Economic incentives created by the CBI/NAFTA parity legislation have made Central America and the Caribbean region a more attractive supply base to the U.S. apparel industry. However, one of the issues that manufacturers face is whether the region's logistics infrastructure can support the increased demand for time-definite services.
Following the events of Sept. 11, some U.S. clothing retailers began sourcing closer to home by moving cutting and assembly from Asia to the Caribbean Basin. This change in sourcing has achieved significant reductions in cycle time for many retailers. Savvy apparel manufacturers are finding ways to overcome infrastructure deficiencies in the Caribbean Basin through collaboration with suppliers, third-party logistics providers (3PLs) and carriers.
The garment industry in the Caribbean Basin is growing rapidly for some U.S. companies. AMC Guatemala, a business unit of Minneapolis, MN-based Target Corp., sources production in Latin America from its main office in Guatemala City. It also ships from El Salvador, Honduras, Nicaragua and the Dominican Republic.
Luis Capuano, production manager, Latin America, at AMC, attributes growth opportunities to the Caribbean Basin Trade Partnership Act (CBTPA). "We expect our business in this region to grow 200 percent this year. In addition, we are looking forward to the Free Trade Area of the Americas (FTAA) agreement to be approved within the next couple of years, which will allow us to source local raw materials duty-free," he says.
Manny Fernandez, head of Latin America for APL, a transportation management company based in Oakland, CA, says: "Since Sept. 11, many of our manufacturing and retail customers have shown increased interest in sourcing closer to the U.S. in order to achieve supply chain security and flexibility. This in most cases does not represent a shift from Asia, however, as much as a secondary or additional option."
Time-definite shipping is an integral part of AMC's operations. All of Target's apparel orders have shipping windows with definitive in-store date deadlines. AMC gives its suppliers and its third-party logistics provider, APL Logistics, specific instructions in shipping to its U.S. distribution centers in order to meet these windows. AMC has found benefits by streamlining its logistics system. Says Capuano: "We used to work with two 3PLs. About 18 months ago we switched to only one. This has saved us money, but the main reason was to have easier communication through a single channel."
However, AMC sees a number of challenges to achieving optimal supply chain efficiency. The company is seeking more flexible logistics options, including a greater number of sailings per week, more sea and air routes and more direct routes. The latter is particularly important to its vendors that rely on raw materials from East Asia. "Nicaraguan manufacturers cannot get direct shipments from Asia; they must go through Los Angeles and Guatemala first. If raw materials are needed urgently and must be moved by air, there is also nothing direct from Asia to Central America," says Capuano.
Fernandez says he sees an increased demand for time-definite services as part of a general trend. "Some apparel customers are designing their sourcing specifically with shorter cycles for both security and cost reasons, and to provide flexibility in a contingency," he notes. "Also, some types of apparel shipments are prone to cancellation or penalties for late delivery. Operating within the customer's window is a fundamental discipline within APL and APL Logistics."
Another challenge is that some countries in the Central American region have a lack of usable ports, so the goods are moved through other countries, such as Guatemala and Honduras, to reach El Salvador and Nicaragua. John Hourihan, vice president and general manager, logistics, at Jacksonville, FL-based Crowley Logistics, says that the infrastructure may be a challenge to providing efficient logistics. "Roadways are often rugged dirt roads. If a storm hits, the only road out of a particular plant could be knocked out for three months," he says.
Some ocean carriers are responding to demands for more capacity in the Caribbean Basin. Rinus Scheppen, vice president and general manager, Latin America, Crowley Liner Services, says that greater time sensitivity in the apparel industry prompted his company to add an additional weekly sailing from the Gulf of Mexico to Guatemala and Honduras this past March.
Also, in February, the company began complying with the new U.S. Customs requirement that carriers must submit a cargo declaration 24 hours before cargo is loaded aboard a vessel at a foreign port, says Hourihan. He adds that although there are ongoing delays because of documentation issues, the events of Sept. 11 have spurred manufacturers to compliance, and helped to reduce the problem. "Since shippers must provide documents in advance, the weakest links have had a wake-up call," he says.
For AMC, another problem in the past year has been working with factories that are further from a national capital or main industrial area, such as those in Quetzaltenango, which is about 100 miles away from Guatemala City. In Nicaragua, some factories are more than two hours by road from Managua, so AMC uses mainly factories that are close to the capital. An exception is the Dominican Republic, which has good highways, says Capuano.
Reducing Cycle Time
Cycle time reduction is also a challenge. Capuano says that AMC sources in the Caribbean Basin region because of its need for quick response time. If transit time takes too long, it is a problem. "For example, it is seven days on the water from Guatemala to Los Angeles, but then there is the customs clearance and inland transportation, which can take another two weeks-plus. We need to reduce transit time to the more distant distribution centers in the United States," he says.
Retailers encounter many of the same problems as manufacturers in managing their supply chains in the Caribbean. Rod Birkin, director of sourcing at JCPenney, explains: "The challenge to achieving efficient logistics in this region is the requirement to use U.S. yarn and fabrics. We use more Asian fabric than U.S. fabric due to cost differentials, which is cheaper but slower. Our type of production is so basic that we can pre-position product in Central America. That is why we produce more basic goods than fashion goods in Central America - because the pattern is more predictable."
The practice of time-definite distribution is increasing at JCPenney, says Birkin, who adds that the company, which ships from Central America as well as the Dominican Republic and Haiti, saw its business in the region grow last year because of the CBTPA.
For JCPenney, logistics is also changing on the U.S. side. Says Birkin: "In the past, we received merchandise from distribution centers as either bulk, pre-packaged or pick-pack destined for our 1,100 stores. We used two major warehouses for import merchandise, cross docking and pick-pack. But beginning mid-year, we will operate a number of store support centers, from which we will ship by break-bulk to stores within a particular group. This will simplify the system and make logistics more efficient."
The Caribbean Basin has proven to be a valuable supply chain link for U.S. apparel retailers. Although sourcing from the region can reduce cycle time, the challenge for many companies is to maximize the advantage of the location by maintaining an efficient logistics network on both the foreign and domestic sides.
ANTHONY COIA is a transportation geographer specializing in logistics and emerging markets. In addition to writing about supply chain management and related subjects, he has worked in international logistics operations in both the public and private sectors.