After years of producing garments and luxury goods for the world, China’s fashion-conscious consumer is now a major engine for logistics development efforts at home.
It’s all part of a surging middle class in a country growing into its role as home to a once-deprived population now intent on buying the best the world has to offer, from cars to clothes.
In a sign of Chinese consumer demand for glitz and glamor, Hong Kong-based Kerry Logistics opened a fashion logistics facility in the country last year geared mostly for domestic activities. Kerry’s push into China came after the logistics provider signed a contract with Hugo Boss to manage distribution of premium fashion and luxury goods throughout the Greater China area.
China’s fashion imports have been going strong. “China will probably surpass Japan this year as the main Asian market for European fashion exports,” said Gerhard Blumenssat, air freight director for Central China at German logistics company DB Schenker.
But exports from China are looking less than buoyant. When it entered the World Trade Organization a decade ago, China was expected to muscle aside most other exporters of garments and textiles, but its growth has lagged other countries of late. Ole Ringheim, who headed the global fashion logistics business of DHL Global Forwarding until last March, said garment exports from China are growing in single digits, whereas overall global growth has been 12 to 14 percent.
“There are not enough orders from overseas, and competition from other countries like Vietnam is rising,” Blumenssat added.
Still, even without the impetus from the domestic market, China’s production of garments and its share of global output remain huge. The country’s textile exports amounted to $249.9 billion last year, more than 14 times Vietnam’s $14.5 billion.
But rising costs, especially in the coastal areas, have induced textile manufacturers to move production to cheaper areas. To some extent, they have followed electronics makers to China’s interior, but many others have opted for locations in other Asian countries, reinforcing the China-plus-one strategy devised to avoid the risk that comes with relying on a single market. “It is a pretty big shift, maybe as much as 30 to 35 percent,” Ringheim said.
Much of this shift has occurred among producers of higher- to mid-end items requiring more manual labor, but it extends to larger production items such as shirts and jeans, he added.
India, Bangladesh, Vietnam and Indonesia have attracted considerable influx of textile production. Cambodia, Pakistan and Sri Lanka have benefited to a lesser extent.
Forwarders have set up fashion/textile logistics facilities in these countries, but their buildup has been most notable in Vietnam. Kerry opened a 10,000-square-foot warehouse in Hanoi last November. Luxembourg-based Logwin, another forwarder with a strong focus on the textile sector, doubled its warehouse and consolidation center in Hanoi and moved to a new distribution center in Ho Chi Minh City, also doubling its capacity, steps that were largely fueled by robust growth in the garment sector.
Vietnam has been widely touted as a strong contender. In 2009, it surpassed Hong Kong as the second-largest exporter of women’s and infant wear to the United States. In the first four months of this year, its textile exports climbed 14.7 percent, despite declining demand from the European Union, down 25 percent; the U.S., down 12 percent; and Japan, down 7 percent.
There are a number of challenges, however. Import tariffs in Vietnam are 10 percent, versus zero in Cambodia and Laos. Because Vietnam’s textile industry imports 70 percent of its materials and 100 percent of its spare parts, this adds to the cost. The Vietnam Garment and Textile Association is calling for the industry to be restructured.
In addition, transit times to long-haul destinations are longer — in some cases 24 to 48 hours more, at slightly lower cost — than from the previous locations in China.
Once the strict domain of air freight, the garment trade increasingly is migrating to slower-moving, but less expensive ocean carriers. On the air side, capacity to Vietnam and other emerging textile-exporting nations such as Bangladesh has improved. Saudi Airlines Cargo in March started twice-weekly MD-11 freighter flights from its home base to Ho Chi Minh City, which continue to Frankfurt on their westbound leg.
Also in March, DHL announced five weekly freighter flights from its Asian hub in Hong Kong to Ho Chi Minh City. Asiana Airlines intends to start B767F service between Hanoi and Seoul this summer.
In part, the new freighters result from the slump on the intercontinental trunk routes, which have prompted airlines to deploy their expensive equipment elsewhere. Some carriers have been bullish on the Vietnamese market, but not everybody is convinced. “We were planning to put in a freighter last September, but the market wasn’t there,” said Ram Menen, senior vice president of cargo at Emirates Airlines. The carrier, however, gained some lift to Ho Cho Minh City in June, when Emirates started passenger flights between Vietnam’s commercial center and Dubai.
Garment shippers vie for limited lift with other commodities leaving Vietnam, such as consumer electronics, but because most intercontinental flows are routed over a major gateway elsewhere in Asia, they face competition with cargo from those markets for the second leg of the journey. This requires improved forecasting and capacity planning from all stakeholders, Ringheim said.
“Better planning and more ocean freight have helped to deal with these challenges,” he said.
Menen has seen a pronounced shift to marine transportation, but he remains confident this will be only temporary. “A lot of garments are moving by sea now because of lack of demand,” he said. “This will come back.”
Theoretically, the rise in China’s fashion imports could produce some permanent shift to ocean and surface transportation, but there appears to be limited scope for feeding this market with garments produced in China. Doing so would require shippers to forgo tax exemptions introduced to stimulate imports, Menen noted, adding this has caused some cargo produced in China to be exported for reimport into the country.
He sees an even more powerful factor at work, however. “Chinese consumers don’t want to buy fashion that carries a ‘Made in China’ label. They prefer items made in Mexico or Spain,” he said.
But he also sees the shift being relatively short term. “China can still produce very cost-effectively. It will come back,” Menen said. “In the interior, production is a lot cheaper. Now we are in a period of companies shifting away from the more expensive coastal areas.”
Contact Ian Putzger at email@example.com.