Shipping and production difficulties could see production shifting “back home”

An unforeseen consequence of Covid-19 could be that some major clothing and shoe manufacturing companies will move production to countries closer to their retail outlets. A resurgence in cases of the Delta variant in Vietnam and China could see a repeat of factories being shut down temporarily. China and Vietnam are becoming an increasingly smaller minority in the world in trying to maintain a “zero Covid” strategy, rather than accept the fact that it is becoming globally endemic.

The production hold-ups have been accompanied by a serious dislocation in shipping deliveries, caused by an increase in demand, a slowing of throughput capabilities at ports (because of Covid-19), problems with crew changeovers (because of Covid-19) and a geographical misallocation of containers.

All of this has driven up the relative cost of producing clothing in the Far East for consumption in Europe and North America, and many companies are rumoured to be rethinking the structure of their supply chains.

Spanish fashion retailer Mango said last week that it had accelerated its process of increasing local production in countries such as Turkey, Morocco and Portugal. The company, which pre-pandemic had sourced nearly all its products from the Far East, has said that in 2022 it would be expanding significantly the number of units manufactured in Europe.

In the USA, shoe retailer Steve Madden said last week that it had pulled back on production in Vietnam, and was shifting 50% of its production from China to Brazil and Mexico. Rubber clogs maker Crocs said last month it was shifting production to countries such as Indonesia and Bosnia, neither of which is maintaining a zero Covid strategy.

Professor Muris Pozderac, secretary of the association of textile, clothing, leather and footwear in Bosnia & Herzegovina, said that “many companies from the European Union, which is our most important trading partner, are looking for new suppliers and new supply chains in the Balkan market,”

Factory inspections in Vietnam – a proxy for retailer manufacturing orders – fell by 40% from Q2 2021 to Q3 2021. Production during Q3 shifted to Bangladesh, India and Cambodia.