News Round-Up: Latin America Nearshoring Opportunities

Updated: Apr 7

By SPESA


A recent article in Women’s Wear Daily noted that Latin America’s apparel exports are expected to increase sharply this year as U.S. brands boost orders south of the border to help ease supply chain woes.

The region has its own challenges of course. Sales of knitwear, T-shirts, polo shirts, lingerie, underwear, and socks are increasing quickly, with potential gains in denim exports as well. However, a lack of fabric, notably synthetic yarn and thread, is making it hard for suppliers to meet orders. The region has also struggled with many of the same issues as the rest of the world including increased materials costs due to both inflation and supply chain uncertainty.


However, almost all of the news we have come across has expounded on the opportunities in Latin America, especially Mexico, related to the sewn products industry. We have rounded up a little bit of that news for you below.


Mexican Factories Gain in Supply-Chain Revamps - The Wall Street Journal Last year, large American manufacturers solicited chemicals, produce, and construction materials and other goods from six times as many suppliers based in Mexico as they did in 2020. This article looks at data related to procurement bids and added suppliers for U.S. manufacturers in 2021.

Why Mexico Could Be the Big Winner in Pandemic Shift to Nearshoring - Forbes A retail contributor to Forbes continues the common assumption that major brands and retailers across the U.S. and Europe are looking to bring manufacturing closer to home amid the ongoing global supply chain crisis. Fed up with astronomical container costs, having their goods stuck in L.A.’s ports, ships stuck sideways down the Suez Canal or endlessly disrupted by fresh Asian Covid lockdowns, manufacturing is shifting closer to consumer markets. The author posits that Mexico is in a key position to gain from such a pivot in strategy, and provides examples of companies moving operations to the country.


Mexico Increasingly Attractive for U.S. Shippers, Manufacturers - FreightWaves With insights from Mexico’s former chief negotiator for the modernization of NAFTA, FreightWaves looks at Mexico’s rising economic and trade status, the rise of nearshoring, and the increased cross-border trade that shined a spotlight on what Mexico has to offer. (Please note: this article gets a little sales-pitchy for cargo insurance towards the end, but we still felt it offered an interesting perspective.)


Textile Manufacturing Market in Mexico to Witness USD 3.98 Mn Growth | Significant Opportunities in Fashion Segment - Press Release Market research firm Technavio expects the textile manufacturing market in Mexico will grow by USD 3.98 billion between 2021 and 2026, with a year-over-year growth of 2.93% in 2022. Rising urbanization and the expansion of the middle-class population in Mexico have increased the demand for garments and other fashion apparel. In addition, the growth of the GDP has boosted textile manufacturing in Mexico. “Many such factors are creating significant growth opportunities for market players in the fashion industry.”


Now Is the Time to Drive Investment and Nearshore Production to the U.S. and Central America - The Hill U.S. Representatives Patrick McHenry (R-N.C.) and Bill Pascrell, Jr. (D-N.J.), Co-Chairs of the House Textile Caucus, drafted this article encouraging companies “to shift production of textiles and apparel at home and in our region, resulting in a win-win for U.S. and Central American workers, the environment, and our supply chain.” This is very much an opinion piece, and should probably be taken with a grain of salt. However, it does a good job of outlining the agreements currently in place that companies can use to their advantage as well as policies that could be adopted to drive additional investment into the region.


Here are a few specific examples of recent investment into Latin America:


Finally, here is that Women’s Wear Daily Article in Full:


Latin American Apparel Exports Seen Growing 10 Percent Latin America’s apparel exports are expected to increase sharply this year as U.S. brands boost orders south of the border to help ease supply chain woes. However, a dearth of raw materials threatens to scupper those gains, experts said.


“We estimate a 10 percent increase in apparel sales as U.S. buyers continue to engage in near sourcing and seek competitive places such as Mexico, which is only 24 hours away by truck,” said industry expert Raúl García, adding that this phenomenon is also lifting demand for Central American and Colombian garments.


For Mexico specifically, Garcia predicted shipments could hit $7 billion this year after rising 6 to 8 percent in 2021. Brisk sales of knitwear, T-shirts, polo shirts, lingerie, underwear and socks are seen fueling those gains, he added.


Denim exports are also forecast to rise sharply, benefiting makers in La Laguna industrial hub, where factories make denim for the likes of Levi’s and Wrangler, according to Garcia, who leads Fashion Outlet Mexico WTC.


He noted, however, that a lack of fabric, notably synthetic yarn and thread, is making it hard for suppliers to meet orders. As a result, the industry is moving to negotiate more flexible rules of origin under the United States-Mexico-Canada Agreement, or USMCA, free-trade deal with the U.S. and Canada.


“We have a 15 percent fabric deficit currently, though that’s better than the 30 percent we had last June,” added Garcia. “Suppliers are looking for an adjustment to the yarn-forward rule to bring more fabric from China or countries like India and Pakistan.”


At press time, top industry lobby Canaive and other industry bodies were engaged in negotiations with Mexican President Andres Manuel Lopez Obrador to pressure the government to make their case with Washington.


Meanwhile, clothing factories are rushing to boost production and increase spending to market their goods at international exhibitions such as MAGIC.


Doing so is crucial after Obrador shuttered export-promotion body Promexico, leaving maquilas alone in their effort to draw new customers.


“We [the industry] are basically blind to Obrador,” said a Mexico City-based apparel consultant, who requested anonymity. “On top of shutting Promexico, he hasn’t helped provide any growth funding or credit lines. This means manufacturers have been forced to seek credit elsewhere. Luckily enough, raw-material and other suppliers have been providing credit for up to 30 days, something they never did before.”


In Central America, exports to the U.S. are also set to surge around 10 percent, according to Juan Sánchez, owner of apparel firm Texsun. However, like Mexico, the isthmus is facing raw materials shortages that are undermining shipments.


“Demand is growing and in Guatemala, we could have a 10 percent increase [to around $2 billion] but yarn thread is very limited and if this continues, we may not grow that much.”

The U.S.’s yarn-purchasing ban from China’s Xianjiang Uyghur Autonomous Region due to alleged human rights abuses is largely to blame for the shortages, according to Sanchez.

“The Chinese have been forced to buy yarn and thread elsewhere and that has created a scarcity in this part of the world. Many spinning mills have been limiting production as a result,” Sanchez noted.


Simultaneously, cotton and thread prices, especially for polyester, have surged 40 percent, squeezing margins for manufacturers, which have not been able to pass the hike onto U.S. customers.


Still, investment has risen, especially in Honduras, as American brands look to boost output. “There is huge investment in textiles, yarn spinning and apparel,” Sanchez said. “No one says how much but we know of several independent projects.”


There is also a lot of spending to boost sportswear manufacturing, notably custom or logowear, Sanchez said, adding that Under Armour and Columbia Sportswear have made such investments recently. VF Corp. and Dickies have also made significant capital commitments, added Sanchez, whose firm makes sweaters and pullovers and supplies companies such as The North Face.


All of this as “the region has become more sophisticated and added much more capacity than a decade ago,” Sanchez said. “It’s easier to replenish with a quicker response. We have eight- to 10-week lead times now compared to 12 to 15 weeks five years ago.”


Buyers’ interest in South America also remains firm. In Colombia, for example, garment shipments grew 50 percent to $900 million in 2021, export lobby ProColombia President Lavia Santoro said during the latest Colombiatex de las Américas textiles fair in Medellín. The two-day event last month drew 270 companies to source a range of textiles, including technical fabrics with antibacterial, solar shielding and impermeable properties, among others.

The event generated $6.4 million in potential sourcing contracts. There were 1,100 international buyers, mainly from the U.S., Ecuador, Mexico and Peru.


One highlight came from Textiles Lafayette, which launched a biodegradable fabric collection to make sustainable fashion. The firm, which marked its 80th birthday, also rolled out four athleticwear fabrics. One included a light, peach-colored fabric with solar and antibacterial protection.


Not to stay behind, Brazil recently saw a spurt of orders with textile and garment exports surging 17 percent last year as a weak real boosted order from key buyers in Argentina, the U.S. and Paraguay. That compares to a 27 percent decline to $151 million in 2020 during the height of the pandemic.


“We are growing in apparel as brands move into the international market and retailers like Renner expand in Uruguay and Argentina,” said Fernando Pimentel, president of industry lobby Abit.


This year, however, shipments could be much more subdued, rising around 2 percent as Omicron and other COVID-19 variants add uncertainty to the order book, according to Pimentel.


However, demand for Brazilian staples such as beachwear and denim could rise more than expected during the European summer. That, and the further stabilization of COVID-19 in the U.S., could prop up exports, he added.


“We like to be conservative when it comes to predicting our international business, at least early in the year, but we should have a better idea of where demand is in two to three months,” he concluded.

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