Nearshoring and Forced Labor Fears Eating China’s Lunch, USFIA Survey Finds

Date: Wednesday, August, 2, 2023
Source: Sourcing Journal

U.S. fashion companies’ shift away from China shows no signs of slowing down, according to a recent survey from the United States Fashion Industry Association (USFIA).

This year, over 40 percent of respondents to USFIA’s annual Fashion Industry Benchmarking Study said they sourced less than 10 percent of their apparel products from China, up from 30 percent in 2022 and 20 percent in 2019.

This year’s study surveyed executives from 30 U.S. fashion companies from April to June. Approximately 73 percent self-identified as retailers, 60 percent as brands and 65 percent as importers/wholesalers.

The survey, now in its 10th year, also saw the percentage of respondents no longer using China as their top supplier hit a record high in 2023: 61 percent. Only 50 percent said the same last year, which itself was a giant leap from the pre-pandemic normal of 25 percent to 30 percent.

Meanwhile, nearly 80 percent of respondents said they plan to reduce sourcing from China over the next two years. A record high of 15 percent plan to “strongly decrease” sourcing from the country. Large-size U.S. fashion companies—around 77 percent of respondents reported having more than 1,000 employees—that currently source more than 10 percent of their products from China were “among the most eager to de-risk,” the report said.

Lowering “China exposure” will remain challenging in terms of textile raw materials, however, the USFIA noted. More than 70 percent of respondent said they currently source various yarns, fabrics and textile accessories from China “with no practical alternatives,” the report said.

Though “finding a new sourcing base other than China” ranked fourth among respondents’ top business challenges—a sharp increase from 11th in 2022—“managing the forced labor risks in the supply chain” took second place. The heightened concern comes a year into the implementation of the Uyghur Forced Labor Prevention Act (UFLPA). The most common responses to forced labor risks and the UFLPA’s implementation included “asking vendors to provide more detailed social compliance information,” “attending workshops and other educational events to understand related regulations better,” and “intentionally reducing sourcing from high-risk countries.”

Concern has centered on cotton products in particular, the report noted. Nearly 86 percent of respondents said they have or plan to reduce sourcing cotton apparel from China, while 55 percent said the same for non-cotton apparel from China.

The top concern identified in the USFIA survey was inflation and the U.S. economic outlook, however. Half of respondents said they expect their apparel sourcing value or quantity to increase this year, down from 90 percent last year. Most, 69 percent, expressed optimism or cautious optimism for the U.S. fashion industry in the next five years. Even more, 85 percent, plan to increase hiring over the next five years.

At the same time, the survey reported “robust excitement” for increasing apparel sourcing from members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). More than 80 percent of respondents reported sourcing from CAFTA-DR members this year, up from 60 percent in “the past few years,” the report said. Nearly 30 percent placed more than 10 percent of their sourcing orders with CAFTA-DR members, up from 19 percent last year and just 10 percent two years ago. About 40 percent plan to increase sourcing from these countries in the next two years.

The USFIA also found “a solid dedication” for expanding sourcing of recycled or other sustainable fibers, with nearly 60 percent of respondents saying at least 10 percent of their products already use such fibers. A similar number plan to “substantially” increase sourcing apparel made with such materials over the next five years. About 60 percent also called for policy support, such as preferential tariff rates and guidance on sustainability and recycling standards.

Dr. Sheng Lu, associate professor of fashion and apparel studies, at the University of Delaware, offered a measured perspective on some of the survey’s biggest findings.

“One notable takeaway of this year’s study is that U.S. fashion companies expressed a new level of anxiety and showed eagerness to reduce ‘China exposure’ to mitigate the growing sourcing risks due to the deteriorating U.S.-China relations and the Uyghur Forced Labor Prevention Act (UFLPA) enforcement,” he told Sourcing Journal.

Though China was once considered “indispensable” for any major apparel company sourcing apparel because of its “vast size and wide variety of products,” the USFIA survey indicates that the world’s factory is losing its luster, he added.

“Recent studies I conducted, which examined hundreds of thousands of actual apparel products sold in the U.S. retail market, further reveal that the five largest Asian apparel suppliers other than China, namely Vietnam, Bangladesh, Cambodia, India, and Indonesia, collectively can offer a diversified product range almost equivalent to that of China,” Lu continued. “In other words, U.S. fashion companies today are much more prepared to ‘de-risk’ from China than they were in the past.”

Lu questions whether companies can figure out the raw material aspect of nearshoring from areas such as CAFTA-DR, noting that “the region’s lack of sufficient textile raw materials, especially fabrics using fibers beyond cotton and polyester, concerns respondents.”

He went on to say that “[s]trengthening the CAFTA-DR region’s immediate garment production capacity and textile raw material supply calls for new innovative thinking and policy support.”


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