Footwear importers are looking forward to a strong back-to-school season this year as the industry rebounds from a somewhat disappointing 2011.
Imports in 2011 declined 3.4 percent from the previous year, said Matt Priest, president of the Footwear Distributors and Retailers of America. Footwear sales picked up in the spring for Easter, the top season for the industry, and the back-to-school period, the second-busiest selling season, is projected to be better than last year.
Because virtually all the footwear Americans buy is produced overseas, increased sales translate to increased imports. The FDRA is projecting 2012 imports will increase 5 percent over 2011. This is good news for carriers in the eastbound Pacific.
The main challenge facing footwear importers this year and beyond is to secure new sources of production where costs are more reasonable. For more than a decade, footwear importers maintained a “China first, China only” policy because no country could come close to China in the production of quality shoes at a competitive price.
However, according to an FDRA sourcing study released this spring, the average price of a pair of shoes increased 12 percent because of rising costs in China. In South China, where most of the footwear manufacturers and their vendors are located, wages increased by double-digits each year for the past three years, the study noted.
As a result, China’s share of U.S. footwear imports dropped last year to 85 percent from 87 percent in 2010. It was China’s lowest share of the U.S. market in seven years, according to the FDRA study.
China’s share will continue to decline and will be at 80 percent by 2016, the FDRA projects. Some footwear companies already are shifting some sourcing to Vietnam. By 2016, Vietnam’s share of the U.S. market will be 13 percent, up from 7 percent in 2011, the study projects.
The shift away from China will be gradual, however, because producers over the years have established a critical mass of manufacturing plants, vendors and logistics operations in the region. It will take time to establish a similar concentration of production in other countries.
The industry’s initial efforts may be to move some production to western China, where wages are noticeably cheaper. The challenge, however, will be to develop a cost-effective logistics operation to move footwear from the factories to seaports.
The same challenges await footwear companies that shift some of their sourcing to Vietnam or the Indian subcontinent, where port, inland transportation and ocean shipping services aren’t nearly as advanced as they are in coastal China.
In the meantime, many footwear importers are sticking with their traditional production sources in China and are looking for ways to take costs out of their supply chain, Priest said.
Footwear importers are working with third-party logistics providers to tighten their supply chains, negotiate favorable freight rates and operate more efficiently in trans-loading operations. On the regulatory side, the industry continues to lobby for reductions in tariff rates on footwear imports, Priest said.
Freight rates in the eastbound Pacific shot up this year as carriers successfully implemented three general rate increases since Jan. 1. The base spot rate for shipments from Hong Kong to Los Angeles, however, had dropped so low in late 2011 that even with the rate hikes the cost of ocean transportation shouldn’t be a hindrance to imports.
In addition, the rate hike of about $800 on spot shipments charged to non-vessel-operating common carriers didn’t translate to increases in service contract rates. Footwear importers that negotiated contracts beginning on May 1 are paying lower rates than the spot market rates now in effect.