Raw-material shortages and rising prices, increases in energy and shipping costs, and a lengthening of production and delivery times: European manufacturers are facing a deep, unprecedented crisis
Nevertheless, none of them are giving into catastrophic thinking in the face of this succession of events shaking up the world: the global pandemic, which has immersed the entire planet in an unprecedented economic and health crisis, or the war in Ukraine, which is causing international tensions with serious consequences. When interviewed by Interfilière Paris, exhibitors have confided in us about the back story of difficult days when they’ve had to negotiate, think ahead, reflect, and react to find the best solutions to serve their clients, meet their demands, and fulfill orders.
THE GOLDEN RULE: THINK AHEAD AND PLAN
The sudden recovery of manufacturing after several months of industrial lethargy – notably in China – has created, as we have seen, major shortages of textile raw materials, especially elastane, which has become impossible to find, but also polyamide, polyester, cotton, and linen. “In France, there has been a real delayed effect from the slowdown or even the stoppage of production. French textile firms have drawn from their inventories and cut back on resupply. The recovery in France and Europe has taken place after a very strong restart in demand from Asia and the United States. These increased needs have worsened tensions for raw materials. Today, these shortage issues are tending to stabilize”, states Yves Dubief, President of the Union of Textile Industries in France. Those who felt the tide turning took the lead. In a timely fashion, or as usual. “We know from experience that the end of the year is often a difficult time for knitwear. So, we ‘overstocked’ ourselves in yarn for up to 70% of our orders. This allowed us to produce with greater peace of mind. This time, we were right to do that. We were able to make it through without any supply issues. Otherwise, we would have been in a real jam”, says Yves Lagadec, CEO of AET, a French familyrun enterprise founded in 1997 and a specialist in plain and novelty knitwear made on circular-knit and straight-chain looms. Cintas Martell, another family-run firm, but a Spanish one, and a maker of rigid and elastic bands, quickly decided to increase its inventory starting in June 2021. “We returned to what we used to do 30 years ago: asking clients to take a stance over the long term so we could look ahead and plan our purchases. We were afraid of having serious supply issues, especially in terms of elastane, a material that is essential for us”, specifies Marta Bellot, Director of Marketing. These are problems that Fabio Cescon, Founder of new firm Innova Fabrics, could also have had, if he hadn’t stocked up starting in May 2021, which he’s glad to have done. “Well before the summer, it was impossible to get supplies of Roica elastane from Asahi Kasei. Fortunately, by quadrupling my inventory, I was able to have enough through February 2022. Then, I followed up with an extra order to keep me safe through this summer”. Prudent and inspired, he chose to do the same thing with polyamide. Italian knit specialist Piave Maitex on their side, reacted with a different strategy: “We strengthened our commercial relationships with certain suppliers by gaining their loyalty as much as possible, so we would never run out of materials. We also had unfinished goods in stock so we could offer more efficient service to our clients. We did indeed draw from that inventory”, confides Enrico Serafini, Sales Director.
In a delicate context where solidarity and mutual assistance often helped everyone get by, Interfilière exhibitors chose to
be as honest and transparent as possible with their clients, with the feeling that sometimes they were acting on a case-by-case basis, but in the interest of each client. “We had to commit very early in terms of unfinished materials. The only way to work was to try to have the greatest visibility possible over our clients’ needs”, emphasizes René Frei, Founder of Swiss embroidery firm Embrex. Seeing the tensions in the yarn market, Rocle by Isabelle tried to think ahead about shortages, starting last July, by reinforcing its collaboration with its clients. This meant hours spent on the phone with each of them to explain the issue and encourage them to work together over the long term, without pushing them to make a concrete commitment. “Difficult discussions, sometimes extremely insistent ones, nevertheless allowed us to know what their intentions were. We were then able to obtain materials ahead of time and therefore have a good season without too much stress”, states Emmanuelle Bonnetin, Co-Director of the firm. Purchasing and storing raw materials as early as possible…materials used sometimes even 9 months later! A major manufacturer of lace and warp knits in the Middle East and North Africa, with an international clientele scattered throughout more than 15 countries, Egyptian firm Salamtex fought for many long months against the shortages of elastane yarns, in particular: “We managed to get through by engthening our material purchasing cycle by 2 months, as well as our shipping times. With a transparent approach and open discussions about the best strategy to take, our clients trusted us and agreed to pay us in advance. This way, we were able to purchase inventory of raw materials to cover our needs and thus meet their needs, while maintaining our prices as much as possible”, outlines Mervette Maurice, Executive Assistant to the CEO.
Though Interfilière Paris exhibitors managed to make it through the elastane and polyamide shortages, they were truly challenged by a complex back-to-business period: production delays, longer delivery times, shipping problems, and skyrocketing freight costs all accumulated with jammed ports, a real lack of available containers, and an often-failing workforce. “For large volumes, we sometimes had to go to 10 weeks for deliveries”, underlines Franck Lévêque. The situation, which lasted through last autumn, still didn’t get our exhibitors down. At AET, which knits and dyes in France, but uses dyes from Asia, it is impossible to avoid running out of inventory: “What to do other than agree to pay for a container that’s 10 times more expensive than before? 2021 ended with 25% lower revenues. But 2022 started well due to understanding clients who waited patiently up to 14 weeks for delivery”, Yves Lagadec shared with us in early 2022. But this didn’t even take into account the war in Ukraine and the rise in inflation that has made prices go through the roof.
PASSING ON PRICE INCREASES GENTLY
Dreaded but not ignored, skyrocketing raw material, energy, and shipping prices reached record heights, which the world of textiles could have lived without. Short-term increases were made worse by the war in Ukraine, with a new price increase happening on April 1st. But once again, confronted with runaway inflation and an unsettled market economy, our exhibitors played the cards they were dealt. And they managed to get by, day to day. “Each order has a new price that can rise by up to 20%!”, states Yves Lagadec, with some bitterness. With already-tight margins, he is obliged to pass on part of the increase to his clients. It’s with regret that Fabio Cescon, who promised his clients to do his best to contain price rises, has been forced to give in: “We won’t be able to avoid an increase of around 10%. But it’s only temporary”. The opening of two new production sites for polyamide in China and the U.S. should increase the availability of PA 6.6. by the end of the summer.
THE PRICE OF COTTON HAS NEVER BEEN HIGHER
It’s unprecedented in the history of the textile industry. In February 2022, the price of cotton reached its highest level ever: 1.29 dollars per pound, in other words, 1.16 € per 0.45 g! This represents a 45% increase in one year. And how about organic cotton? In one year, its price has increased by…90%! “For the prices of yarn to double for polyamides and triple or quadruple for conventional and recycled cotton is one thing. The worst thing is that prices are fluctuating. They’re only valid for two months. Today, the question is not about knowing what price I’ll have to pay for the material, but what exactly will I get? We’re not getting anything without intense negotiations. This means that we order two months in advance, with considerable risk, and we have to do this several times a year”, explains Zoya Rutskaya Sebek, Managing Director of Sales at Chanty Lace. This German lacemaker has no choice but to slightly increase its prices by 3%. It’s the same thing at Piave Maitex, which is trying to limit price increases to 5%, and Maison Lévêque which has had to increase them by 6% on January 1st. “Since late 2020/early 2021, shipping and raw materials have increased by 17%. Exporting to China today costs a fortune. Dyes have seen major increases as well. Fortunately, we’re managing to reduce this effect by sourcing as much as possible in Europe and by purchasing unfinished goods to dye them”, explains Franck Lévêque. Maritime freight prices are sky-high, multiplying by a factor of 4 to 5: the price of a container from Asia delivered to the U.S. has gone from 3000 dollars before the pandemic to over 12000 dollars today! “Despite these increases, we are unable to freely raise our prices. We must stick with the terms of the contract signed in advance. At the most, we can apply an inflationindex increase”, states Franck Lévêque. With a 20-to-30% increase in prices, depending on the type of dyes available at the start of the year, it’s the entire industry that’s feeling the pinch. “All the more so since this increase came before a massive hike in energy costs in the first half of the year. If we manage to stabilize energy prices, we may be able to feel better about year’s-end”, estimates Emmanuelle Bonnetin from Rocle By Isabella.
This is the advice from Yves Dubief (UIT), who nevertheless expects a price increase on finished textile and fashion products of up to 10%. “The back-to-business period after the summer holidays may be quite a ride!”, he says, with understatement. In focus will be the transfer of consumers’ fashion budgets toward food products. “Let’s enjoy the present moment: today, textile industry stakeholders are happy with the level of orders they have”. Such is the case of Innova Fabrics, which has seen a 30% increase in the first quarter of 2022 compared to the year before, which had already been up. It’s the same for Maison Lévêque who remain rather confident, with sales up by 20-to-30% in the first half of the year. Others are preparing for the future, a future where the planet is at the heart of all concerns. German firm Chanty Lace, who is expecting a new, major increase in energy costs in Germany, is watching production costs carefully: the constant temperature that large, 3.2-meter lace looms require to function means heat or air-conditioning, depending on the season. It’s all energy, however you see it. Chanty, after implementing a circular system where all the energy supplied for lace production is reused for heating, will be installing solar panels over their entire production site. Every cloud has a silver lining!
Half of French firms want to bring their purchasing back home
SAccording to a survey published in January by the AgileBuyer firm and the National Council of Purchasing, 47% of French firms wish to re-shore their sourcing closer to their factories. And this isn’t due to a sudden fit of economic patriotism. The reasons are far more practical: troubles with supply and skyrocketing freight and transport costs explain this desire to bring supply purchases back to Europe and to find suppliers closer to home. 68% of French firms will be affected by supply issues in 2022. For two-thirds of them, these issues will have a major impact on their margins. According to this survey, 4 out of 5 firms have stated that they want to act to secure supply in 2022 (compared to less than 3 out of 5 just a year ago). Shortages are hitting the agro-food and hospitality industries first and foremost (82%) and are strongly impacting fashion and luxury firms (74%) but have not affected finance (42%) or information technology (38%) as heavily. The only relatively good news: more than 9 out of 10 purchasing managers estimate that these shortages will be short-term, and less than one out of 10 that they are structural.
By Dominique Demoinet-Hoste – DLD Consultant for Interfilière Paris