Trans-Pacific Partnership could accelerate footwear sourcing to Southeast Asia
Southeast Asia's increase in market share is coming at the expense of China and Hong Kong, although China has such a large share of the U.S. market — about 80 percent — that it will continue to dominate for years to come.
According to PIERS, a sister product of JOC.com within IHS Maritime & Trade, footwear imports from Vietnam, Indonesia and Cambodia have surged the past four years while imports from China, and Hong Kong have declined. U.S. imports of footwear from China were down 3 percent in 2014 compared to 2010. Imports from Hong Kong declined 36 percent over that four-year period.
Vietnam, meanwhile surpassed Hong Kong last year to become the second largest exporter of footwear to the U.S. Vietnam's footwear exports to the U.S., measured in 20-foot container units, increased 85 percent from 2010 to 2014, according to PIERS.
Indonesia, which is the fourth largest supplier of footwear to the U.S., increased its shipments 82 percent compared to 2010. Cambodia is the fastest-growing producer of footwear for the U.S. market and ranked sixth last year. Cambodia's exports have more than tripled since 2010.
Matt Priest, president of the Footwear Distributors and Retailers of America, noted that while the growth in sourcing from Vietnam, Indonesia and Cambodia is expected to continue, it will take years for those countries to develop the total infrastructure that is needed to support a booming footwear industry.
That includes not only the ports and roads needed to transport the raw materials and finished products, but also the many suppliers of components and inputs used in the production of footwear.
Vietnam has been developing the physical infrastructure and network of suppliers for the past decade, and its footwear exports to the U.S. really began to take off several years ago, increasing to 41,894 TEUs in 2012, 55,715 TEUs in 2013 and 63,799 TEUs in 2014, according to PIERS. Vietnam's exports this year are increasing even faster, totaling 17,312 TEUs in the first quarter.
Cambodia's growth has been especially strong, although the country started from a modest base of 784 TEUs in 2010. China, by comparison, exported 415,358 TEUs of footwear to the U.S. that year. Cambodia's exports to the U.S. last year totaled 3,354. Priest described Cambodia's growth in footwear exports as more of a “spill-over” from Vietnam than any other factor.
Footwear sourcing is driven largely by labor costs. FDRA studies have shown that when the cost of shoes increases, purchases in the U.S. drop. As labor costs increase in China, migration of sourcing to lower-cost countries, such as those in Southeast Asia, will accelerate.
However, it takes years for the emerging nations to develop the physical infrastructure and supplier base required for a robust footwear manufacturing sector. China's infrastructure and supplier base are unrivaled in the world.
Another important contributor to the cost of footwear imports is the duty rate. In a presentation last October to the annual FDRA conference in Long Beach, Priest said footwear importers pay $2.5 billion a year in duties on more than 2 billion pairs of shoes.
Duty rates vary by the type of shoe, but at an average of 10.1 percent, the duties paid on footwear are noticeably higher than for many products. There are no duties on cell phones. Import duties on tobacco are 2.4 percent and on auto parts 2.5 percent, he said.
That is why footwear importers strongly support the TPP trade agreement. Vietnam is the only significant footwear producer in the 12-nation partnership, and a steady decline in duties is expected to translate to rapidly increasing footwear imports from Vietnam. ■