The fashion industry is reliant on an intricate web of global supply chains that are seeing unprecedented levels of pressure and disruption. With logistical logjams, rising shipping costs and shortages of many kinds adding new layers of complexity, companies must rethink their sourcing strategies while implementing cutting-edge supply chain management, and building in greater flexibility to keep products flowing with customer demand in the year ahead.
Around half of global businesses suffered supply chain disruptions in 2021, with one in eight severely affected. This was the fallout from a combination of global and local factors, including material and component shortages, transportation bottlenecks, staff unavailability and rising shipping costs.
Many of these challenges show no signs of abating, and the majority of business leaders expect logistical roadblocks to persist through 2022 and beyond. It is likely that logistics challenges will only intensify in 2022, with global surges in demand clashing with unpredictable pressures on freight services, ports and terminals. There are growing concerns that increased levels of disruption and price hikes could last longer term, or even represent a new logistical normal for the global fashion industry. Three structural factors are at play in creating these conditions, which add to the impact of the Covid-19 pandemic: operational challenges (caused in part by soaring demand), shifting industry dynamics and new waves of trade agreements and regulation. After months of lockdowns, consumer demand is surging in markets such as the US and UK. However, some brands have struggled to obtain products on time, with manufacturing and transport delays — on sea, in the air and on land — leading to chronically depleted inventories in some cases. Brands with manufacturing operations in regions severely impacted by the pandemic have faced staff shortages and factory closures.
In July 2021, container ship supply was 11 percent lower than the previous September. The situation was exacerbated by the limited availability of steel container boxes, as surging demand to restock inventories amid shipping disruptions left thousands of boxes at sea, in freight hubs or in ports.The dislocation contributed to skyrocketing costs and undermined brands’ efforts to keep pace with demand. In response, some turned to air freight and trans-continental rail alternatives, leading to new capacity jams, longer waiting times and rising costs in air and rail freight, too. Alongside logistical challenges, fashion and shipping companies are facing a range of new regulatory and trade hurdles. Among incoming regulations is the EU’s proposal for a world-first carbon border tax and new restrictions on emissions from ship engines. Companies must manage these alongside challenges such as import bans from China’s Xinjiang region. For companies shipping between the EU and the UK, Brexit adds new layers of paperwork and customs delays. Equally, ongoing trade tensions between the US and China threaten to exacerbate supply chain disruptions. Looking ahead to 2022, shipping prices will likely continue to climb and remain above their pre-pandemic levels in the longer term, as shipping companies continue to consolidate and new capacity only slowly emerges. In response, fashion brands may need to abandon the idea that cost increases are hiccups, instead planning for a permanently more expensive logistical future. Still, some fashion players will be more exposed to these factors than others.
There may be opportunities for luxury brands to pass on higher costs to customers by raising prices. Globally, pressure on containers and shipping will continue to require logistics players to deprioritise some shipments, while a lack of road-transport drivers, both domestically and internationally, will exacerbate operational costs and delays. In holding back the delivery of products to stores and homes, these conditions will continue to make it difficult for brands to respond to booming consumer demand. To further complicate matters, customers have become accustomed to super-fast delivery, both online and in store, with delivery delays putting a strain on customer satisfaction, while adjacent trends such as accelerating demand for sustainable materials are putting additional pressure on supply. In the longer term, brands will need to balance the desire to enhance speed to market with the need to alleviate supply chain pressure. That may mean streamlining production, logistics planning and booking capabilities, as well as putting in place contingency plans and alternative suppliers, while remaining as agile and flexible as possible. To dothis, some companies are bringing shipping in-house. In the last mile of delivery, dynamic rerouting and drone delivery could present alternative solutions to short-staffed last-mile distribution in some circumstances. At the same time, brands need to work with their suppliers to scale up nearshoring and reshoring activities to build production capacity and safeguard access to raw materials. Indeed, a number of European companies doubled down on nearshoring efforts through the pandemic, moving textile manufacturing from China to Turkey to minimise delays. Of course, adapting operations and adjusting to rising demand will come at a cost to a company’s profitability.
The core of manufacturing for many luxury brands remains within Europe, partially sparing them from the consequences of delayed production in South-East Asian factories. High-end brands and retailers can also opt to invest in air freight rather than rely on ocean transport.
That said, sourcing is so globalised that when the entire supply chain is disrupted no one is spared. Luxury conglomerate Kering, for example, lists India, Italy, Turkey, Egypt, Pakistan, the US, Indonesia, Cameroon and Brazil, among many other countries, as tier 3 and 4 suppliers of cotton
There will likely be more profit warnings attributed to supply chain issues in the year ahead. Given the hefty bottom-line implications of logistical gridlocks, many fashion executives are working hard to find solutions. Common practical measures have included introducing agile ways of working to improve efficiency, upgraded inventory management, reimagined supply chain organisations (incorporating visibility-enhancing solutions) and technologies such as sophisticated dashboards known as digital supply chain control towers. As leaders innovate to create efficiencies, there is an imperative for slower-moving brands to expand their focus from efficiency initiatives to digital and operational enhancements which help to better plan and track logistics. In addition, expectations for prolonged logistical turmoil will encourage larger brands and retailers to consider more fundamental solutions. It is likely some will explore cross-functional or even vertical integration, such as bringing distribution or production in-house. Fashion executives have pointed to further digitisation of supply chain operations as the way forward. With logistics caught in the industry’s crosshairs like never before, decision-makers should think carefully about how to adapt. In 2022, brands will aim to regain control of supply chains while communicating potential delays with customers at each step. It will pay to consider control towers, in-house distribution, nearshoring of manufacturing and cutting-edge inventory management, all while securing early access to raw material supplies. Leading brands will collaborate closely with logistics providers, communicating frequently and expecting that providers will hold more cards in negotiations. To keep a watchful eye on finances at a time of rising supply chain costs, they may also consider using a zero-based budgeting system, requiring all costs to be re-justified at each budget review. In short, as the pressure intensifies, careful planning and a deeper integration of supply chain considerations into decision-making will become table stakes in the year ahead.
Supply Chain and the War
European warehouses slowed or even shut down due to the Ukraine-Russian war, which closed air routes between Europe and China. Energy prices drive transport prices higher, causing products shipped overseas to be less price competitive.”
Russia’s war against Ukraine has further exacerbated supply chain disruptions. As Russian authorities blocked vital shipping routes and western sanctions forced Moscow to find alternative trade corridors, many carriers responded to the chaos by suspending operations.