In the 10 months since U.S. tariffs were announced on “Liberation Day,” apparel sourcing and supply chain executives have been busy modifying operations and tweaking strategies in an attempt to sidestep as much of the margin impact as possible. With differential rates across the garment producing countries, diversifying product origin took on outsized importance. The result has had far-reaching implications for factories, finance and shipping fleets that won’t be easily undone—no matter whether the trade war persists or peters out.
Here, apparel leaders share their perspectives on the ways in which the industry may be facing a new normal when it comes to how goods flow, where they originate and the outlook for the people who create them.
Relationships
Tariffs have prompted companies to re-evaluate the value of long term relationships as they relate to cost, risk and flexibility.
Gene Seroka, Port of Los Angeles executive director, on how the U.S. is perceived internationally: “I see that other countries that were traditional trading partners with the United States are making alternate plans and leaving us behind… The international community looks at us very differently today, and for those of us—whether it’s apparel folks or port folks like us—that rely on those international relationships, we’ve got a lot of work to do.
“The global trade landscape has changed forever, and we have to rise above that. We can’t plan at a port, CEOs can’t plan their businesses with just one budget cycle, one economic cycle or even one election cycle in mind. So we’ve got to have a longer term view. We’ve got to rise above the fray. We’ve got to keep relationships strong across the variety of segments of great people that we work with every day, and we’re going to keep chugging along.”
Jon Langman, partner of consulting firm AlixPartners, on how the cost of switching partners is often overlooked: “The risk of miscalculating the inherent cost advantage of a long-term relationship is hard to quantify as it is, let alone in an urgent situation where companies are under pressure to switch countries of manufacture. Think about it this way: first, there’s the hard cost of onboarding a new partner. Then, there’s the cost advantage of a long-term partner that understands your business, ways of working and design aesthetic. That typically results in more favorable payment terms, fewer sample rounds, fewer product defects and more consistent on-time delivery, to name a few. Inventory is now more expensive, and mistakes are more costly.”
Langman on the benefits of vendors with multi-site, multi-country facilities: “The leaders in the market have been leaning into more strategic vendor relationships for some time now. These are especially appropriate with multi-site/multi-country vendors that can help mitigate tariff and geopolitical risks by shifting volumes across sites and countries. While this doesn’t come without some level of risk, it is better to shift manufacturing country within a vendor that understands your product requirements and design aesthetic than start a brand-new relationship.
“Additionally, speed to market can be enabled by vertically integrated vendors (which also tend to be multi-site/country). These vendors can hold greige goods at one of their hubs (likely the one closest to their fabric mill operations), enabling the retailer to commit to a final style/country of origin once they have clearer demand signals and tariff updates.”
Diversification
The challenges inherent in moving production means the sourcing map isn’t going to automatically snap back even if the trade war were to end. In fact, uncertainty is pushing buyers into new regions, which could further impact timelines, costs and risk.
Vivek Bhatnagar, founder of the Fusion Group sourcing firm, on how diversification has intensified competition: “One big change that has happened for every U.S. retailer, brand or store chain, is that they are going to divide the risk in multiple countries, because you never know where the Administration changes and allocates a new tariff, so that risk is too high to have certain categories only in certain countries. So the fight for business will be bigger and tougher. Every country is competing. Of course, there are new markets that will open up. I think it’s going to be a buyer’s market in the next year or so.”
David Swartz, senior equity analyst, consumer equity research at Morningstar, on the long-term winners and losers: “We’ve already seen some movement away from countries that have higher tariffs, which is probably going to be relatively sticky. There’s already been production that’s been moved out of countries like India that has happened relatively quickly. I don’t think that will reverse. [The same for] Pakistan and Bangladesh. Those three countries, I think probably, are affected as much as any others.
“And if you look at countries like Pakistan and Bangladesh, they’re mostly making basic shirts and basic apparel so those products can be made in a lot of different countries. We’ve already seen a lot of news stories about how there’s been layoffs and factory shutdowns in those countries, and I don’t think that’s going to be easily reversed.
“I don’t know if after [companies] have already moved some production from one place to another that they’re going to immediately move it back, even if the tariffs are paused or changed. For one thing, we’ve seen repeatedly that tariffs can be called off and then reimposed at any time, so there’s no reason for companies to react to every news story that comes out.
“Some of them are going to be permanently impaired. For some of these countries that capacity that was meant for the U.S. market, I don’t think they can make up for it with new contracts in Europe or anywhere else. So some of these factories are going to close permanently. Some of these people are going to be laid off permanently.”
Eric Fisch, national sector head of retail and apparel, corporate banking at HSBC,on how tariffs are shaking retailers out of their comfort zone: “Asia has just this incredible amount of volume and concentration of skill and concentration of materials, that it’s just the most efficient place to get everything you need, all in the same place. And so people have just kind of stuck to that [but] Latin America seems like it will be a beneficiary of the distribution of tariff levels. And so I think that could have long-term implications for our industry, around development of infrastructure and in new facilities, and that leads to new opportunities there.”
Fisch on how the trade war is undermining quick-turn strategies: “There’s still a financial cost to having a more diverse supply chain, because you have to spend more bandwidth managing more factories. The other factor is there’s a time component. The most volume-heavy ports in China and in Vietnam are the most efficient to ship product to the U.S. As you get further from those, it’s more time consuming, and often there’s a design impact. Often you have to start the process earlier before the season. And so there’s a risk in placing orders earlier and earlier that the demand is going to shift, the style is going to shift. All these create risks when you go to countries that are less sophisticated.”
Bjorn Bengtsson, chief product officer of apparel brand Untuckit, on limitations of wholesale diversification: “We are looking at duty-free countries quite a lot, like Egypt, Tunisia and Morocco. I kicked off some things there already last year, but it’s not really at the proportion that it will have a wide-reaching impact on our bottom line. But I can’t move everything; I have product that has to be made in certain places. So my options are fairly small. For those companies with massive volumes, even if they find a factory in Vietnam or Egypt that can handle the orders, produce the quality, handle logistics and all that, changing supply chains is always a gradual process. It’s not like you can just move from A to B. There’s going to be a little bit at first, a little bit more, then a little bit more and that process might take two or three years to go through that process. And then what do we do? In 2028, we might have a new president. So we changed everything and now we might have to change back again? So I think people are not so willing to do major surgery on the supply chain; only cosmetic surgery.”
Langman on how the geopolitical situation is pushing retailers to take a holistic view of margin impacts: “Using ‘gut’ reactions to tariffs versus validating through data can compound cost issues with deeper discounts and loss of customers. Some retailers are updating their financial budgeting methods to account for tariff impacts as tariff changes have started to settle. These financial budgets are driving merchandising strategies, line plan architecture, investment reviews to ensure that margin modeling is as accurate as possible to avoid major margin variances that can’t be solved in-season. When we see miscalculations, it’s usually because they don’t factor impact to other variables such as MOQ and lead times because they don’t directly impact product cost. Yet these factors impact markdowns and working capital needs. So what may seem like a smart decision from a cost of goods sold (COGS) perspective ends up costing more in other areas (margin and cash).”
Logistics
Where goods are flowing to and from has accelerated changes to freight logistics and how buyers and sellers do business, changing product flow into the U.S.
Robert Krieger, president of freight forwarder and customs broker Krieger Worldwide, on how trade lanes have changed: “There are new ocean alliances, and a couple of them have changed the way that they’re operating their ships to more of a hub and spoke method. That, in itself, even without the tariffs, was going to affect service to many places in the U.S., both seaports and also inland destinations.
“A lot of the ocean carriers are no longer U.S. centric. Trade between foreign countries has increased. So with that, I believe that they further went away from the services that a lot of their U.S. customers need and want… Some of them are taking some of the larger vessels that used to be destined to the United States and servicing Europe or other areas of the world.
And then, as business has gone further south and further east, it now becomes more viable to offer services to the U.S. East Coast by water. So again, it depends upon where the customers are and the type of merchandise. I would say roughly two thirds of buyers in the United States are located east of Mississippi, with a large amount being on the Eastern Seaboard. So that has also affected things.”
Krieger on why, for some, Incoterms may have changed for good: “Many of our clients have had to secure their Customs bond with a letter of credit because their duties went up three-fold, four-fold, five-fold, 10-fold, depending upon the product and where they were buying it from. Whereas in the past, they didn’t have to do that. Without [a Customs bond], you can’t import, except if you import on a [delivery duty paid] DDP basis.
“Some companies have shifted their Incoterms from FOB to DDP [where] factories are handling the entire process. But we do know that Customs has gotten more aggressive, particularly for companies that didn’t used to import DDP. And what we’ve heard in the industry is many companies face issues, that the factories weren’t valuing [goods] properly, and they’ll face delays in clearance or [face] investigations that they deliberately undervalued the shipments.
“[If the tariffs were to go away,] some people will just simply say, ‘Hey, it’s easier to buy on a DDP basis.’ And if there hasn’t been a disruption in their supply chain, they’ll continue to do that. Many others will want to go back to buying on an Ex Works or an FOB basis, because there are many different advantages to doing that.
