Cotton and Fuel Prices have hit record highs and have impacted many apparel and soft good prices:
Cotton- prices have tripled over the last 3 months. In 2009 Cotton price was $.40/lb and it is now $1.0987 which is the highest it has been in the last 140 years since reconstruction and has created a world wide shortage.
Fuel- 2009 it was $40 a barrel and it is now over $80 a barrel (polyester is a fuel by-product)
Using recycled product is a big positive but eventually these prices will rise as well.
Unrest in China:
1. Labor Shortage- their prosperity has meant increased rice subsidies to the farmers in the North, the normal source of our labor pool is from the Southern region of China. Factories have tried to import labor from Vietnam. Additionally the explosive growth of Southern China has out stripped their ability to provide power, it is quite common for power to be shut off one day per week, lengthening production time. To attract and retain workers the factories are paying more and have given more power to the workers. Cost of production is going up, many factories are moving their operations further North, to get less expensive and untrained labor.
2. Quality Issues- There is a difference between the quality of goods coming from Northern vs. Southern China, especially in labor intensive products. Southern China has always provided the highest quality goods.
3. Exchange Rates- the USD has been weakening against the RMB, at the recent Canton Fair some factories were actually turning down orders with later 2011 delivery dates. Most factories work on very slim margins, usually around 5%, in the last few months the dollar has dropped 3%, cutting their profit by 60%. Many of our quotes now are only valid for 7-10 days. Some long-range projects quotes are being tied to the exchange rate.
Conclusion: