The morning after the shock election, bleary-eyed members of the United States Fashion Industry Association (USFIA) and American Import Shippers Association (AISA) arrived at Tribeca Rooftop in New York City, ready for much-needed coffee after a late night watching election returns—and much-needed conversation about what’s next for the industry. The 28th Apparel Importers Trade & Transportation Conference kicked off with a discussion of the future of the fashion industry under the Trump Administration, and the day continued with discussions about change in government, trade policy, retail markets, sustainability, and how we do business.
USFIA President Julie Hughes welcomed attendees by highlighting the shock many felt following the late-night announcement of Republican Donald Trump’s win in the 2016 presidential race. “This was a tough campaign, a divisive campaign. A lot of folks were surprised at the outcome”, said Hughes. “I just want to say how happy I am that we’re meeting here together today.” Noting that the anti-trade and protectionist sentiment may be concerning to many in the industry, Hughes said, “We’ll continue to fight in Washington.”
Michael Singer, Vice President of Customs & Social Compliance at Macy’s Merchandising Group and Chair of USFIA, put a positive spin on the results by highlighting the potential for influencing the dialogue on trade in Washington. “There are obvious trade issues that we have to deal with over the next four years,” said Singer, “but there may be opportunities on a regulatory basis.” He also mentioned the day’s other hot topic, sustainability. “Sustainability has moved from a nice-to-have to a requirement in our space. We have the opportunity to lead.” Singer added, “When our industry leads, we have the ability to move the needle in a lot of areas.”
What Now? The 2016 Elections & the Outlook for Trade & Customs Policy
David Spooner, Partner at Barnes & Thornburg LLP, Former Chief Textile & Apparel Negotiator at the Office of the U.S. Trade Representative, and Former Assistant Secretary of Commerce for Import Administration, kicked off the first session by highlighting the surprise results. Most, including Spooner, expected Hillary Clinton to win, with a flip to a Democratic majority in the U.S. Senate and higher parity between the two parties in the U.S. House. Of course, this did not happen. He listed several of Trump’s advisors on trade policy and economics, highlighting their protectionist stances. “We should be concerned,” he said. However, there may be opportunities for the industry if Trump brings new faces to the Office of the U.S. Trade Representative (USTR) and takes a fresh look at trade agreements.
On the Trans-Pacific Partnership agreement (TPP), Spooner acknowledged it will be a tough road to pass it during the Trump Administration. “Theoretically,” said Spooner, “there’s enough time for TPP to move in a lame duck and Ways & Means is setting aside enough time to do it.” However, leadership has said the votes simply aren’t there, in part because “the Administration made compromises in the final round [of negotiations] that lost them votes on Capitol Hill.”
He also spoke about the future of the Transatlantic Trade & Investment Partnership (TTIP) between the United States and European Union. The negotiations are not going well, with both the German Vice Chancellor and the French Trade Minister calling for an end to TTIP in September. The demise of TTIP and the TPP mean that the industry will need to be even more active in D.C., especially during the new Administration, Spooner concluded.
Jon Fee, Senior Counsel at Alston & Bird LLP in Washington, D.C., said this is the first election year since Ross Perot that trade has had anything to do with the presidential race. With candidates on both sides denouncing TPP and free trade in general, the country made a remarkable turn from championing globalization since WWII. Pointing to how the dialogue got started on the left, Fee said, “[Bernie] Sanders believed that FTAs enriched the billionaire class.” And on the right, Trump was always “very outspoken” against trade agreements. “Trade became the proxy and scapegoat for everything people felt was wrong with America,” said Fee. “As The New York Times pointed out, trade isn’t the main force destroying jobs, but it serves as a good target.”
On Trump’s promise to renegotiate or scrap the North American Free Trade Agreement (NAFTA), Fee said the agreement contains a provision that allows any party to withdraw with six months’ notice. Once in office, Trump could do this “without the advice or consent of Congress,” he said. And, despite campaign promises, this would bring “no movement of jobs back to the United States.” The old U.S.-Canada FTA may immediately return into force if NAFTA is scrapped, and there will most likely be protracted litigation if Trump does indeed withdraw the United States from the agreement. However, by the time any litigation made its way to the highest courts, Trump’s appointees would be in place, so it may not matter anyway.
Fee said the United States has an identical withdrawal window from the World Trade Organization (WTO), following which “the U.S. would enjoy the international trade status of Iran, North Korea, Syria, and a few others.” Among the potential fallout, the U.S. would also lose the benefit of the binding dispute resolution process, protection against non-tariff barriers, and intellectual property protection. Adding his thoughts on TPP’s chances, Fee said, “Walking into this buzzsaw comes TPP. It was once seen as a sure thing, but it’s not too sure anymore.”
John Pellegrini, Customs Counsel at McGuireWoods LLP, concluded the panel with customs issues. He noted the increased enforcement under the Trade Facilitation & Trade Enforcement Act of 2015 (TFTEA) has bipartisan support in Congress and would most likely continue under a Trump Administration. On the changes to the forced labor statutes and CBP’s ability to impose an embargo on goods suspected to be made with forced or child labor, Pellegrini said, “Under this law, importers have absolutely no rights.” Other customs enforcement issues include the new process that allows domestic interests to claim importers are cheating. This would lead to a hearing at CBP, which is a first. “We’ll see how this is implemented when they get the first complaint from domestic interests,” he said. He also cautioned importers that “there are people out there looking for violations” or suspected cheating, with businesses being set up to bring cases in district court.
During the question and answer period, both Fee and Spooner said the new Miscellaneous Tariff Bill (MTB) process should not be hampered by the election, particularly as the new process addresses concerns brought by Republicans in Congress. Spooner added that the MTB process could serve as a template for resolving the earmark problem, which used to be the “grease that kept the Congressional wheels moving.” He attempted to end the session with some positivity, saying, “Trump will cause uncertainty and perhaps chaos. But this might cause opportunity for the industry.”
Transportation Executive Forum: Are There Lessons Vessel-Sharing Partners Can Learn from the Hanjin Meltdown?
Moderated by Hubert Wiesenmaier, Executive Director of AISA, the Transportation Executive Forum covered the ongoing changes and realignment in global shipping as a result of the 2009 global financial crisis. A common consensus, shared by the first speaker Brian Conrad, Executive Administrator of the Transpacific Stabilization Agreement (TSA), was that “carriers are in serious trouble.” He pointed to the up-and-down utilization during 2016, the rising cost of bunker fuel, and the continued drop in freight rates.
Conrad said the entire industry should take the Hanjin bankruptcy as “a wake-up call.” Noting the Ashley Furniture court case, shoppers are still liable for freight payments “even if the carrier is belly-up.” With the current outlook, there is no choice but for contract rates to increase dramatically in 2017. “Global container volume is on track for worst year since 2009,” he said. “Everybody serving you as a carrier is operating at levels below break-even.” With the mergers, bankruptcies, and acquisitions, Conrad estimated that only 14 major carriers would remain within a few years. Alliances will be a key factor for carriers moving forward, with three Japanese carriers announcing a merger in just the last month.
Brian Moore, Director at Maersk Line North America, didn’t mince words: the poor situation today is due to bad economic forecasts. Carriers ordered bigger ships expecting continued 8-10 percent growth, and then the recession hit. “With all of the consolidation happening right now, is it enough?” asked Moore.
Greg Tuthill, Chief Operating Officer of CMA CGM Americas, took a different tone. “I’m more optimistic on where we’re headed,” he said. “The most positive outcome out of all of this is stability. The same thing happened in the airline industry. We’ve had a highly fragmented market for many years, and this brings stability to the market.”
Ken Uriu, Business Development Manager for the Port of Long Beach, spoke about some of the changes taking place on the West Coast to prepare for the bigger ships and increase port efficiency. Long Beach is the biggest textile and apparel port in the country, so improvements there affect the entire industry. When asked about the potential for another labor dispute, Uriu said the International Longshore & Warehouse Union (ILWU) and Pacific Maritime Alliance (PMA) have already started talks ahead of their contract expiration in 2019. Stakeholders can plan for stability.
A Conversation with U.S. Customs
Mary Jo Muoio, Senior Vice President of Trade Services for GEODIS, interviewed Todd Owen, Executive Assistant Commissioner at the U.S. Customs & Border Protection Office of Field Operations. Owen said the current CBP Commissioner Gil Kerlikowsky is a political appointee, so he will be leaving in January with the Obama Administration. While it took Congress five years to confirm Obama’s appointee, Owen did not see a repeat happening and said career employees would stand up and fill in gaps during the transition. “You really should not expect much change as we go through this transition,” said Owen.
Muoio asked Owen about cargo clearance, noting that it is central to trade. “It’s a problem when we don’t see containers move,” said Muoio, asking how CBP will help this process. He said CBP never wants to be the reason why cargo is delayed at the docks. “We take this responsibility very seriously,” he said.
The interview also covered the Centers of Excellence & Expertise (CEE), which are now codified under the TFTEA. Owen noted the trade initially brought the idea to CBP, saying “What I’m hearing from the trade community is that having that direct interaction with the trade specialists at the CEEs is a big improvement over where we used to be.”
Regarding the increased enforcement responsibilities under the TFTEA, CBP has issued six withhold-release orders so far, all for goods imported from China. Owen also spoke about improvements to C-TPAT with integration of the Trusted Trader program.
Sustainability & Innovation
The afternoon turned away from the election to two more hot topics.
In Sustainability from the Ground Up, attendees heard about two approaches to cotton sustainability. Michelle Tarry, Director of Responsible Sourcing for American Eagle Outfitters, shared an overview of AEO’s sustainability program. With more than 300 factories operating in 21 countries around the world, when AEO decided to grow their sustainability programs they joined the Sustainable Apparel Coalition (SAC) and the Better Cotton Initiative (BCI). AEO has a specific focus on water for their environmental sustainability, with wastewater guidelines, environmental practices, and sustainable products. “We looked to see what was happening in the industry and built on existing collaborative programs rather than building our own,” said Tarry.
Daren Abney, Membership Engagement Manager for the Better Cotton Initiative (BCI), explained how his organization is helping cotton farmers and brands achieve sustainability. BCI is a non-profit member-based organization that takes multi-stakeholder approach to cotton on the entire supply chain. Established in 2009, BCI now has over 900 members across the supply chain. Abney said BCI is on track to reach around 15 percent of global cotton production in the world. “At the end of the day,” he said, “we’re also focused on creating a raw material that’s more sustainably available in the marketplace for suppliers and brands.”
J. Berrye Worsham, President & CEO of Cotton Incorporated, shared the view of cotton sustainability from the U.S. perspective. The “Cotton Leads” joint program between the United States and Australia is working on development and implementation of better technology to push cotton to a “more responsible position.” He emphasized the importance of collaborative efforts and technology in driving sustainability, but added that trying to pinpoint a single definition for sustainability is an exercise in futility. “The more precise you try to be, the more difficult it becomes,” Worsham said.
All panelists agreed that sustainability is no longer optional, and that not taking action raises more questions than anything. Tarry said being transparent about your sustainability efforts will offer some protection.
The next session looked at how sustainability concerns impact product and fabric design. Future Fashion: Innovations in Fabric & Design, moderated by Maytee Pereira, Managing Director in PwC's Customs & International Trade Practice. The panel began with the man-made fiber perspective. Tricia Carey, Director of Business Development for Denim at Lenzing Fibers, shared how the company is taking denim to the next level. “In denim we see a lot of innovation happening. It’s hungry for newness.” Carey said, however, that innovation comes at a cost, and “there’s not good research about what percentage of the market is willing to spend more on sustainable fabrics. I don’t think the retailers and brands are pushing it enough.”
Michael Tyndall, Vice President of Product Development & Innovation at Cotton Incorporated, talked about their work with chemical companies to bring new attributes to cotton products, such as recycling jeans for insulation, or using cotton waste products to dye cotton fabrics.
Jay Hertwig, Vice President of Global Brand Sales, Marketing & Product Development for Unifi, Inc., spoke about the “shifting tides of traditional retailing,” Ecommerce has affected the next level of innovation. “At Unifi, sustainability means recycling,” said Hertwig.
Navigating Retail’s Next Mile
Tim Laseter, Managing Director of PwC's Strategy&, led an interactive session about what’s ahead for retail. There is still a lot of interest in store-based shopping for clothing and footwear, but of course, companies must still think about e-commerce and multi-channel retail. A survey of over 2000 frequent online shoppers showed that cost-to-serve, which is willingness to pay, matters in the battle among traditional retail, omni-channel, and pure-play ecommerce. When brands and retailers look at making decisions about ecommerce and traditional store fronts, Laseter said they must consider a number of factors, including willingness to pay. “There isn’t one right answer,” said Laster. “The right answer depends on your consumers, your customers, your product mix. That will change the winning model for willingness to pay and cost to serve. The one important thing is you can’t sit back and let Amazon take the marketplace.”
Wrap Up: The Future of Trade Policy and the Global Fashion Industry
At the end of the day, thought leaders from across the industry took a closer look at how new political and global climates would affect the industry moving forward.
Robert Antoshak, Managing Director of Olah, Inc., said, “The fact is there’s more competition in the market for the consumer dollar,” which he described as a problem that has been snowballing.
Avedis Seferian, President & CEO of Worldwide Responsible Accredited Production (WRAP), said today’s broad availability of clothing is a real buyer’s market. As social compliance and sustainability have moved from a risk-management perspective to a marketing perspective, one of the questions brands and retailers must ask is, “How can I use this to tell a story and distinguish myself from my competitors?”
Domenick Gambardella, Partner & National Practice Leader in PwC's Customs & International Trade Practice, said the industry must brace for increased enforcement. “I doubt we’re going to see a kinder, gentler customs commissioner.”
Gary Barraco, Director of Global Product Marketing for Amber Road, said from a supply chain perspective, there’s uncertainty about infrastructure improvements under a Trump Administration. “We have issues with the trucking industry,” said Barraco, listing the labor shortage and aging population as factors. He also brought up the high volume of cargo theft as another critical issue facing the industry.
Michael Lambert, Director of Global Trade and Compliance, URBN Inc. (Urban Outfitters & Anthropologie), said, “Even if we build the wall or tear down NAFTA, we’re not bringing those jobs back to the United States to manufacture. We are always going to source globally and we are always going to have global customers. It’s one of the most uncertain periods of time that I’ve seen in this business with a President Trump and Brexit and protectionism.”
Lambert shared a story to show the importance of maintaining a presence in Washington, no matter who is in charge. In one office, Congressional staff started the meeting by saying they oppose TPP because it doesn’t provide sufficient worker protections. “I thought that they’d flirt with us a little bit rather than reject us out of hand,” said Lambert. “We just wanted to express to him where we have a common ground here, because regardless of the legal requirements around protection of worker rights in the TPP, we at Urban have higher standards than that already. So, regardless of whether we’re obligated under TPP to be at a certain standard for the factories we do business with, we are already looking out for the workers in the factories that produce goods for us because it’s important to us, it’s important to our customers and it’s important to our associates.”
USFIA President Julie Hughes asked about opportunities for the fashion industry. Barraco mentioned the possibility of opening more trade with Europe. Lambert noted the opportunity to increase awareness at the executive level on the importance of global trade and compliance. These changes give the trade and compliance people an opportunity to explain what they do and how it shapes the company.
Gambardella said we should seize the moment of opening old trade agreements to fix things the industry doesn’t like, and try to get a good outcome.
Seferian said the industry has a bad reputation with NGOs and doesn’t seem to have many friends in Congress. This upheaval will allow the industry a chance to tell its story, and to educate the people that make the decisions.
Antoshak concluded that, whatever happens to the trade agreements or with a Trump Administration, the basics of business remain the same. “We’re all in business to make money and that has to be the fundamental thing we can’t lose sight of,” he said. “If there’s not a TPP, business keeps going. If there’s not a TTIP, business keeps going. The fact is, either the business makes sense or it doesn’t make sense.”
For more on the annual conference, take a look at Amber Road’s blog post, or our recent press hits. Thanks to Lisa Keyser for compiling this summary.
