The European Committee of Textile Machinery Manufacturers (CEMATEX) and the Japanese Textile
Machinery Association (JTMA) announced that ITMA Asia 2005 will return to Singapore, site of ITMA
Asia 2001. The exhibition will take place at the Singapore Expo Exhibition Centre, Oct. 17-21,
2005.
January 2003
According to Gil Cable, designer, Robert Noble, a Scottish company that has been
weaving woolen fabrics since 1666, “Creating new patterns on CAD equipment is fast and fool-proof.
We used to draw and color by hand on graph paper. What took us three weeks to design by hand now
takes three hours with CAD.”
Lectra Solutions: From Textiles To Transportation
Paris-based Lectra – a leader in CAD and CAM equipment – develops, manufactures software and
hardware and markets it to a broad array of markets, including textiles, apparel, home furnishings,
leather, industrial products and retail. Its 10,000 customers in 100 countries are major
international corporations and small to mid-sized businesses.
Lectra works with textile firms such as Arco Texteis and Fàbrica Têxtil Riopele, both based
in Portugal; Boussac and Emmanuel Lang, both based in France; Wittamer, Belgium; and a host of
firms in China, Italy, Turkey and Brazil. In fashion and retail, Lectra sells to Calvin Klein,
Eddie Bauer, JCPenney, Sara Lee Intimates, Sears, The Gap, and Victoria’s Secret, among others.
Loewe, Fendi and Louis Vuitton are some of the luggage and leather goods companies that use
its systems. Furniture and furnishings clients are among the world’s leaders: La-Z-Boy, Parker
Knoll and Rolf Benz. In transportation, almost every major firm uses Lectra systems. Boeing, Cessna
Aircraft, Jaguar, Land Rover, Lear Corp., Lockheed, Renault F1 and Sea Ray Boats are some of them.
Founded in 1973 in Bordeaux, France, Lectra sold its first CAD system in 1976. Its first
automatic cutting system was introduced to the market in 1985. In 1990, the company was taken over
by André and Daniel Harari. Today, the Harari brothers own 33 percent of Lectra; institutional
investors and the public, 66 percent; and employees, 1 percent. André Harari is chairman of the
board and Daniel Harari is CEO.
According to Daniel Harari, “There is only one market – the world. We have a unique global
presence.” Lectra maintains 78 offices around the world, with international call centers in
Bordeaux-Cestas, Atlanta and Hong Kong to serve European, American and Asian markets. Revenues in
2001 came to 194.5 million euros, with 87 percent coming from outside of France. Europe represents
54 percent of its revenues, North America 22 percent and the Asia-Pacific region 18 percent.
Asia and North America are two markets in which Lectra has made inroads. Wal-Mart, Sears and
Boeing signed on in 2001. In China, Lectra has 300 customers, representing a market share of 30
percent.
“Lectra is a customer-driven company,” Harari continued. “Our mission is to help our
customers overcome their strategic challenges. We can do this by reducing their costs while
boosting their productivity, reducing time to market, dealing with globalization, developing secure
communications across the supply chain, enhancing quality, satisfying the growing demand for mass
customization and managing control over their corporate image and brands.”
Lectra’s equipment spans the entire process, from design to manufacturing, including visual
merchandising. Users can design and color fabrics on screen, develop garments, create, mark and
size patterns, and establish a collaborative environment embracing everyone involved in managing
collections, thanks to a powerful graphics database. From electronic catalogs to product display,
interactive software is there. CAD/CAM equipment includes automated cutting systems, automated
spreaders, plotters and textile digital printers.
New-Generation Cutting Room And Color Equipment
Research and development is ongoing at Lectra’s industrial facility in Bordeaux. With 180
research and development engineers and technicians, new products are being developed following the
demands of customers in every aspect of design, production and marketing. New-generation cutters
that debuted in April 2000 have sold well in China for mass customization applications and in the
United States for handling industrial fabrics. They are easy to use and require minimum training,
according to the company. To date, 150 new Lectra cutters are in the market.
With customized heads, Lectra’s Vector cutters can handle all weights of fabrics. Vector
Denim, a product of the Vector range, can cut 60 layers of 14-ounce denim with no problem. In one
hour, 1,200 five-pocket jeans can be cut.
Recently, laser cutters were introduced for airbags. Lectra’s Focus Airbag-HP allows an
increase in productivity of between 20 and 50 percent.
In 1998, Lectra started a program of acquisition and strategic partnership. Color management
and communication, through a partnership with Datacolor, provide exact color matching on paper or
fabric. Colors may be altered to match the closest Pantone reference.
Digital printing, through a strategic partnership with the Netherlands-based Stork Prints
BV, is a combination of integrated hardware and software connected to the Internet. Patterns
designed and colored on Lectra equipment can be directly communicated to Stork’s printing machines.
Machinery turns out prototype jacquard and yarn-dyed patterns or knit stitches, and also shows how
each pattern looks in garment form.
Made-To-Measure For Mass Production
Through a partnership with Human Solutions, Germany, Lectra is marketing Fitnet –
body-scanning equipment that can produce made-to-measure garments at mass-production prices. The
body measurement technology is easy to use, integrated into the manufacturing process and connected
to the order process.
Today, there are approximately 100 2-D and 3-D body measurement technology installations
producing military uniforms for Germany, Denmark and the Netherlands. Successful retail programs
are located in Germany and the Netherlands.
3-D body measurement technology can benefit manufacturer, retailer and consumer. For the
manufacturer, there is no guesswork in production. Instead, there is a closer relationship with the
retailer. The retailer needs little stock, and consumers buy made-to-measure garments of
their choice.
At retail, the time from body scanning to cutting machine is about 10 minutes. After the
customer’s dimensions have been taken by the scanner – a procedure that takes 20 seconds – garment
style and fabric selections are made on the computer. An on-screen prototype will show the customer
how he or she will look in the garment. It takes about eight days to make the finished product. The
technology is inexpensive, easy to set up and easy to use, according to Lectra.
Customer Focus
According to Harari, Lectra is a customer-focused company devoted to “providing solutions
for the industry and making a profit for our customers. We offer quality products and services.” At
its call centers, Lectra handles on-line and off-line support, training and consulting.
Installation and maintenance are handled by each call center. In Atlanta, 14 experts handle about
2,400 calls per month. “In addition to our technology, we are selling the expertise of our people,”
said Harari. “Computers do all of the work.”
Moda & Co., France, recently purchased integrated equipment from Lectra to handle all
aspects of product design and manufacturing. This 12-year-old company makes swimwear and intimate
apparel for NAF NAF, Iodus and Morgan, and private-labels for high-end stores, including Galeries
Lafayette and Neiman Marcus.
Swimwear Sales Manager Korine Yohay Simon explained that Moda & Co. works with each
label to design merchandise. Prototype garments are created using Lectra’s CAD equipment. Most of
the fabrics used contain Lycra®. Base fabrics come from France, Italy and Spain and are
transfer-printed by Moda & Co.
Pattern making and grading is done using Lectra equipment. “We maintain a library of
designs,” Simon said, “so it is easy to revise and modify. All patterns are made in size 38 and
digitized on the computer. It saves time and is error-proof.”
“Our computers do all of the work,” Simon continued. “They calculate the time to assemble
each garment, and the cost. They implement quality control and procedures through the final
product. We use computers to check fabrics, and things like weight and color.”
All cutting is done at Moda & Co.’s new facility in Toulouse. Two Vector 2500 machines
can cut up to 12,000 pieces a day. Cutters can easily be moved between spreading tables. “We prefer
Vector cutters,” said Simon. “They are easy to use, and Lectra provides excellent service.”
Another advantage pointed out is equipment flexibility. Iodus is a line of swimwear,
producing a smaller number of garments. The NAF NAF line is younger, with larger quantities than
others. Vector 2500 machines can handle both lines with ease.
About 10 percent of the sewing is done at Moda & Co.’s Toulouse facility, while the rest
is assembled at a company-owned factory in Tunisia or contracted through a plant in Bulgaria.
Quality control is ongoing through the entire process.
Currently, Moda & Co. is producing 1.5 million pieces a year. “We have the capacity to
do more,” Simon said. “At the moment, swimwear sales are off. Intimate apparel is selling really
well.”
Hermès Saves Time To Market
Hermès is another company that relies on Lectra technology throughout the design and
manufacturing process. From pattern making and grading through to garment pricing, time to market
is lessened.
Patterns are created, graded and laid out via computer. Hermès uses Lectra’s Gallery system
as a management support tool. Software calculates the future cost of each product, tracks the
status through production, and communicates with all personnel. Although the initial cost of
equipment is substantial, there is a return on the investment. With fewer people needed to do the
job, more reliable information and a four- to six-week jump on the market, computer
technology is paying off.
Worldwide, Lectra continues to make significant gains. “No longer are we thought of as a
specifically French firm,” Harari said. “We are now viewed as an undisputed world leader.”
January 2003
This cautiously optimistic picture is based on more than just wishful thinking. Mills –
after another year of shutdowns, mergers, modernization moves, global partnership pacts and
management reorganizations – are now poised to survive and even prosper in today’s increasingly
competitive marketplace.
Growing emphasis on new fabrics and stylings should help, by keeping consumers in a spending
mode. So should an economy which, while still far from robust, is expected to grow at a respectable
2.5 to 3 percent annual rate over the coming year.
Nor do costs seem to present any insurmountable problems. To be sure, there should be some
small advances in fiber costs, but ample supply will keep such boosts in bounds. Combine this with
solid productivity gains that should pretty much offset relatively modest payroll hikes, and
overall cost pressures seem quite manageable.
On the other hand, prices of mill products will be hard-pressed to show any significant
advances. But tags should be firm enough – when combined with improved strategies, rising volumes
and very modest cost increases – to ensure some improvement in both earnings and margin
performances.
There are some important international uncertainties. Clearly, new Middle East conflict
could change the ground rules. But assuming no big new curveballs, here’s a more detailed look at
what
Textile World
editors – taking their annual trek to the crystal ball – see ahead for the still quite
impressive, close-to-$80 billion mill and mill product industries.
2003 Demand: A slow turnaround will finally push mill shipments (yarns, fabrics,
finishings and others) back into the plus column – with dollar totals expected to advance about 1.5
percent. A slightly larger 2-percent gain is seen for mill products, including automotive, carpets
and home furnishings.
Combined overall shipments will show their first advance since 1997. On a less rosy note,
that would still be some 11 percent under the all-time peak hit during that earlier year.
Inventories: The news is good here. Pipeline holdings have dropped significantly
over the past year – especially in the mill area, though to a lesser extent for textile products.
With these stocks down at near minimum levels, any further declines in key inventory/sales ratios
are likely to be quite small.
This, in turn, suggests that new orders will be met more and more by new production rather
than by drawing down existing stocks. And that’s a key reason, in addition to improving final
demand, why mill and mill product output should be sporting increases over the upcoming months.
Prices: Increases, as suggested earlier, will be relatively scattered and
generally on the small side. Behind the sluggishness here is a combination of still-high capacity,
strong import competition, downstream pressures from both apparel makers and consumers, and only
limited upside cost increases.
At most, only about a 1-percent increase in overall price averages is anticipated – not
enough to keep these tabs close to 2 percent under the peaks hit back in the 1996 to 1998
period. On the other hand, this projected textile performance doesn’t compare all that badly with
the overall US producer goods average, where hikes are expected to be only in the 1- to 2-percent
range over the upcoming year.
Costs: No sweat here. As noted above, fiber costs for the most part will sport only
minimal gains. This is pretty much confirmed by a recent Global Insight Inc. (formerly Data
Resources Inc.-Wharton Econometric Forecasting Associates [DRI-WEFA]) forecast for the industry’s
material and services input costs. The big economic consulting firm puts the new year’s increase at
only 1.6 percent.
The labor situation is especially encouraging. True, the industry is anticipating a
3-percent or so increase in payroll costs, but this will be cushioned by a near-equal increase in
output per mill hour. As such, unit labor costs should remain relatively unchanged.
Foreign trade: The past year was somewhat of a disappointment, as estimated imports
on a square meters equivalent (sme) basis rose by a rather impressive 7 percent. That’s in marked
contrast to the nearly unchanged rate of 2001. Another fairly strong gain is seen for 2003 –
probably something in the order of 5 to 6 percent.
Exports are not likely to provide much of an offset, as lackluster overseas growth rates
slow the demand for US-made products. As of now, for example, it’s hard to see much more than a
small 1-percent or so export advance. The result: a further increase in our already huge textile
and apparel trade deficit to more than $63 billion. That’s double the levels prevailing just a
decade ago.
Employment: The combined impact of very modest industry growth and increasing
output per person hour is taking its toll. This past year, for instance, textile jobs dropped by
close to 10 percent. And the new year won’t be all that much better, with worker totals expected to
decline another 3 percent or so.
The drop is equally disturbing in the apparel area. This past year’s 10-percent worker
decline is expected to be followed by another 7-percent dropoff over the next 12 months. Viewed
from a long-term perspective, textile and apparel employment will fall to only around 900,000
workers in 2003 – off more than 45 percent from a decade earlier.
Industry capacity: Disappointing demand has, not surprisingly, forced some
industry contraction. How much shrinkage? Compare a 3+ percent increase in capacity utilization
last year with only a small 2-percent increase in output, and it suggests a 2-percent decline in
capacity or production potential.
This trend should continue as
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equations point to further modest drops in available capacity. Combine this with another
small demand gain, and operating rates should move up another two percentage points to near the
78.5 mark. While this is still some 12 to 13 percentage points under the 1994 high, it does point
to progress – albeit slow – toward a better supply-demand balance.
Profits and earnings: Earnings finally seem to be bottoming out. One thing’s for
sure, there’s little to suggest a repeat of 2000, when mills reported a disastrous loss of nearly
$356 million. This past year, for example, the industry managed to eke out a profit of just over
$300 million – a figure that should edge up to $325 million in 2003. But that’s still a far cry
from the $2 billion peak hit back in 1998.
Margins are following a similar pattern, with after-tax profits per dollar of sales and as a
percent of stockholders equity expected to approach 2 and 3 percent, respectively, this year. While
hardly nirvana, it’s again a lot better than some of the negative numbers reported over the past
few years.
Beyond 2003: Looking beyond the current year becomes a little more uncertain –
particularly as 2005, when all import quotas are eliminated, approaches. But at this stage of the
game, the prognosis remains moderately encouraging.
To be sure, the output losses of recent years will never be recouped as we continue to move
into a single global market. On the other hand, all the steps taken and in the process of being
taken, do seem to assure a viable, though smaller, industry.
Global Insight, for example, sees mills holding their own or maybe even eking out fractional
gains through the foreseeable future – enough to push gross operating profits up to $15 billion by
the end of the current decade – some 15 percent above this year’s estimated level.
Uncle Sam’s analysts would seem to agree. Indeed, they’re even more optimistic. More to the
point: a recent Bureau of Labor Statistics (BLS) projection calls for average annual textile output
increases of 1 percent over the 2000-2010 period.
And if you zero in on some of the subsectors, the BLS outlook is even rosier. Knitting mill
output over the decade, for example, is expected to be up 1.7 percent annually. Carpets, meantime,
are targeted to grow at an almost-as-encouraging 1.3-percent annual pace.
New Products, Processes
Much of this longer-term optimism is based on the ever-growing number of new offerings that
will be hitting the market in the years ahead. Indeed, this is something that has already been
bearing fruit – with innovative new fibers and fabrics even now buoying demand in many different
areas.
One of the most successful of these has been the positive consumer response to the
introduction of wrinkle-free fabrics for shirts. And this is something that’s still being worked
on. Witness, for example, new fabrics that are chemically treated to prevent the puckering of
pockets, cuffs and plackets.
But that’s only the tip of the iceberg. Coming off the drawing board are finer-micron wools,
improved yarns, and more colors and patterns – all designed to spur demand. Equally significant are
creative new blends, as well as older ones with unique new looks, including more washable,
water-resistant and soft-stretch offerings.
Some of the biggest firms are at the forefront of these moves. DuPont, Wilmington, Del.,
recently announced a commitment to introduce 25 new fiber products within the next five years –
with five of these targeted for the current year.
The company also has teamed up with Levi Strauss to produce Lycra®-blend jeans. DuPont also
is working on clothes that can be detected by global positioning satellites.
In another area, Celanese Acetate, Charlotte, and KoSa, Houston, are working together to
develop fabrics made with stretch polyester in the fill and acetate in the warp. Included will be
many sateens, twills and plain weaves.
Then there’s Nano-Tex LLC, Greensboro (51-percent-owned by Burlington Industries), which has
launched a chemical process that adds “nanowhiskers” to fabrics, rendering them wrinkle- and
stain-resistant. The company also has developed activewear fabrics that disperse and dry sweat.
Last, but not least, there are “way out” materials that incorporate battery-operated heat
panels and small control units that let the wearer warm up, or cool down the garment. There are
also new thermal insulations that automatically store and release heat in response to skin
temperatures.
To be sure, not all of the above developments will be blockbusters. But they all emphasize
the industry’s new approach – one designed to improve offerings and thereby strengthen bottom-line
performance.
Productivity And Employment Trends
All the innovations and breakthroughs just alluded to, however, are just one part of today’s
industry survival strategy. Equally important is the need to continually beef up efficiency.
And here, too, mills seem to be racking up a pretty impressive record. If there’s any doubt
on this score, take a look at the Textile Productivity chart in Figure 4, which traces productivity
advances over the past decade. Output per textile worker has jumped close to 36 percent over the
past 10 years – the equivalent of a 3-percent compounded annual rate of increase.
And there’s every indication this rate of gain will continue.
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predictions, for example, put the 2003 gain at near 3 percent.
Go beyond the current year, and the prognosis is equally upbeat. Specifically, the
previously alluded to 1-percent annual gain in output projected by BLS analysts over the current
decade is accompanied by predictions of further declines in textile employment.
Indeed, compare the employment slippage with the increase in production, and you end up with
something approaching 4-percent annual increases in worker efficiency over the 2000-2010 period.
That’s equal to or even better than the all-US-industry average.
Factors behind this continuing productivity trend aren’t too hard to find. Still impressive,
albeit somewhat diminished, spending on new, more sophisticated plants and equipment can’t be
underestimated. Not only does this cut costs, but it also helps put mills on the cutting edge,
allowing for the production of new high-tech engineered fabrics – products that were virtually
unheard of a few short years ago.
More savvy use of capital spending dollars may also be playing a role in efficiency gains.
Mill men are taking a much more hard-headed approach to investment outlays. With capital spending
budgets tight, they’re concentrating on squeezing even more out of the investments they’ve already
made. In a sense, the emphasis is on spending better rather than spending more.
All this, when combined with only fractional gains in demand, is making for a continuing
shrinkage in the textile workforce. This year, mill employment is targeted to drop down to less
than 420,000. That’s a 38-percent-drop from just 10 years earlier.
And employee declines are even more precipitous in the apparel sphere. Thus, this year’s
estimated less-than-480,000 total represents an eye-opening 51-percent slide from a decade earlier.
What it all boils down to is a smaller, leaner and more efficient operation. It’s a “must”
strategy, as both the textile and apparel sectors move to stay viable in today’s rapidly changing
business climate.
Import And Export Trends
Trade is another area undergoing constant change. Behind all this: a volatile and still
somewhat uncertain world market, in which ground rules remain as “iffy” as ever.
Some of the big issues now are: new exchange rate changes and their effect on prices;
ability to open foreign markets to US textile exports; US mill ability to integrate production and
sales in a one-world market; and stricter enforcement of trade laws.
Further out into the future, there is the uncertainty of what happens two years from now,
when virtually all quotas are eliminated for World Trade Organization (WTO) countries. Of
particular concern is the potential influx of still more Chinese exports.
This latter point is clearly something to watch. Not only is China capable of flooding the
world with low-cost textiles and apparel, but that nation also could be a problem in high-end
products, too, as Chinese expertise and management sophistication approaches or even tops that of
other world producers.
Then there’s the move towards a Free Trade Area of the Americas (FTAA). Also targeted for
2005, it would call for the eventual elimination of tariffs and non-tariff barriers among countries
in the Western Hemisphere.
Coming back to the nearer term, the new year’s import total of textiles and apparel on a sme
basis is almost sure to show another gain. True, there won’t be a resumption of the double-digit
gains reported over the 1997-2000 period. But it’s hard to see how another meaningful advance to
more than 37 billion square meters (m2) can be avoided.
The new Trade Act passed in 2002 also will bear close watching. Among other things, it
increases the potential for duty-free apparel made from African fabric and yarn, knit apparel made
from Caribbean fabric and imports from the Andean nations.
Nor can any meaningful import offset be expected on the US export side, as lackluster
overseas economies dampen overseas demand for US fabrics and garments. In any case, combine this
disappointing export demand with still-rising imports, and a further increase in the already huge
textile and apparel trade deficit seems virtually unavoidable.
On a more upbeat trade note, textiles should continue to fare better than apparel over the
coming years, as domestic mills increasingly send fabrics to overseas locations for cut-and-sew
operations – and then send the finished garments back to US retailers for sale.
Costs Stay Under Control
The overall cost prognosis isn’t all that bad either. To be sure, over recent months there
has been some creep-up in cotton fibers into the 45+ cent range. But that’s a far cry from the
peaks of just a few years back.
True, the new year could see some fractional further advances for the natural fiber. But
they won’t be catastrophic, as a good US 2002-03 crop combined with another fairly large world crop
assures an adequate or even more-than-adequate supply.
One demand question mark, however, is the extent of new Chinese buying. There’s some talk
that the big Far Eastern cotton consumer may initiate some substantial purchasing later on in the
year.
Man-made fiber tags also are expected to remain within bounds. One reason is this past
year’s big jump in global capacity. World potential at last report, for example, was put at 12.8
billion pounds. That’s a big 24-percent jump over year-earlier estimates. Given this capacity
overhang,
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forecasts call for only about a 2-percent price increase over the new year. That’s not nearly
enough to bring these quotes back up to the peaks prevailing in the late 1990s.
But there’s a caveat here. These price estimates might have to be raised despite today’s
global capacity glut. It all centers around petroleum feedstocks for these fibers. Should Middle
East problems spark an oil price spike, then there could be repercussions both on petrochemicals
and, ultimately, on man-made fiber tags.
Meantime, the outlook for the other big textile cost area – labor – remains fairly upbeat.
Forecasts calling for continuing pay restraint can be made with more than a fair amount of
confidence. And, as detailed earlier, the combination of only modest payroll increases combined
with strong productivity gains would seem to pretty much guarantee little or no upward pressure on
unit labor costs.
New Global Insight forecasts suggest that this labor and fiber cost restraint will continue
through the remainder of the decade. The consulting firm’s predictions call for overall input costs
of the industry to advance only about 1 percent per year on average through this extended period.
A Blueprint For The Future
But not everything will be coming up roses. True, the textile industry will most certainly
survive and even prosper, but it will take a lot of imagination and effort. Put another way: the
key to survival in today’s competitive marketplace – flexibility, innovation, cooperation and
globalization – will be more important than ever.
All this, in turn, will imply increasing attention to such critical areas as cycle time;
communications with both suppliers and customers; quality control; inventory management; and
product differentiation, including the development of niche markets.
Differentiation and new product developments are now pretty much industry “musts.” They’re
the kind of approaches that not only beef up the demand curve, but also point the way out of
today’s price-cutting morass.
And these ideas can work with basic established fabrics, as well as with brand-new ones.
Take, for example, denim, where constructions with unique washes, as well as more interesting
fashions, are not only moving well, but are showing more resistance to downward buyer price
pressures.
No matter how low US commodity textile prices go, they’ll still be higher than those quoted
in Asia and other areas of the developing world. As one fiber executive observes, “It’s suicide
today to place all your eggs in the commodity basket. The more you differentiate, the better off
you’re likely to be.”
The Congressional Textile Caucus could play a major role in leveling the international trade
playing field. The group is expected to concentrate in such key areas as the speed of textile quota
removal, illegal transshipments, global market access and assistance to displaced domestic textile
workers.
But perhaps the most significant need in today’s competitive climate is for more cooperation
among firms operating up and down the textile and apparel production and distribution lines.
Upstream, for example, there’s clearly a need for more communication and planning between
mills and fiber makers. Not only should this include increased mill dependence on fiber companies
for development work, but also closer liaison between the two to come up with new fabrics, blends
and variations.
Traveling further downstream, there’s the inevitable trend toward more and more global
cooperation and control, all the way down to finished garments and other products.
There are endless variations on how all this can be accomplished. One Burlington executive
describes how his company has in a very real sense reinvented itself. He details how the firm – by
supplying both the management and technical expertise, but not the ownership – will be
masterminding a global network of fabric and apparel operations.
In any case, textiles have become a whole new ball game. As still another top mill executive
sums it all up: the only strategy for survival is supply chain management – with the ultimate goal
of delivering the right products at the right time and at the right price to both retailers and the
ultimate US consumer.
January 2003
Example: while mill production for all of 2002 is down fractionally, the gradual bottoming
out that started last spring has actually lifted these output numbers close to 3 percent above
beginning-of-2002 lows. And pretty much the same is true of mill shipments, where early-in-the-year
declines have given way to a relatively flat pattern. A similar picture also is seen for prices,
where recent firming in selected mill areas contrasts to the intense weakness of earlier quarters.
And, last, but not least, profits are again edging into the black. Bottom line: the free fall of
the past few years may soon be little more than an unpleasant memory.
Factors Behind The Turnaround
All indications are that this improving textile picture will continue – not only through
2003, but also into the latter part of the decade. It’s hard to ignore, for example, today’s
combination of favorable signs
(See ”
Textiles
2003,” this issue). Not surprisingly,
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‘s analysts and most mill executives have turned cautiously optimistic. True, nobody
anticipates any return to the boom numbers of the late 1990s. Nevertheless, the betting is that
2003 will compare favorably with 2002 in such key areas as orders, output, sales and even profits –
assuming, of course, we can avoid a new, debilitating Middle East conflict. And what goes for the
new year also applies for the longer pull. Over the current decade, for instance, we now look for
steady to slightly higher mill activity – with most major mills not only surviving, but even
prospering.
A Detailed Look At Labor Trends
That’s not to say that every single textile statistic will be turning around this year.
Textile employment, for example, will continue to shrink, as fewer and fewer workers are needed to
turn out a given amount of fabric and other textile products. But that’s not all bad – except, of
course, for textile workers being laid off. Indeed, without more and more efficiency gains, the
industry would be in hot water – unable to compete in today’s low-labor-cost global marketplace.
Moreover, this productivity trend will continue. On the other hand, the accompanying labor-force
shrinkage should be a lot less precipitous than noted over the past few years. That’s because the
productivity gains from here on in should be partially offset by slowly improving demand levels.
During the new year, for example, the 3-percent or slightly higher projected efficiency increase
will be counterbalanced by a demand gain of about 0.5 to 1 percent, thus holding this year’s
workforce reduction to only about 2 to 2.5 percent. That’s a lot better than last year’s close to
10-percent decline. It should also be pointed out that textile gains now equal or top those of many
other industries. And based on recent Bureau of Labor Statistics (BLS) projections, this
encouraging trend is expected to continue.
Textiles Versus The Overall US Economy
Nor is the solid progress on the productivity front the only area in which textiles compare
favorably with other domestic manufacturing industries. Production figures are equally encouraging,
with latest textile mill output figures currently running better than 2 percent ahead of a year
ago. That’s actually better than the 1+ percent gain noted for overall US manufacturing activity
over the same period. Zero in on softgoods, where the overall US manufacturing pattern has been
flat – and textiles’ progress looks even more impressive. Even in the pricing area, mills have been
holding their own vis-á-vis the rest of the economy. Specifically, the basically unchanged textile
price level of the last 12 months isn’t all that different than the fractional 0.5-percent price
advantage reported for all finished goods. Indeed, international trade seems to be the only major
sector in which textiles continue to show up poorly relative to the rest of the economy.
Specifically, the industry’s imports over the past year have continued to surge – in sharp contrast
to an overall US import gain of only 1.5 to 2 percent. Upshot: the US textile and apparel trade
deficit has skyrocketed to more than $60 billion – double the decade-ago level.
January 2003
I
t looks like a busy and perhaps crucial year for textiles as the 108th Congress and the
administration get down to work on an agenda ranging from taxes to trade and a new look at
government regulations. For the first time since the Eisenhower administration in 1953, Republicans
will not only have the White House, but will also control both houses of Congress.
Where textiles are concerned, this is both good and bad. On the plus side, President Bush is
expected to offer an economic stimulus package early in the session in an effort to get the economy
moving again. On the other hand, with Republicans in control of both houses of Congress, President
Bush’s ambitious international trade agenda is in for much clearer sailing, and that could spell
trouble for textiles unless the industry can extract the safeguards it says it needs. On the
regulatory front, there is likely to be more emphasis on voluntary efforts and cost/benefit
evaluations of mandatory rules.
Trade Issues:
Armed with new Trade Promotion Authority (TPA), the Bush administration will be pressing
forward with a far-ranging agenda to promote free trade. The administration quickly negotiated free
trade agreements with Singapore and Chile. Once these pacts are finalized, they will have to be
considered by Congress. Under the new TPA legislation, Congress can only vote it up or down and
cannot make any amendments.
Also on the administration’s agenda are free trade agreements with Morocco, Central America,
South Africa, all of Latin America and the 10 nations that comprise the Association of Southeast
Asian Nations (ASEAN). Textile state representatives will weigh in heavily with efforts to
influence all of these free-trade pacts, as well as the Doha Round of trade liberalization
negotiations at the World Trade Organization (WTO).
Look for members of the Congressional Textile Caucus and textile-state senators to continue
leaning on the administration to step up its activities to combat piracy of textile designs and
illegal transshipments, and to do something about what the US industry sees as unfair subsidies
resulting from currency manipulation by Asian nations.
The Environment:
The Environmental Protection Agency (EPA) is expected soon to issue a final anti-air
pollution regulation that will have an impact on textile finishing operations. Under development
for more than five years, the so-called Maximum Achievable Control Technology standard could come
at any time.
During the comment period on the standard, the American Textile Manufacturers Institute
(ATMI) raised major concerns with the proposed standard, charging that it made erroneous
assumptions about emissions and could force some companies to drop certain product lines, including
some used by the Armed Forces. The EPA is about to issue a proposed standard covering emissions
from boilers. The standard could cause problems for textile facilities that still burn coal.
Consumer Product Regulations:
Textile manufacturers for the most part seem to be comfortable with the new chairman of
the Consumer Product Safety Commission (CPSC), Hal Stratton, who they believe will take a balanced
approach to regulations and put more emphasis on need, scientific data and economic feasibility.
In a major development, CPSC has issued a notice of proposed rule-making calling for an
overhaul of the 50-year-old Flammable Fabrics Act, saying the act is out of step with today’s
products and cleaning and care practices. In addition, the commission is in the process of
gathering information with the thought of developing a new standard covering small flame exposure
to upholstered fabric. And in a related development, the California Bureau of Home Furnishings and
Thermal Insulation is in the process of revising its standard covering small open-flame exposure to
upholstered furniture.
United States Proposes Eventual Elimination Of Tariffs
US Trade Representative (USTR) Robert B. Zoellick has put forth what he describes as an “
ambitious new proposal” for WTO members to eliminate all tariffs on consumer and industrial
products by 2015. The proposal was quickly endorsed by US textile and apparel importing interests,
but it went over like a lead balloon with textile manufacturers.
In presenting the proposal to the WTO in Geneva, Zoellick said the plan to achieve zero tariffs
would benefit both developing and developed countries and would result in significant savings for
American consumers. “The proposal would turn every corner store in America into a duty-free shop
for working families and would benefit the average American family of four with an extra $1,600 a
year,” he said.
USTR Zoellick
The plan calls for industrial and consumer goods tariffs that currently are 5 percent or lower
to be removed by 2010 and all remaining tariffs to be reduced to 8 percent.
Tariffs on certain “highly traded” commodities should be reduced “as soon as possible,” but
no later than 2010. Between 2010 and 2015, countries would be required to make equal annual
reductions until all tariffs are gone by 2015.
Kevin M. Burke, president and CEO of the American Apparel and Footwear Association (AAFA),
enthusiastically endorsed the proposal, saying the “scope and reciprocal nature of this initiative
are unprecedented and long overdue.” He said the proposal not only removes US import barriers, but
also eliminates barriers imposed by other countries.
US textile manufacturers saw the proposal in an entirely different light, charging that it
would jeopardize the jobs of “millions of additional workers” in the United States, as well as in
Mexico, Central America, the Andean region and Sub-Saharan Africa that depend on preferential
textile trade programs. ATMI said the proposal is “an outright gift to China,” which it said is
already flooding the United States and other markets with textiles and apparel.
While the Zoellick proposal calls for a separate program to identify and eliminate non-tariff
barriers that would run on a parallel track with industrial tariff negotiations, that did not
satisfy ATMI. It said that same promise was made to the industry in the round of trade negotiations
that ended in 1994, and those barriers still remain today. ATMI is sticking with its position that
the United States should not make any further tariff concessions until other countries agree within
two years to reduce their tariffs to US levels and eliminate all non-tariff barriers. The proposal
is far from a done deal. The less developed countries are just as reluctant to give up their
tariffs as the US textile industry is, so there will be any number of proposals and
counterproposals before final agreement is reached by 2005.
Chile And Singapore Pacts Please US Textile Industry, But Not Importers
The US textile industry is generally
pleased with the new free trade agreements with Chile and Singapore, but importers of textiles and
apparel, to say the least, are not all that excited. Under the agreements, textile and apparel
imports will become tariff-free immediately if they meet the country-of-origin rule, which
specifies that goods must be made from the yarn stage forward in one of the participating
countries. And that’s where importers have problems. They feel the Singapore agreement will be
virtually worthless because Singapore has very little textile manufacturing, and the time and
distance involved in using US fabric make trade impractical.
Both agreements call for tough Customs enforcement and protection of patents and designs. In
addition, the agreements contain provisions granting duty-free treatment to a limited amount of
imports, known as Tariff Preference Levels (TPLs), that contain yarn and fabric made in
non-participating countries. While the US industry strongly objects to TPLs, in the case of Chile,
importers should benefit from some additional trade that likely would contain yarn and fabric made
in Asia or the Far East. In the best of all worlds, importers would like to see all textile trade
completely free of quotas and tariffs.
January 2003
The U.S. Trade Representative and ministers from five Central American countries have announced
plans to negotiate a free trade agreement that they hope to conclude by the end of this year. The
countries involved, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, currently account
for some 16 percent of US imports of apparel.
In announcing the agreement, U.S. Trade Representative Robert B. Zoellick said: “The Central
American Free Trade Agreement (CAFTA) will give Americans better access to affordable goods and
promote US exports and jobs, even as it advances Central America’s prospects for development.”
US importers of apparel were enthusiastic in their endorsement of the pact. Kevin Burke,
president and chief executive officer of the American Apparel & Footwear Association (AAFA),
called it “an historical event in US/Central American trade relations” that will build on the
“successful partnerships” created by the 1980 Caribbean Basin Initiative and the Caribbean free
trade agreement of 2000. Burke also expressed the hope that the agreement would be free of
restrictive rules of origin.
On the other hand, the American Textile Manufacturers Institute (ATMI) has urged government
officials to establish a separate textile and apparel negotiation group, and to insist on a yarn
forward rule of origin with no allowances for yarn or fabric from outside of the free trade area.
In connection with recent trade agreements, there is a yarn forward rule of origin, but a limited
amount of imports using fabric or yarn from countries other than the participants, also qualifies
for the special treatment.
Importers are likely to press for an expansion of the previous country of origin rules and
seek to have inputs from Mexico and Canada included.
The industry/labor coalition ATTAC has insisted that eligible trade should only be between
the U.S. and individual countries.So, as has been the case in previous trade agreements, the rule
of origin will be a major bone of contention.
January 2003
Russell ReportsThird Quarter GrowthRussell Corp., Atlanta, reported third-quarter 2002 sales
increased by 10 percent over year-earlier sales, while earnings per share (EPS) grew by 29 percent
over year-earlier EPS.Third-quarter EPS of 72 cents included an after-tax charge of $3.1 million,
or 10 cents per share, resulting from an increase of Kmart bad debt reserve on its pre-Chapter 11
accounts receivable balance.Sales rose $35.7 million to $387 million. Russell credited the increase
to new and expanded fall programs for fleece, socks and certain branded products.Our business
building and cost saving efforts have been key elements in improving our financial results, said
Jack Ward, chairman and CEO.
December 2002
Seepex MD Pump AvailableWith Stainless Steel HousingA new stainless steel bearing housing developed by Seepex Inc., Enon, Ohio, is now standard on all bare shaft pumps in the companys line of MD corrosion-resistant metering pumps. Seepex reports the new housing eliminates many corrosion-related problems.MD pumps are used to meter sodium hypochlorite, ferric chloride, strong acids and bases, and other aggressive chemicals. Pump bodies are stainless steel or high-density polyethelene, and internal parts are made from stainless steel, Hastelloy C4, titanium or Kynar®. The pumps are non-pulsating and have a wide turndown.December 2002
Equally important is the outlook for holiday sales. Apparel and homefurnishings are moving
tolerably well, but only with promotions and some outright price slashing.
Textile World
is cautiously optimistic that these markdowns will be effective — aided by such factors as
lower interest rates, a new rash of mortgage refinancings, and rising incomes. These same forces
were operative last year at this time — and they worked. There’s little to suggest they won’t
again.
Upshot: This season’s apparel and homefurnishings sales, while they won’t be spectacular,
should manage to rack up a modest 3- to 4-percent overall gain.
Prices Remain A Problem
The raising of textile quotes, however, is another story. The big apparel markdowns alluded
to clearly will strengthen garment-maker and retailer resolve to resist the posting of any new
fabric increases on the part of the mills. So will today’s deflationary price climate — one in
which overall US producer prices continue to lag behind year-ago averages.
Cheap imports — which are again coming in at a near-double-digit clip — are proving to be
still another price-boosting inhibitor. Ditto, domestic mill overcapacity — as mill operating rates
struggle to remain over the relatively low mid-70s range.
Finally, there’s the cost side of the price equation. Mill profits could certainly use some
beefing up, but there’s little to suggest any crisis in their labor and fiber costs that would
precipitate any big new cost-price passthroughs.
Price Indices Tell The Story
The combined impact of all the price determinants noted is taking its toll. It helps explain
today’s virtually flat patterns in almost every textile area — with only the carpet and rug sector
(up 2 percent over the past year) managing to eke out a meaningful advance.
Proof positive of all this easiness comes from TW’s bellwether, all-inclusive Textile Mill
Products Price Index. Latest readings show little more than a miniscule 0.5-percent price advance
since February. And if you zero in on key greige goods and finished fabric price averages, you find
both sectors down 1 to 2 percent from a year ago.
Moreover, given all of today’s domestic and international uncertainties, these key price
yardsticks are highly unlikely to post any meaningful increases — at least not over the next few
quarters.
Fiber Tags Are Sluggish, Too
There’s also been little overall upward movement in fiber prices. True, there have been some
small increases and decreases, but for the most part they’ve balanced each other out.
On the upside, cotton has moved from the low 30s range of last year to the mid-40s currently
– mainly on the strength of a somewhat lower crop and the outlook for stronger cotton exports. But
that still leaves these tags well under levels prevailing a few years back.
Meantime, man-made fiber tags remain relatively weak – actually running 1.5 percent under a
year ago. This man-made fiber easiness should continue as global capacity takes a huge jump in 2002
– rising 24 percent to nearly 73 billion pounds. Cashmere is another shaky fiber these days – with
prices now hovering near historic lows.
Some Positive Signs
Before the year becomes history, some of 2002’s encouraging trends should be pointed out.
Profits for the industry as a whole are again in the plus column. Cone Mills, a firm hit with
losses last year, now reports a solid gain for the recently ended third quarter. Other outfits cite
similar results.
Another positive trend: a dramatic drawdown in top-heavy industry inventories. In the mill
sector, holdings have dropped an eye-opening 28 percent from year-and-a-half-ago peaks. And in the
textile product area, a continuing rise in sales has dropped this sector’s stock/sales ratio
significantly — from a near 1.60 months’ supply to only a 1.45 reading currently.
And last but not least, there’s the spate of industry shutdowns, reorganizations and
modernizations. When combined with the increasing number of new products, this should pave the way
for even more improvement through 2003 and beyond.
December 2002
The United States and Chile have reached a free trade agreement that has been well received by the
textile industry but has received only a lukewarm endorsement from importers of textiles and
apparel. The key element, and also a bone of contention, is a country of origin provision that says
in order for products to be eligible for duty-free treatment, they must be made of yarn and fabric
from the participating countries. Importers contend that the yarn-forward provision is entirely too
restrictive and will discourage trade within the countries. The agreement will permit the
importation of a limited amount of goods, known as Tariff Preference Levels, made with yarn or
fabric from other countries. In the case of fabric, this will amount to one million square meters
annually and two million square meters of cotton and man-made fiber apparel. Chile is one of the
few countries where the US currently enjoys a textile trade surplus, with $41 million in exports
and only $1 million in imports.The agreement contains strong provisions designed to protect fabric
and clothing designs and patents, and calls for heavy penalties for goods that circumvent the rule
of origin. For example, the Chilean government guarantees it has authority to seize and destroy
counterfeit goods and the equipment used to produce them. It also provides for criminal and
monetary penalties.The final text of the agreement still needs to be worked out and signed by the
respective governments, and Congress will have the final say as to whether it approves or
disapproves of it.By James A. Morrissey, Washington Correspondent
December 2002
