Supply Chain Challenges – Our Interconnected World

The supply chain continues to be deeply challenged dealing with the impact of Covid-19. This is creating real consequences for the print, apparel and promotional products industries. Some of those impacts will be temporary. Others will be permanent or longer-lasting, including price increases on many apparel brands and promotional items including apparel.
Shipping is where the print and promo industries will feel the pandemic’s most immediate supply chain impacts: delays, longer lead times, increased costs. This is already happening. According to the Freightos Baltic Index, the average cost to ship a container has risen by 80% since November and tripled since the start of 2020. Container availability and insufficient shipping capacity have also caused products to arrive after expected in-hands dates and, in instances, miss the deadlines by which they were required by distributors’ end-clients.

According to Advertising Specialty Institute, the certifying body for promotional products suppliers and apparel vendors, the pandemic has created meaningful shifts in what end-buyers are purchasing. With emphasis moving away from conference give-aways and in person meetings to more gifts, creative marketing kits, and home use products, suppliers are facing challenges in forecasting what products to keep in inventory. Other areas driving costs include the cost of raw materials, exchange rates, and tariffs.

Key Areas Driving Costs:

Key areas that are driving cost increases from the factories:

  1. The cost of raw materials. Cotton has increased an average of 31% year over year. Cotton prices, like any commodity, are driven by supply and demand. While global demand has recovered nicely, supplies have been dramatically reduced by the prohibition of Xinjiang cotton (which, by some reports, accounts for up to 20% of the world’s cotton).
  2. Exchange rates. The U.S. dollar has weakened against many global currencies, including the Chinese Yuan and Honduran Lempira. Vendors are paid in dollars. They largely pay their workers and suppliers in local currencies. When the dollar weakens, that means they are earning less in local terms than they did when the dollar was strong.
  3. Generalized System of Preference (GSP)—also better known as tariffs. In the last few years, bags have been moved out of China to avoid the Section 301 tariffs. Many bags were resourced to the Philippines and Indonesia, as they’ve benefited from the GSP duty exemption. That preference expired at the end of last year and has currently not been renewed.

Options for Keeping Costs Down:

In order to keep pricing under control, we’re advising clients to be proactive during 2021 planning. This means consulting with a promotions and apparel expert on which products are domestic versus imported, and additional direct mail options that fit within your budget. Need ASI advice? Contact Andy Heavilin to discuss how we’re working with other clients to work around price increases while meeting target goals.

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