Emily Lane, Bret Schnitker
June 18, 2024
Emily Lane 00:09
Welcome to Clothing Coulture, a fashion industry podcast at the intersection of technology and innovation. I'm Emily Lane.
Bret Schnitker 00:16
And I'm Bret Schnitker. We speak with experts and disruptors who are moving the industry forward and discuss solutions to real industry challenges.
Emily Lane 00:25
Clothing Coulture is produced by Stars Design Group, a global design and production house with more than 30 years of experience.
Emily Lane 00:35
Well technically we're live officially going live in a few moments, but we're going to take this little warm up time to say hello, catch you up on a few things. We're here today with a whole new concept called Clothing Coulture Live. This is where we feel that there are more pressing matters at hand that we want to make sure to address more quickly then, some of our more planned format, such as our podcast or magazine rollout, we did just celebrate the land launch of our magazine. That was pretty exciting. And has been very well received. Thank you for all of your your thoughts and input on that we're already working on episode number two or Issue number two, I have to work on How do I switch from talking about episodes to magazines, but that's going to be on sustainability and all assets aspects of sustainability throughout the supply chain. We're working on that that we'll be releasing in about a quarter. And we have a new correspondent that has joined our team have a good friend and colleague that we adore Mary Ruppert-Stroescu who is currently in route to France. We are so jealous
Bret Schnitker 01:55
via Barcelona a few days.
Emily Lane 01:57
I mean, you gotta go to but she is she's going to be on the streets of Paris interviewing people behind the scenes of the Haute Couture fashion shows. Ah, I can't wait to talk to her and get her insights I am considering if I can just hop on a plane and go be there.
Bret Schnitker 02:18
Why not? We've done that before.
Emily Lane 02:21
Yes. Well, I think we're about ready to tackle this, this whole conversation while we're here today. What do you think? Are you ready? Oh, yeah. Okay, absolutely. All right, here we go. So, again, we're here with Clothing Coulture live today. The reason being that we are here in a live format is because we have kind of an emergency episode to share with you. This world of logistics has always been crazy. And many of you experience the wildness that happened during COVID. And now working on is kind of semi post COVID era things we're starting to feel a little bit more comfortable in. And then poof, we've got things to worry about. So Bret, don't you love when I bring you on to talk about like wonderful, happy things like what's happening in our world today?
Bret Schnitker 03:10
Yeah, I don't know, after being in the industry for 30 years, there's always something going on, for sure. But I think we've got this unique convergence of events that while it's not maybe, as I don't know, exciting is innovation or new technology or great new fashion trends. Supply chain is such a critical part of many of our listeners and our everyday lives. Getting finished goods from one place to another is is super important. And we've got kind of a convergence of events that potentially could cause some disruption in the supply chain. And as we started seeing these things come together more, you know, percolating as a result of something happening here in the US percolating in Asia, knowing that some of these things are going to move toward the US. We thought it was important to have a conversation.
Emily Lane 04:05
Okay, so we're talking supply chain. We're talking disruption. We're talking right now, geopolitical issues. And so let's just kind of start like what what happened that has us initially concerns?
Bret Schnitker 04:22
Well, there's a number of things happening, but one of the recent catalysts that I think exacerbates our supply chain a little bit. And and I think we've talked about this a little bit more, and I'll try not to get on a soapbox too much. But from a political point of view, our politicians feel that tariffs specifically against China today is a solution against balancing supply chain, maybe penalizing China etc. The reality is, if you ask any economist is that tariffs have never worked in the history of the US and in fact Today, China's trade is stronger than it's been before. And the ultimate person that pays the price is the US consumer, the consumer and small business and small businesses. Certainly, I mean, ultimately, it's the consumer that's buying from small businesses. And I think the ultimate benefactor is the US government. They're actually increasing tariffs, quote, to penalize China, but the benefit goes to the US government, because those taxes that we pay to import goods go directly to the US government to fill their coffers. They like to say that they're penalizing China. But indeed, that isn't the truth actually penalize the US consumer. By raising costs. China doesn't technically charge more than they are. And the tariff that is levied the tax, we've always had duties to import things in the US. But the additional tariff, this penalty that gets levied is paid for by the importer and then passed along to the US consumer. Very interestingly. Which was a surprises the Biden administration just recently added tariffs on about $18 billion dollars worth of goods from China, in addition to the $300 billion with the tariffs are already in place. Oh
Emily Lane 06:17
my gosh. Okay, so an additional $18 billion in tariffs, are there certain industries that are going to be most affected?
Bret Schnitker 06:26
Yeah, the additional $18 billion in tariffs don't specifically affect our industry, per say, as it relates to the specific tariff, we've already been impacted. Everyone in the apparel and shoe business for goods that are coming out of China already feel that increase weight, the consumers already felt the increased cost at retail, but these particular areas that he's targeted are EVs, electronic vehicles, battery, steel, critical minerals, and semiconductors. And they're pretty hefty. So on an EVs, it's, they're going up to 100% tariff, on EVs batteries are from zero now to 25%, Steel's up 25% critical minerals are up 25%. And these are these critical minerals are things that were that our industries are using to convert into actual goods, semiconductors are going from 25% to 50%. And so while those listening are saying, well, that doesn't have anything to do with the US, the impact of what China is doing in relation to these new tariffs does have something to do with their ripple effects to this decision. Yes. And the ripple effect that we're seeing, just in its simplest form, is that these tariffs are going to take effect starting within 60 to 90 days, and it was 69 days from a few weeks ago, when he announced these and then they're going to slowly roll out on completely, you know, at a certain cadence from now till 2026 to a certain level, the Chinese knowing that these are coming into place, have it the best of their ability, have started to take all the goods that are in production, and move them as quickly as they can onto every available container and ship going rush. It's a rush to beat the the additional tariffs. And that in itself. Let's say we had a slow economy, you go okay, big deal. They're rushing a beat de tariff, they're moving stuff. And yeah, they're gonna move things into clear. But we have these other factors that are going on that have already exacerbated our supply chain. And this flood that's coming out of China is now being recognized first overseas in Singapore. So goods coming out of China will usually route through Singapore in the streets of Malaga and the single reports, boats that birth there, then we call them feeder vessels go on to other theater vessels on the full mother vessels into the US and other places, but that's primarily into the West Coast. And typical daily flow through Singapore is around 600 vessels a day. And they've been recording a surplus of over 100 vessels a day, and where they could clear birth and move things on in Singapore in about a half day to a day. It's a very technologically advanced port. It's now taking two days to four days to get things through because there's that backup, they can't get this huge flood of goods, flood of containers and extra ships that are going through the Strait of Malaga cleared enough so you see that one little point of slowdown that's happening just in one part,
Emily Lane 09:56
the first kind of the first leg of it in From what I've seen, we're looking at quite a significant impact. It's not quite double the flow, but nearly like what is it? 600 ships?
Bret Schnitker 10:10
about 1000 ships. Yeah, but what's also exacerbating this flow through from 600 to now 1000. Yeah. What's additionally exacerbating this flow through Singapore is that goods that are leaving the Near East, let's say India, other places that have traditionally moved through the Suez Canal. You know, for six months, the Houthi rebels have been bombing ships through the Suez Canal, and the Suez Canal manages quite a bit of our freight through. It's about 13% of the world's entire freight. Now that's including truck ships, everything, it manages 13% of freight. So people are making decisions now and saying, okay, if I'm shipping goods out of India, Pakistan, Bangladesh, etc. And they may have decided to go east because of the Suez Canal issues. And now having to avert the Suez Canal and go around the Cape, taking a much longer period, they're moving things the opposite direction through Singapore, shippers are saying, wow, there's only a certain amount of containers so we're going to charge more for it. And and containers at one point.
Emily Lane 11:27
Seel materials are also going to be at a higher tariffs like, yes, you know, we're, we're already limited on containers, which make for containers, that's going to cost more.
Bret Schnitker 11:38
Well most of the containers being built in China so thats an issue. So you got this increase, we're going to, I think we should brace ourselves for slowdowns that are going to and that won't happen for an extended period of time with this kind of Chinese movement to beat the tariffs. But certainly, I think over the next 60 days, if you will, we're going to see some slowdowns. And we're seeing because of that slowdown and increase in costs. I don't think that even after the Chinese kind of 60 days goes through, we're going to see a major decrease with respect to freight costs. But that's that's yet to be seen specifically with what's going on, that we're seeing around the world.
Emily Lane 12:27
So you know, thinking about this, it does even though our our industry isn't immediately impacted, you know, due to these these tariffs, we are because of this rush to port and export, creating more congestion, creating more demand and so vying for the ability to get your goods out, it's going to be a tougher fight.
Bret Schnitker 12:53
Well, and while certain commodities have the ability to go by air, there's been some conversations, why not just air? Air is expensive. There's a lot more expensive than boat and the particular categories that China has got to ship out. And they're saying, you know, the E manufacturers out of China are saying, I mean, it's a car, so you can't air a car, it has to go on a on a ship. They're finding no space right now. So it's getting, it's getting very, very tight. I think that we should just make our listeners aware to prepare for some slowdowns. And also be very aware of the increase in cost that we're seeing in container costs for this kind of period.
Emily Lane 13:35
How much of a slowdown should people be really planning?
Bret Schnitker 13:39
It's really unknown right now. You know, we're seeing some slowdowns. Certainly in Singapore, we know that that slowdown is impacting things, ultimately, by 10 days, from certain places around the world, specifically China, we you know, the benefit you have from China is that transit times from China typically are like 11 to 18 days to get into West Coast ports. We should be thinking that it's could double you know that this slow down depending on the true the routing, the transit, there's certainly direct ships that if there's availability get on them, you might not see slowdowns entirely. But preparation, I think is key. And so we're coming into different seasons, customers need to be aware of that and prepare for the slowdowns. Yeah, and certainly increase costs, because costs are up quite a bit.
Emily Lane 14:29
We saw during COVID Things like containers, you know, kind of being left in in the wrong places never finding their way back. Do we see the same kind of opportunity here?
Bret Schnitker 14:40
I would say there could be elements of that. But I think it really is we have X amount of containers and they're in full use right now. Yeah, you know, everyone's using everything that they can use to get things in it may be and a result once all the containers get to the US will our exports then match it you know move stuff back out.
Emily Lane 15:00
Thats one of the challenges that we've seen with when the when the tariffs came in a few years ago, with with our relations in China, we saw our exports to China decrease retaliatory.
Bret Schnitker 15:12
So if China if we're putting tariffs against China, China is certainly slowing down business with us. And those tariffs kind of go both ways. The tariffs never work. So
Emily Lane 15:22
well, it works in for feeding certain pockets, right?
Bret Schnitker 15:26
Oh, yeah, it works for putting more money into the US government is already deeply in debt. But
Emily Lane 15:32
it does challenge our international relations. And as we've mentioned, the price that we pay as a consumer.
Bret Schnitker 15:41
The other thing that I think people are not looking at that is part of this entire catalyst and is happening right now at the same time, and I don't think, I don't think many people are aware of this. But the benefit that the US has had for a long time is that the global currency has been the US dollar. And I have been talking for five to seven years about my concern about us losing the ability, you know, for the US to command or control, you know, kind of the US dollar might be a leading currency. And I was talking with a friend of mine a few weeks ago, and we're having this whole dialogue about, you know, the, you know, us stepping back from the world stage, you know, things internally as people kind of look between, look underneath the tent with the US and our politicians fighting each other and, frankly, embarrassing on the world stage. We we have this potential impact for people to question is the US dollar strong enough? And he was saying, this guy's brilliant guy, and he was saying, Hey, you, you want to know why the world trades on the US dollar even more than that, you know, because I thought, Oh, well, back then banks were there. And we were out there kind of managing the world, the world scene. And he said, there was this unique thing called the petro dollar deal. And it happened in 1974, where Kissinger negotiated with the Saudis that all oil would be transacted in US dollars in return for military aid and support. And I was like, Wow, that's pretty amazing. He goes on that really established help to establish and reinforce that the world used US dollars, because everyone needs oil. He called me. I guess it was last Thursday. And he said, Oh, my God, not really sure what to do. Do you realize that this Sunday, that 50 year deal expires? Yeah. And I was like, Oh, my God, we were just talking about this? Well, I'm not sure if you follow the news, they're keeping it quite quiet. There's been some press on it. But the Saudis are not renewing that deal. Yeah. So after 50 years, the Saudis are now going to allow any currency to be bought in oil. And kind of my concerns are elevated, because I'm seeing this erosion of the world transacting on the US dollar, what that means is, we could see a large decrease in the value of US dollar worldwide. So when you take a look at what the events that are occurring right now, in terms of supply chain, and logistics, and our industry specifically, is a global industry, we are buying from overseas countries, for the majority of our goods, there's no real domestic infrastructure,
Emily Lane 18:30
and we have our exports are decreasing, right. And so understanding the perceived value of those
Bret Schnitker 18:37
well, and then we had this strong potential for the US dollar to take a hit in a big way. I just felt like all of these situations that are coming together right now, we should get out there so people can be prepared and ready.
Emily Lane 18:53
more awareness on the challenges that are in front of us, which is why we're doing this today. Yeah. You know. So we've talked a little bit about tariffs. We've talked about congestion imports, containers, there's things that are also acts of God, if you will, or things that people aren't currently controlling, that are also creating currents, so to speak. What are some of those things that people should be thinking about with regards to maybe weather or whatever?
Bret Schnitker 19:21
It's still on the topic of kind of logistics? Yeah, that is our topic today. A lot of people don't really think South too much. And there's this very interesting canal, just south of us called the Panama Canal. And it routes about five to 8% of the world trade, which you know, people go oh, that's not very much. Well, that's $270 billion, a year of trade that flows through the Panama Canal. El Nino had a very, very tough effect on the Panama Canal with drought conditions. And while typically they have about 38 ships per day capacity that goes through the Suez Canal drought hit it big time. And they were down to month or two to get it down to 24 ships. And were really struggling, they were using all sorts of ways to try to keep water in the canal at the expense of freshwater and all sorts of things going for people around it. And so they're maybe upwards of maybe 27 ships. Now, the benefit that I think we'll see over the next couple of months is La Nino is taking its place of El Nino. And with that comes a lot of wetter conditions. And I think in the next few months, we're going to see maybe some relief from the Panama Canal. But when you have these major areas that affect everything all under siege, what you're going to see is slowdowns and increased cost and natural effects certainly are hitting.
Emily Lane 20:50
I'm thinking that we need to start coming up with a way that we're doing live streams to bring good news to people too, because we are edging on the happy hour of the day. And I'm going to tell you, this is not a very happy hour kind of conversation.
Bret Schnitker 21:04
Listen, forewarned is forearmed. And I think it's important for us to have that dialogue here.
Emily Lane 21:09
Goodness, is there other than really good planning and and awareness? Is there anything else we can be doing to make make this information more acceptable?
Bret Schnitker 21:25
Well, I think, you know, we in the industry have dealt with different things like this for a long time, you know, we were in third world countries, when developing nations or businesses established that way. So a lot of of us that had been in the business a long time. This is kind of just like, Okay, here's another new thing that we're dealing with. And I think, for me, that information helps organize your thoughts strategically. And as you go forward, realize that, that you know, the world we always talk fast fashion, we're at least talking about speed to market and and I think the risk you have there is these things that come up, best laid plans kind of thing. And I think sitting down and organizing ourselves and do effective manner to produce at the right rate, slow fashion certainly makes more sense than fast fashion for me today, especially from a sustainable perspective. And then putting things into place to allow that allow the timeframes allow. If some of these things come up, you're still getting your deliverables on time and those things are really important. So
Emily Lane 22:34
okay, well, thank you for this very uplifting conversation today. We promise you know what we will we'll try to get an uplifting live stream on the on the calendar, the future, just share with us thoughts on what are topics of interest with you. We have some great things coming up. We're going to be hosting roundtables where we're talking about key topics of interest in the in the industry and, and working our way collectively as a whole among colleagues and peers of how to embrace evolution. We've got all kinds of wonderful things coming up. So just share with us what's on your mind and we'll make sure to include it into our conversations. Thank you for joining us for this live stream. And don't forget to subscribe so that you can stay apprised of upcoming episodes and magazines of Clothing Coulture.
Bret Schnitker 23:26
Thank you
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