thanks to its vertically integrated supply chains, speed-to-market, flexibility and agility, and compliance risk – and ultimately sourcing cost.
Its per-unit price of apparel has fallen steadily over the last nine years from a high of $3.02 in 2011, to the new low of $1.79 in 2020, as manufacturers continue to benefit from the efficiency and productivity gains and it seeks to remain attractive to US buyers and retain business.
Vietnam has long been a favourite among brands and retailers for apparel sourcing. Its close proximity to China and its vertically integrated supply chains mean it is well-positioned to steal market share from its neighbour.
In 2020, it increased its share of the US apparel market from 14.2% to 16.4%. Vietnam benefits from lower wages, which can equate to a lower cost of goods and competitive pricing. Brands like NIKE and adidas are among those that have taken steps to reduce their leverage on China, shifting production to Vietnam.
As well as being the second-largest supplier of apparel, footwear, and travel goods to the US, Vietnam is also a key supplier of raw materials used by US manufacturers, and a major market for US textile and chemical exports.
But there are mounting concerns among apparel CEOs over the prospect of additional punitive tariffs being applied to US imports of apparel and footwear from Vietnam. Towards the end of last year the US Trade Representative (USTR) launched two separate Section 301 investigations into Vietnam’s currency practices and trade in illegal timber. While it has decided not to take action for the time being, it continues to evaluate all options.
Cambodia is the only country among the US top ten apparel suppliers to have seen its share of the US market grow consistently over the last four years – rising to 4.9% in 2020, almost 30% higher than the previous year.
This was achieved despite the shutdown of one-third of its garment, footwear, and travel goods factories during the first half of 2020 as a result of the Covid-19 pandemic. A further blow came from the partial withdrawal of the country’s duty-free access to the European Union (EU) market.
The nation has doubled down on investment in its garment sector as it looks to compete for further business. Its price per unit of apparel exported to the US fell 2.4% to $2.50 during 2020, making it 32% cheaper than Vietnam on a per-unit basis. Earlier this month it approved investment projects for new garment factories totalling around $16.6m and creating 2,500 jobs.
However, the country is being urged to consider developing industry transformation maps in key sectors to enable the transition to the Fourth Industrial Revolution (4IR) with investment in skills development for new and repositioned jobs.
According to a study from the Asian Development Bank (ADB) which covers Cambodia, Indonesia, the Philippines and Vietnam, 4IR technologies will eliminate jobs in the garment industries, but these would be offset by an increase in demand arising from higher productivity, potentially generating net job increases of 39%.
The study calls for developing industry-led technical and vocational education and training programmes with dedicated credentials for 4IR, and flexible and modular skills certification programmes that recognise skills attainment outside of traditional education channels.