What forecasts and trends to expect from the Textiles Industry in 2022
Chief Commercial Officer
If 2020 lives long in the memory as the year Covid-19 reared its ugly head and dealt an indiscriminate blow to society and the global economy; 2021 will be remembered as the year we learnt how to live with the challenges posed by a global pandemic.
This is how it has played out in the textiles industry, which was buffeted by Covid headwinds in 2020 - from enforced home working and travel restrictions to supply chain dislocations and a stark imbalance between supply and demand. Take the UK textiles industry for example, Covid scarring wiped almost £10bn off the £45bn UK consumers typically spend on clothing and textiles annually. Moreover, the UK only exported £8.9bn of fashion and textiles, down from £9.7bn in 2019.
The textiles industry demonstrated its resilience in 2021 against a backdrop of red-hot inflation, waning consumer confidence and persistent headwinds generated at the start of the pandemic. There were signs midway through the year that it was turning a corner - particularly in markets where vaccination rates were high. In the US, for example, the release of pent-up demand post-lockdown created spikes of so-called “revenge buying” triggering a growth spurt that echoed an earlier phenomenon in China. The combined operating revenue of major textile enterprises in China rose by 14.2% during the first 10 months of 2021 to top 4.13 trillion yuan ($650.4 billion). These firms amassed total profits of 198.3 billion yuan, up by 29.7% compared to a year earlier.
While the textiles industry is well-placed to continue regaining lost ground in 2022, it must be prepared to brace for aftershocks from the pandemic and Brexit. Several forecasts and trends are expected to impact the textiles landscape over the coming months - and businesses must cut their cloth accordingly.
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The textiles industry is wrestling with severe talent shortages after a government advisory body rejected calls to offer more visas to foreign workers. Manufacturers have more vacancies than ever but are “concerned about a potential talent shortage with their predominantly European workforce seeking the security of work at factories on mainland Europe” according to think tank Fashion Roundtable.
The widespread labour shortage is depriving UK textiles manufacturers of suitable candidates with specialist training to fill these vacancies post-Brexit - and the knock-on effect is concerning, with work moving abroad and companies relocating from a sector worth billions to the UK economy.
Last year, Fashion Roundtable applied to have garment workers and fashion creatives placed on the Shortage Occupation List - for roles deemed to be in short supply that are subsequently afforded more relaxed eligibility criteria for sponsored work visa applications - amid concerns that an exodus of workers post-Brexit would leave gaps in one of the largest creative industries, but it was rejected by the government’s Migration Advisory Committee.
Concerns about the impact of the post-Brexit trade agreement - notably red tape and travel restrictions - on the UK’s £35bn fashion and textile industry were raised in early 2021. In an open letter to Boris Johnson, leading industry executives and icons - including models Twiggy and Yasmin Le Bon - said that Brexit was decimating the complex international supply chains and relationships that form the foundation of their industry.
“The deal done with the EU has [left] a gaping hole where promised free movement for goods and services for all creatives, including the fashion and textiles sector, should be,” they wrote in the letter co-ordinated by the Fashion Roundtable.
Fast-forward 12 months and a significant drop in imports and exports of textile goods between the EU and UK have resulted in losses for companies on both sides of the divide. Trade data from January to September 2021 shows imports fell by 44% to almost €2bn and exports by 22 per cent to €1.6 billion. The most impacted EU countries on the export side are Italy, the Netherlands, Belgium and Germany according to the data, while Germany, Ireland and France have been most impacted on the import side.
Research by the UK Fashion and Textile Association (UKFT) in May 2021 revealed the true extent of disruption to the industry since the Brexit trade deal was implemented on 1 January 2021. The UKFT surveyed 138 UK businesses - from leading fashion brands, textile manufacturers and wholesalers to fashion agencies, garment manufacturers and retailers.
The results of the survey showed that:
- 98% are experiencing increased bureaucracy
- 92% are experiencing increased freight costs - Covid may also be a contributory factor.
- 83% are experiencing increased costs and bureaucracy around customs clearance.
- 74% are experiencing increased costs generally associated with Brexit. The vast majority of those surveyed plan to pass these costs on to consumers in the next six to 12 months.
- 71% currently import from the EU.
- 53% are experiencing cancelled orders.
- 44% have experienced rejected or returned goods due to costs of duty, clearance and VAT.
- 44% had been affected by unexpected duties when re-exporting goods.
- 41% had been struck by double duties
- 7.5% plan to relocate production from the EU to the UK in the next 12 months.
- 6% said they have relocated production from the EU to the UK as a result of Brexit.
Unless the UK and EU cooperate to assuage fears by removing the issues in the EU-UK trade agreement that restrict trade, things could get worse after the full customs regime between UK and EU entered into force on 1 January 2022.
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Supply chains buckled overnight when Covid-19 swept across borders in March 2020, prompting draconian lockdown restrictions that shackled the global economy. The fragility of these vital networks was exposed at a time when demand for goods skyrocketed - creating challenges that have rippled into 2022:
- Regulatory hurdles: Increased border controls and customs regulations continue to create congestion at borders, compounding the supply chain crisis.
- Rising freight prices: Shipping costs have soared amid a container shortage. These 40-foot steel boxes - which are the backbone of the shipping industry - are collecting dust in inland depots or cargo ports following major disruptions on land and at sea.
- Port Congestion: The logjam of container ships outside ports across the globe is showing little sign of abating. For example, carriers struggled with schedule reliability in December as congestion at ports and the Omicron coronavirus variant resulted in delays.
- HGV driver shortage: A Road Haulage Association survey of its members in October 2021 estimated there was a shortage of more than 100,000 qualified drivers in the UK. This included thousands of drivers from EU member states who were previously living and working in the UK before Covid-fuelled travel restriction prompted an exodus.
The subsequent suffocation of supply chains is restricting access to raw materials and key components in the textiles industry. This shortage of materials, combined with a strong recovery in demand, is driving up the price of linen, cotton and polyester - forcing factories to panic buy in an attempt to hedge spikes in demand, causing prices to rise further.
This persistent block in the supply chain alongside a sharp rise in energy (oil and gas) prices have pushed up prices and will continue to be reflected in the annual rate of inflation over the coming year - which is currently running red-hot and showing little sign of cooling.
Consumer prices in the UK have accelerated at their fastest rate in nearly 30 years - and there is worse to come, experts have warned. Soaring living costs and the energy bill crisis propelled inflation to 5.4% in the 12 months to December 2021, up from 5.1% in November - and even further from the Bank of England’s 2% target. The last time inflation was higher was in March 1992 when it touched 7.1%. And with gas and electricity costs forecast to rise further in the spring, analysts predict it will hit that level again.
A quarterly survey has revealed that British manufacturers expect to raise prices by the most since 1977 in the first quarter of 2022, as they contend with labour shortages and the largest increase in costs since 1980. The Confederation of British Industry (CBI) report reinforces the Bank of England's concerns that sky-high inflation is getting ingrained into businesses' pricing plans, increasing the chances it will hike interest rates again to curb prices.
The CBI survey highlighted rising factory orders, robust investment and the highest export demand growth since July 2018; however, overall optimism declined as businesses struggled with sharply rising costs for raw materials and worker shortages.
According to CBI chief economist Rain Newton-Smith: “Global supply chain challenges are continuing to impact UK firms, with our survey showing intense and escalating cost and price pressures.”
It’s a similar story on the other side of the Atlantic, where the price of goods and services is surging at rates unseen in decades, jumping to 7% in December compared to 12 months earlier – the seventh consecutive month in which US inflation has exceeded 5%. Prices at the wholesale level also surged by 9.7 per cent in 2021, setting an annual record and providing further evidence that inflation is still hammering all levels of the US economy.
Currency risk exposure
Challenges remain for the textiles industry as Covid-19 restrictions ease, but opportunities will also present themselves - not least the opportunity to save money when making international payments amid pandemic-fuelled currency market volatility. As businesses adjust to the new normal and plan for the future, they must be acutely aware of the need to manage their exposure to currency risk.
Currencies are traded around the clock - 24 hours a day. Therefore, the value of the pound against other currencies is constantly changing - not just daily but by the minute. Why do they fluctuate in value? Currencies strengthen and weaken each day because banks and investors purchase huge volumes in response to political and economic news: positive news about a country typically causes the value of the currency to rise (“strengthen”), while bad news causes it to fall (“weaken”).
We also know when they might move because we often know the timing of political events that might influence them, and the economic calendar shows us when influential economic data will be released. However, there will also be news that happens without warning - anything from a US president tweeting late at night to a fall in the price of bauxite.
What we cannot predict – and no one can – is whether they will move up or down or by how much. Even slight fluctuations can make a big difference to the price of your business’s international payments. In some instances, the impact of the political and economic variables that influence exchange rates can be severe, as has been proved in recent times. For example, back in March 2020, when the true extent of the Covid-19 pandemic became clear, the pound sunk to its lowest level against the dollar since 1985 and its lowest level against the euro since the depth of the financial crisis 11 years earlier.
Before the pandemic struck, this exposure to currency market risk had the potential to dent your bottom line if left unaccounted for. Since then, however, the importance of mitigating the impact of exchange rate fluctuations on the cost of your international payments has been magnified. For example, soaring raw material costs will be compounded by unfavourable rates if proactive measures aren’t taken to manage the associated risk of making international payments. This has brought the need to seek the services of a currency specialist into sharp focus for many businesses in the textiles industry.
Clear Treasury are experts providing clients with the knowledge and tools they need to operate across borders. Against the backdrop of a global pandemic, this guidance and expertise are more crucial than ever. Our relationship-focused approach achieves long term success and is underpinned by our dedication to excellent customer service.
We understand how technology is at the core of how businesses operate in the modern digitally-enabled world. This has enabled us to develop a technology platform that seamlessly integrates our products and services into your ecosystem - removing the complexity and risk involved in making international payments.
Our knowledge and experience allow us to provide our clients with solutions and guidance that help their business thrive when engaged in international trade, both through our team of experts and our innovative technology - and opening an account to access this specialist service is quick and easy.
You will be assigned a dedicated account manager who can help you to plan and establish a proactive hedging strategy. There’s no “one size fits all” approach to protecting your bottom line from the threat of currency risk. Therefore, a bespoke hedging strategy that aligns with your requirements, commercial context, and risk appetite will allow your business to execute effective solutions that sync with its aims. This dedicated expert can provide guidance and support on tools to track, target or fix exchange rates for currency transfers to hedge against currency risk when making international payments.
What is a forward contract?
A forward contract is a foreign exchange agreement to buy one currency by selling another on a specified date within the next 12 months at a price agreed on now, known as the forward rate.
Goodwille – a Clear Treasury case study
Goodwille is a company whose need for effective foreign exchange management is fundamental to the very core of its business.
Mitigating currency risks for international businesses
Company growth can be defined in several ways. Most obviously, it refers to increasing revenues as a result of being in business, but it can also mean growing in terms of the number of people it employs, how many clients or customers it has or the number of offices or outlets it operates domestically and internationally.
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