Tuesday, February 5, 2008

Mill to Produce Fabric for the Domestic Market?

The Fashion Incubator wrote an interesting post today titled, The Impending Crisis. Three issues were explored 1) the state of the economy 2) the rate of exchange and 3) the price of energy and how this has affected the apparel industry based on comments from Birnbaum's Newsletter.

Just last week I wrote a post, 5 Tips to Export: America is On Sale, where I explored the effects of the rate of exchange and the price of energy on American designers and manufacturers. I concluded that a 90% increase in transportation costs were more than offset by a 40% dollar depreciation which set an unprecedented state for small manufacturers to export American designs.

I wonder if the [production] losses in Mexico and Caribbean Basin represent opportunities to those [small manufacturers] who want to outsource but not far afield?" The answer is yes! The American apparel infrastructure has crumbled and there is just no way to bring it back. However, the apparel infrastructure and labor rates in the Caribbean Basin and Central America are competitive given that inflation in China is running at 15% annually, a trip to Central America from New York is only a four hour flight and door to door delivery of a container is one week.

Then Kathleen hit a grand slam with this comment, "Assuming I had the interest and the capital (including intellectual capital), I'd open a mill to produce fabric for the domestic market." Although it might have been written as a joke it would have a significant amount of merit if you said, "I'd open a mill in the Caribbean Basin or Central America to produce fabric for the US domestic market."

With ratification of DR-CAFTA, a free trade agreement was established between the Dominican Republic, Central America and the United States. However, to take full advantage of the duty free provisions for imported apparel, the cloth needs to be made in one of the member countries. Imagine the demand for any mill that could eliminate a 20% tariff on products entering the US. Well, if quality knit and woven mills, and dye and print shops set up in the Dominican Republic or Central America the small manufacturer would be close to cost parity with China or Sri Lanka.

I have pitched this idea to the President of all my domestic fabric suppliers. Not one has bit. I hope one sees the light and begins the painful but rewarding process of setting up shop offshore, but very close to home. Yes at first the orders would be small, but then the lost volume accounts would be sucked right back from Asia and we would once again have a vibrant local apparel industry.

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