The Next Threat to Fashion’s Supply Chain

Trouble at the Ports

• The pandemic’s supply chain snarls are starting to unwind, with shipping costs and delays easing
• US West Coast port operators and dockworkers are negotiating a new labour contract; the current deal expires on July 1
• A slowdown, and later a strike, paralysed West Coast ports in 2014 and 2015, disrupting distribution of apparel and other goods made in Asia

The news has been buried amid increasingly dire inflation reports, but fashion’s logistics nightmare appears to be easing. Container shipping costs are down by more than one-third from their peak last fall (though still more than double pre-pandemic levels), according to freight marketplace Freightos. But supply chain managers can’t breathe easy just yet. While the pandemic’s effects on garment factories and shipping are easing, labour strife at US West Coast ports is threatening to throw the crucial trans-Pacific trade route into chaos once again. Barring a last-minute breakthrough, unionised dockworkers at 29 West Coast ports from Southern California to Seattle will be working without a contract. Both labour and management say they’ll continue normal operations as they negotiate. But last time the two sides were at an impasse, in 2014, a months-long slowdown culminated in a strike the following February. Much like with Covid, the ripple effects on global supply chains lasted for months, with retailers struggling to keep shelves stocked and then facing a flood of out-of-season merchandise when ports worked through their backlog. In recognition of the high stakes, President Joe Biden met with representatives from the union and the ports in a visit to Los Angeles earlier this month, and recently signed into law a bill that aims to reduce ocean shipping costs.

The Bottom Line: It’s too soon to know whether the region’s ports will see a repeat of 2015 — labour negotiations regularly stretch past the previous contract’s expiration without serious disruption. However, brands should watch the talks closely, and dust off the stockpiling plans and alternate shipping routes they may have last used in 2015.

Nike’s View of the World

• Nike reports fourth-quarter results on June 27
• The company has had to contend with China’s lockdowns, the loss of its Russia business and the turbulent US economy
• Nike’s outlook for the coming fiscal year will help shape the fashion industry’s expectations

There’s only so much a brand can do: Nike’s results next week will include a period when many of its Chinese customers (who represented just under 20 percent of overall sales in FY2021) were under lockdown, it paused its Russia business (the brand said last week it was formally exiting the country) and perhaps saw the first signs of a weakening US economy. Nike has navigated tough periods before, including a stretch last fall when its Vietnamese factories were closed during a Covid outbreak in the region. Production quickly ramped back up, and continued investment in direct-to-consumer sales has helped the brand control who gets its sometimes limited inventory. And of course, Nike’s problems aren’t unique. Adidas, Under Armour and the rest are facing many of the same geopolitical issues. But as one of the pandemic’s high flyers, the activewear category’s biggest player has further to fall.

The Bottom Line: Nike’s fourth quarter results look backwards at situations like China’s lockdown, which has since been lifted. More important to the industry as a whole is the brand’s outlook for the coming 12 months. Few other brands have the company’s size or global perspective. An unexpectedly optimistic or pessimistic sales forecast will send shockwaves throughout the fashion world.

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