Delays and damp demand: Fashion’s mid-year supply chain outlook

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After the pandemic paralysed global supply chains, delays and heightened costs became part of the new normal, and many brands and retailers integrated longer lead times and more localised production to minimise the impact. The next six months are set to bring a fresh wave of challenges for business leaders to contend with, from the threat of new tariffs if Donald Trump is re-elected and port strikes in the US to growing piles of unsold inventory as a result of sluggish global demand. Here’s what fashion brands need to know.

Unrest in the Red Sea is ‘entrenched’

Nearly a year after Yemen’s Houthi rebels first began attacks on vessels in the Red Sea, the situation remains “entrenched”, says Marijn Visser, global vertical head of lifestyle at shipping and logistics company Maersk, with current pressures on luxury global supply chains expected to continue for the remainder of 2024. European retailers sourcing from Asia are particularly affected, with vessels forced to divert around the south of Africa to circumvent the Suez Canal. This adds around 10 to 12 transit days, says Visser. One luxury brand tells Vogue Business it has seen three weeks added to timelines to move stock by sea from Asia to the UK. As a result, it has amended its approach to orders going forward to be category rather than collection-based to reflect the longer transit times required for certain garments.

Manufacturers are also working with shorter lead times as a result. “The Red Sea situation has influenced the lead time for orders to many customers, who require earlier shipment to catch the original in-store time,” says Richard Watts, managing director of Dishang Group, which supplies a number of leading brands. There’s also a downstream impact on availability of equipment, congestion at ports and trucking capacity, explains Visser. “This creates a market environment where bottlenecks are frequent, often occurring in smaller local or national pockets of the global market.”

High freight costs and squeezed capacity

Compounded by geopolitical disruption elsewhere, such as conflict in the Middle East, sea freight costs are still well above pre-pandemic levels. According to the Drewry World Container Index, though average rates for a 40-foot container are 47 per cent below the 2021 peak of $10,377, they are 291 per cent higher than pre-pandemic levels — at $3,996 per 40-foot container versus $1,420 in 2019 — and substantially above the 10-year average of $2,791.

The luxury market is protected to some extent, says Attila Kiss, CEO of manufacturing hub Gruppo Florence. “Brands expect an increase in costs, mainly due to higher transportation and logistics expenses, but this issue is not particularly significant for the luxury market.”

More impactful, says Visser, is the absorption of air freight capacity by fast-growing Chinese retailers like Temu and Shein. “This trend has been building over the last 12 months, and we already see impacted companies deploying strategies that combine buying more air logistics space upfront with reducing their air dependency — mixing in other transport modes such as rail, trucking and ocean to diversify their supply chains.”

US election rhetoric piques concern…

Companies are keeping a close eye on the US election this November, not least because of threats by presidential candidate Trump to impose a flat tariff of 60 per cent or more on Chinese imports into the country. With around a fifth of US apparel imports by value and a quarter by volume imported from China in 2023, according to data from the US International Trade Commission (ITC), “retailers are concerned about the ongoing anti-trade sentiment, especially towards China, and how this may be exacerbated or alleviated by the next administration,” says Jon Gold, VP of supply chain and customs policy at the National Retail Federation (NRF).

“There is arguably no election in the world that will have more of an impact on global trade than in the US,” agrees Simon Geale, executive VP of procurement at Proxima. “A win for Harris would maintain the status quo in terms of the US’s approach to international trade, but a Trump victory would see a seismic change, particularly in relation to China. A potential decoupling of the two largest economies in the world and the risk of a post-election trade war would have a huge impact.”

… as does the threat of East Coast port strikes

Should current labour negotiations between the International Longshoremen’s Association (ILA) — which represents some 85,000 dock workers — and the US Maritime Alliance fail to reach an agreement before the current contract ends on 30 September, US members of the ILA have threatened to strike at all Atlantic and Gulf Coast Ports. This would have a “domino effect” on supply chains already impacted by existing disruption, says Spencer Shute, principal consultant at Proxima, driving volumes to the West Coast and leading to further delays in transit. “Increased transits, delays at ports, and last-minute changes are all adding costs to international shipping,” he says. “We have already seen a rebound in West Coast port container volumes where Los Angeles/Long Beach [terminals] have taken over as the market share leader of import volume.”

Widespread volatility has triggered a strategic shift

Several fashion brands are scoping out how to nearshore production to increase resilience against future shocks. One luxury retailer says they’re already moving production for shorter lead-time products out of China and into European manufacturers in Turkey or Portugal. Stavros Karelis, founder of London-based concept store Machine-A, says designers and brands he has spoken with have prioritised a “localised approach… diversifying their suppliers, working with a few different ones instead of just one, which allows for managing any risks as well as offering the ability to negotiate better pricing and payment terms”.