By Devin Steele
Much of the U.S. textile industry is in dire straits.
Despite record productivity gains, massive modernization programs and the development of numerous innovative products, the industry finds itself in one of its deepest depressions ever.
How can that be? Just four years ago, U.S. textile mill shipments hit a record $83.9 billion and raw material usage was at an all-time high of 16.9 billion pounds.
Since then, the industry has been forced into a massive overhaul in its struggle for survival.
How did this once-proud American enterprise sink to such unprecedented lows? Will it be able to climb out of this abyss?
The causes and effects of and solutions to its problems are multi-faceted.
We examine them here.
The problem is rooted in the Asian financial crisis, which began in 1997. With it, the currencies of nearly every major textile exporting countries of Asia collapsed and, in effect, brought a flood of cheap textile and apparel products into the U.S.
According to a recent report by the Washington, DC-based American Textile Manufacturers Institute (ATMI), Crisis in U.S. Textiles, textile imports from Asian jumped 80 percent during the past four years as Far East currencies fell by an average of 40 percent. Pressures from these imports have caused prices of U.S. textile products and, therefore, company profits to plummet. The drop has been steep over the last year.
The Asian governments caused this crisis by devaluing their currencies, said Carlos Moore, executive vice president of ATMI. This is not a problem that our industry has really brought upon itself. The big percentage cost advantage of Asia is because of their currencies, not because theyre working harder or they have some magical machine or something that gives them an advantage. Its a currency advantage.
Meanwhile, other major textile exporting countries, such as India and Pakistan, have seen sharp drops in their currencies over the last two year, adding more pressure to U.S. products, according to the ATMI report.
Compounding the problem is the strong U.S. dollar, which has remained the strongest currency in the world, and competing against devalued currencies has made domestically produced goods much less economical. The strong dollar has contributed to an unprecedented three-year period of deflationary price cuts for U.S. textile products, ATMI reported.
The U.S. textile industry is highly efficient and well managed, but it struggles to compete against foreign companies working with undervalued currencies and lax labor and environmental rules, said Carl Lehner, CEO of Leigh Fibers, a textile waste recycling company headquartered in Spartanburg, SC.
According to the National Association of Manufacturers (NAM), the dollar has risen 10 percent this year and is at its highest level in 15 years. Since 1997, the dollar has soared nearly 30 percent, the group added.
A growing number of factory workers are being laid off, primarily because the dollar is pricing U.S. products out of both global and domestic markets, NAM said. Manufactured goods exports have dropped by an annual rate of more than $50 billion and manufacturing employment has fallen by more than $50 billion over the past year, NAM said.
Another layer of the U.S. textile quandary lies in the retailing sector, which itself is under a lot of pressure. Department stores, mass retailers and specialty stores are all engaged in a virtual tug of war over customers dollars. Upstairs stores are fighting to keep their traditional customers by offering a higher-quality, more-differentiated product, while the mass channel is countering with high-quality goods of their own at lower prices.
Brands such as Springmaid, Cannon and Martex that once may have been found only in department stores can now be bought at Wal-Mart, Target or Kmart.
What this means to the textile industry is an increasingly complex manufacturing mix because youre trying to do all of these different products for the department stores, plus all of these different products for the mass channel, Kay Norwood, a noted textile analyst, said in a presentation recently. Its very difficult to manufacture that kind of mix effectively and it has also created a tremendous pressure on prices in the industry.
In addition to price pressure manufacturers get from retailers, textile companies now are expected to carry all of the retailers inventory and to be able to ship the goods on a quick-response basis, added Norwood, senior vice president and assistant director of research for Wachovia Securities, Charlotte, NC.
Given its own problems, the American retailing community hardly has a sympathetic ear for the textile industrys plight. Those retailing entities, particularly those that import apparel and textile products, have convinced a lot of people that exporting Americas industrial base is good, said Roger L. Berkley, president of Weave Corporation, Hackensack, NJ.
Along those lines, four major American trade associations with retailing interests recently wrote President Bush urging him to reject a bid to help preserve the U.S. textile industry. The American Apparel & Footwear Association, the International Mass Retail Association, the National Retail Federation and the U.S. Association of Importers of Textiles & Apparel were responding to a previous letter sent to Bush by the governors of four textile-producing states. In their letter, the governors of North and South Carolina, Georgia and Alabama had asked the administration to use every tool at your disposal to combat this (textile) crisis.
The retailing sector, of course, is seeking the freest trade laws possible, even if they come at the expense of American manufacturing. Additional protections will do nothing to help them survive and would end up harming our partnerships, the organizations wrote.
In that vein, a spokesperson for a South Carolina-based yarn spinner who asked not be identified said, international retailers and financiers have forced the U.S. textile manufacturers into an unprofitable position for the first time since the end of WWII. The lack of any incentive, motivation or loyalty by retailers to buy American has shifted sourcing of cotton apparel from 60 percent being sourced domestically in 1997 to 40 percent in 2001.
He added: The downsizing of an industry is one aspect of foreign competition, but financial loss for an entire industry makes survival questionable.
Also related to pressures from retailers, the glut of retail space is beginning to rear its head through a number of liquidations, Norwood said, and that has strained pricing. Still-viable competitors lower their prices to match liquidation prices, so in times like these, retailers become their own worst enemies, she said.
Price pressure also is coming from manufacturers that are carrying too much inventory and are being forced to slash prices, she noted.
Other manufacturers tend to follow that pricing because, otherwise, theyre going to be hurt a great deal, she said. As a result, even companies that are doing a good job on the manufacturing and inventory management side are getting clobbered.
Likewise, raw materials continue to keep selling prices under pressure, too, she said.
On top of that, industry-wide overcapacity has also hindered the industry. Although not a new phenomenon, manufacturers are all trying to gain market share in an industry that has far too much volume.
Certainly, the slowing economy has caused people to do things a little differently, but what happened last fall with the disappointing retail back-to-school season was there was too much inventory, Norwood said. A lot of stores canceled orders. A number of them shipped back those orders.
So everybody all of a sudden had too much inventory and had to ratchet down production. Add to that the fact that there was too much capacity before the economy even turned down.
Much of that capacity has since been eliminated through closings and consolidations, she pointed out. Historically when a plant closed, an industry colleague may have bought it, reopened it and tried to make a go of it. Now, however, most of that capacity is remaining defunct, which is good for the industry overall, she said.
As long as there is too much capacity in the textile industry, there will not be an environment where prices can go up, she said. And if prices cant go up, then were going to continue to see the number of plant closings and bankruptcies and liquidations that weve seen in the last six months.
For the U.S. textile complex, the slowing economy has added insult to injury. Even during the booming economic times of two years ago, the industry as entrenched in recession, at best, and its woes have been exacerbated since the downturn.
Consumer confidence has declined over the last year, for a number of reasons among them, higher living costs and the layoff wave that continues to ripple from the burst of the dot-com bubble last fall. For the textile industry, that lower consumer confidence means people arent buying as many non-necessities, such as towels, sheets and clothes.
What apparel and home fashions have in common is fashion, Norwood said. Theyre not necessities anymore. So manufacturers and retailers have to come up with products that consumers feel like they just have to have and the name of that tune is fashion.
The economic slowdown has not been led by housing, though, as housing starts and turnover numbers are still close to historic highs, Norwood noted. However, consumers have deviated from associated spending patterns, she said.
There is a much longer lag time than we see typically, with the purchase of furniture, new window products, bedding, towels or what have you, she said. But, obviously, at some point this is going to contribute to an increased rate of demand for textile products.
And the recent terrorists attacks in New York and Washington dampen the possibility of a quick economic recovery, of course.
Also testing the U.S. textile industry is financial problems, Norwood said.
The balance sheet of all the public (textile) companies are more leveraged than I have ever seen and the industry chose to go through cycles of leveraging up, paying down debt, leveraging up, paying down debt, she said. I have never seen debt levels as high as Ive seen today. In good times, thats OK. But in bad times it means you struggle to make the interest rate payment.
Then when the economy turns down, you have to renegotiate your bank agreement and the banks are going to extract their pound of flesh.
The causes of the textile quagmire are numerous and their effects have been widespread not all of them adverse. If nothing else, the last five years have strengthened those companies to better compete in a global environment. Unfortunately, other conditions, as previously written, still make those manufacturers vulnerable for failure, despite their best efforts to modernize their facilities, increase efficiency and productivity and reduce staff to more functional sizes, say many in the industry.
While some positives have emerged from the industrys transformation, they hardly outweigh the negatives. The most eye-opening consequence, of course, is that 60,000 American jobs have been lost not counting industry suppliers and more than 100 U.S. textile mills have closed, according to ATMI figures. That 12-month job loss figure represents more than 10 percent of the U.S. textile work force.
In May alone, about 9,000 industry employees lost their jobs, and almost 7,000 more followed them out the doors in June. All sectors have been affected, including yarn spinning, weaving, knitting and home furnishings, along with industry suppliers.
Among notable losses this year are three with at least a century of service:
Spartan International, a 111-year-old Spartanburg, SC-based manufacturer of knit fabrics for clothing, was forced by its primary lender to lock the doors of its six manufacturing facilities in three states and corporate office in May 4, leaving 1,200 people jobless;
Thomaston Mills, Thomaston, GA, a 102-year-old maker of sheets, pillowcases and comforters, shut down in August after filing for bankruptcy, putting 1,400 out of work; and
Spray Cotton Mills closed its last plant, a 105-year-old yarn production facility in Eden, NC, putting its remaining 144 employees on the streets.
Several other companies have filed bankruptcy over the past year, including Pillowtex Corporation, one of the big three home textiles manufacturers.
Only a few textile companies are operating in the black, according to Norwood, and many are heavily involved in restructuring plans, including WestPoint Stevens, Cone Mills and Burlington Industries.
Stock prices of publicly traded textile companies have taken a beating, Norwood said. The Wachovia Securities Textile Index, which includes the stocks of 10 textile companies, dropped 65 percent between the end of 1998 and December 29, 2000. The index fell nearly 47 percent last year alone. In comparison, the Russell 2000 Index was down 4 percent in 2000. This year, the index has dropped another 8.4 percent.
During the third quarter of 2000, the textile industry registered its largest quarterly financial loss in at least 20 years, according to ATMI data. The loss was the first quarterly loss in almost five years and, together with another loss in the fourth quarter, resulted in an overall industry loss of more than $350 million for the full year.
Last year, the industry recorded its first annual loss in more than 50 years that these statistics have been collected, ATMI reported.
One major home furnishings player, Springs Industries of Fort Mill, SC, recently voted to be taken private by members of the companys founding family and an equity firm, rather than continue to operate in view of Wall Streets critical eye.
Among positive effects of the global nature of its business, the U.S. textile industry has strengthened its productivity numbers and the pace of innovation over the past decade. Since 1987, the industry has invested more than $2 billion annually in new plants and state-of-the-art equipment, according to ATMI.
Productivity numbers reflected this investment. In 1997, the average loom produced 34 square yards per hour, an increase of almost 165 percent since 1987, ATMI added.
The industry increased its productivity 38 percent over the last decade, representing a 30 percent larger gain in productivity than the average for all manufacturing, the trade group reported.
Through expanded research and development, the industry made a number of product advances in the 1990s, including the development of greatly improved moisture wicking microfiber yarns for apparel fabrics, innovative non-crimp reinforcing carbon fabrics for rockets, wrinkle-free cotton fabrics, anti-microbial fabric finishes and smart fabrics, ATMI noted.
Changes in the global and economic landscape also have forced some companies to change their way of doing business, their product lines and their markets and to expand their borders. Many manufacturers, such as Greenwood Mills, are moving away from commodity products and into niche markets.
We believe that part of the industry will remain intact, said Mat Self, chairman and CEO of the Greenwood, SC, fabric producer, which has been devastated by low-cost imports in recent years. Those companies will be the ones that are able to be innovative and capture some important niche markets.
Most apparel production in this country, of course, has moved offshore, where lower wages have made it more economically feasible to run highly labor-intensive production. Many apparel and textile producers have moved manufacturing to Mexico to take advantage of NAFTA benefits, while others are hoping to realize similar benefits under the U.S.-Caribbean Trade Partnership Act (known in industry circles as CBI).
The industry has been divided over the NAFTA issue since it arose nearly a decade ago. One of its proponents, Chuck Hayes, chairman of Guilford Mills, Greensboro, NC, said the law has helped his company stay alive, in spite of the fact it has been forced to lay off hundreds of people. Without NAFTA, we wouldnt be in existence today, Hayes, who happens to be ATMI president, said during the trade groups annual meeting in March. We are in trouble because of the Asian flu and (the fact) that we didnt move fast enough on it and the currency devaluations.
Though it has contributed to the loss of American jobs, NAFTA has enabled U.S. textile manufacturers to better compete with Asia, according to other supporters.
As for the industry in general, NAFTA has been a mixed bag, Weave Corp.s Berkley said. Those who have taken advantage of Mexicos possibilities generally have been helped. Those who have not or could not exploit those opportunities are suffering and may not make it.
Thanks to NAFTA legislation, Mexico now exports almost three times more garments to the U.S. than Asian countries, according to Norwood. And because that apparel is mostly made from U.S. yarn and fabric, it has been a plus for American textiles. A similar picture is seen with the CBI legislation.
Without the Caribbean Basin Initiative and without NAFTA, these imports would certainly have continued to go to Asia, Norwood said. If they had gone to Asia, fabrics wouldve been sourced there and there would be far, far less of the U.S. textile industry still around today. So, at least with the Caribbean Basin and with NAFTA, the industry has an opportunity to build some relationships and develop some business that will put them in good stead down the road.
CBI, along with NAFTA, is the last clear hope for this industry, John Anderson, vice president of marketing for the Fibers Group of Wellman, Inc.
But another textile manufacturing representative countered, We have not seen any positive effects from NAFTA.
In seeking other means of staying competitive, some U.S. textile companies have turned to sourcing some of their goods. A number of them recently attended a sourcing fair in Taiwan and South Korea that focused on garment packaging arrangements in the Caribbean Basin.
Springs Industries in August announced a unique sourcing alliance with a Brazilian manufacturer, Coteminas. Under the exclusive agreement, Coteminas will manufacture goods for the U.S. company under the Springs name or as part of its private-label programs.
The textile industry, of course, will need to work out some of its problems itself. Others, however, will require government intervention to eradicate, according to several industry leaders. But that doesnt mean a call for isolationism, according to ATMIs Moore.
I think that most, if not all of our members have acknowledged that globalization is a fact of life, he said. You have to recognize it, you have to try to take advantage of it. It poses a threat in many cases, it poses opportunities in others and we just have to try to deal with it as truly a fact of life.
One of the major steps the U.S. government should take involves remedying the negative effects of Asias devalued currencies, Moore added.
They can certainly commit to maintain the level of tariff protection that we have today, he said. They dont need to cut it. That will help us cope with the Asian problems caused by their devalued currencies.
Added a yarn spinner who requested anonymity: A special duty needs to be enacted by Congress that is tied to devaluation of the importing countrys currency. The U.S. cannot go on funding the worlds prosperity at the expense of its own.
The government also could get more aggressive in enforcing laws that are on the books, including those related to child labor and forced labor, Moore said.
By Dr. David Brookstein
Having been involved in the textile industry for more than 30 years as both an educator and industrialist, I have never witnessed such a dire crisis now facing the industry.
Yet we can learn something from our increasingly tough competitors, the Chinese, who use the same character for opportunity and crisis. With the proper approach we just might be able to turn this crisis into an opportunity for the industry. And the young men and women who are graduating from the nations textile colleges are a significant part of the answer.
But, first, a level playing field must be created. The American Textile Manufacturers Institute (ATMI), under the outstanding leadership of Chuck Hayes and Carlos Moore, has repeatedly tried to get the government to be significantly more vigilant about commercial fraud, especially textile transshipment.
Further, the ATMI has tried on many occasions to encourage the administration to help our worldwide trading partners acknowledge their WTO commitments and responsibilities and open their markets to U.S. textile exports. This becomes increasingly important as the textile industry pioneers new developments in product and process technology that will offer unique products for consumer and industrial markets.
The nations textile colleges have been very effective in both educating tomorrows industry leaders and providing research that enhances the competitiveness of U.S. textiles. As a result of strong industry support, all of the colleges can boast of a strong laboratory infrastructure with state-of-the-art design and processing facilities.
Philadelphia Universitys School of Textiles and Materials Technology, the nations oldest textile school, has successfully managed to integrate design and processing technologies in a laboratory and studio system that gives students the opportunity to develop unique textile products. We recently created a new Center of Excellence in Digital Ink Jet Printing, fully supported by industry, that affords students the opportunity to create designs directed at short-run niche orders, an outstanding future commercial opportunity for the U.S. industry.
In our weaving and knitting studios and laboratories, students can use state-of-the-art, computer-aided design equipment to translate their design inspirations into finished products.
In addition to offering education and training in design and technology, students will continue to need a strong background in marketing and management. It is no longer adequate to just produce a novel and competitive textile product it must be effectively marketed domestically and worldwide.
The writer is dean of the School of Textiles and Materials Technology at Philadelphia University.
By Vicki Cannon
Manufacturing, historically the economic backbone of South Carolina, has softened as the national economy has softened during the past year.
The national unemployment rate recently rose to 4.9 percent. A great deal of this unemployment is occurring in the manufacturing sector, particularly textile manufacturing. During the past 12 months, more than 100 textile plants in the U.S. have closed, leaving more than 60,000 textile employees without a job. In South Carolina, more than 20 textile plants have closed since January.
A strong U.S. dollar and under-valued Asian currency, poor environmental standards of foreign countries and low wages of workers in Asia and other foreign markets have contributed to our textile industrys slump. South Carolinas textile manufacturers, unable to compete with low-priced Asian imports, are experiencing a recession.
Textile manufacturers have spent billions of dollars on new facilities and state-of-the-art automated equipment, set new records of productivity, developed innovative products and explored new markets for exports. In only a few years, South Carolinas manufacturing employees have become better trained, operate more computerized equipment and have implemented more procedures to diminish waste and maximize output. Textile employees perform their jobs efficiently and effectively using the latest technology available in all aspects of the manufacturing process from procuring raw goods, to production, to assembly, to shipping and logistics. In spite of these efforts, we are unable to compete with imports.
In turning around the manufacturing slump, South Carolina has some plusses on its side. Textile workers here are well educated and trained. They benefit from a superb technical college system that reaches into all areas of the state. Upon his election in 1999, Gov. James H. Hodges made clear his platform was education-based.
The writer is director of communications for the South Carolina Manufacturers Alliance, Columbia, SC.
By Gaylon Booker
The U.S. textile industry is in crisis. During the first half of 2001 alone, 45 textile plants closed with a corresponding loss of 15,000 jobs. Actually, the Bureau of Labor Statistics says 39,000 textile employees lost their jobs during that six-month period, but that includes cutbacks as well as jobs eliminated from the closures.
Some of the most recognizable names in U.S. textiles have filed bankruptcy. Their demise not only is harming textile workers but undermining Americas cotton producers and those who handle and process their fiber. U.S. textile manufacturers always have been our cotton producers best customers. Americas cotton industry infrastructure is dependent on the volume of business conducted between these sectors.
Usually about 60 percent of U.S. cotton production goes to domestic mills. When a domestic mill closes, that lost volume will not be fully recovered in increased exports. Obviously, the rural economy and ancillary industries to the U.S. cotton infrastructure are feeling the impact of these mill closures.
The U.S. possesses the worlds largest retail market for cotton textile and apparel products. The promotion campaigns of Cotton Incorporated have helped create a domestic retail cotton market in excess of 20 million 480-pound bale equivalents, up from 13 million just 10 years ago.
For the year 2000, the U.S. accounted for 22.5 percent of the worlds cotton textile and apparel market up from 14.3 percent one decade earlier.
Unfortunately, imports of foreign-manufactured textile and apparel products made from foreign cottons are growing at a staggering rate. From 1993 to 1996, net imports of cotton textiles and apparel averaged the equivalent of 5.6 million bales; by 2000, imports had grown to 10.6 million-bale equivalents. Net imports equals U.S. cotton textile imports minus U.S. cotton textile exports. The acceleration of imports in the late 1990s came amidst aggressive Asian export behavior and the U.S. dollars rapid appreciation.
The trade-weighted U.S. agricultural exchange rate index, as reported by USDA, confirms the rapid and sustained increase in the dollars buying power since 1995. Strong growth of the U.S. economy and relatively high U.S. interest rates, combined with a financial crisis in Asia and elsewhere, spurred foreigners to invest heavily in U.S. equity and financial markets. The resulting demand for U.S. currency led to the subsequent strong appreciation of the dollar.
Since 1995, a trade-weighted agricultural exchange rate index compiled by USDA has appreciated by more than 30 percent against a market basket of foreign currencies. The dollar has appreciated by more than 40 percent against Asian currencies. Against some individual currencies, the appreciation has been far greater.
For example, the U.S. dollar has appreciated by almost 50 percent against the Pakistani rupee since 1995. Not surprisingly, imports of cotton yarn and textile products from Pakistan since 1995 almost doubled by 2000 to about 1.24 million-bale equivalents.
A strong dollar makes foreign-produced textile products cheaper in the U.S. market. National Cotton Council economists, in fact, have found that each 1 percent increase in the dollars value increases cotton textile imports by 1 percent.
The cotton product import surge has decimated U.S. textile mills. In 1997, U.S. mill use of cotton was 11.4 million bales; by mid 2001, it had declined to only 7.7 million bales.
NCC economists estimate that if the dollars value had not changed since 1995 domestic mill cotton consumption today would be 12.3 million bales.
The decline in U.S. mill demand for raw cotton directly impacts the economic fortunes of all other U.S. cotton industry sectors.
Sales to domestic spinning mills provide stability to the level of overall annual offtake of U.S. raw cotton. Annual export volume varies much more widely than U.S. mill demand and, therefore, is a source of significant volatility in prices. The ongoing decline in mill demand has sharply reduced the overall U.S. cotton offtake level and is affecting prices to U.S. cotton growers. Combined with the difficulties stemming from highly variable raw cotton export opportunities, U.S. futures market values have fallen steeply and U.S. cotton growers are facing prices well below USDAs estimated cost of production. In early September, the futures price of cotton is below 38 cents, less than one-half of the value at the time the 1995 farm law was passed.
Ironically, the U.S. textile industry is one of the U.S. economys most innovative and productive manufacturing sectors. The items produced today use computer-aided design with high-tech imagery for shaping and color, scanners and inventory management processes for streamlining just-in-time deliveries and widely recognized environmental programs for product recycling and air quality control.
Investment in yarn spinning machinery and technology has made the U.S. textile industry the most efficient in the world. In fact, productivity gains in that sector have been surpassed only by the U.S. electronics and computers industries.
Although the number of active spinning positions has fallen by more than one-half in the past 20 years, the pounds of cotton used per position have increased seven-fold, from 200 pounds in 1980 to an estimated 1,400 pounds by 2000.
Editors note: The writer is president and CEO of the National Cotton Council of America, Memphis, TN.
By Charles A. Hayes
As president of the American Textile Manufacturers Institute, I would like to thank Southern Textile News for the opportunity to discuss the crisis our industry faces and what can be done to end it. I think the first thing to understand is that this crisis is something new and different from anything we ever faced before.
This crisis was not caused because this is a sunset industry that is not competitive or productive or innovative enough or even low cost enough. Every yardstick shows that prior to the Asian currency devaluations, the U.S. textile industry was meeting Asia head on and winning.
This crisis is different because it was created by Asian governments, and to end the crisis, the President needs to step in and take some actions. These steps, which I will detail a little later, are urgently needed to restore the competitive field to one that is once again fair to U.S. workers. If the President doesnt, we are going to see more mills closed and more workers will lose their jobs.
First, let me review just how bad things are in the industry. Since January 1, 83 textile mills have closed in this country and more than 40,000 of our workers have lost their jobs.
At my own company, Guilford Mills, we have been forced to close four plants and let go of more than 2,000 workers. Over the past year, the textile industry has lost 11 percent of its work force. Century-old textile firms that made it through the Great Depression and 12 recessions no longer exist. The industry is now suffering its worst downturn in more than 50 years.
How did this happen? The seeds to this crisis were planted in the 1980s and 1990s when governments across Asia engaged in a series of reckless fiscal and economic policies to foster high economic growth. In 1997-98, these policies caught up with them as one country after another saw its currency collapse.
These currencies have never recovered and, in fact, started falling again last year. Today, the currencies of the top 10 textile exporting countries in Asia are down by an average of 40 percent compared to 1996.
This means Asian exporters now get a 40 percent cost savings in dollar terms compared to four years ago.
As a result, Asian yarn and fabric prices have fallen through the floor. From 19962000, the average price of Asian yarn imported into the United States fell 30 percent and the average price of imported Asian fabric fell 26 percent, according to data from the U.S. International Trade Commission.
With these kinds of artificially low prices, imports from Asia have gone through the roof. The accompanying table below tells a compelling story. Prior to the currency devaluations, textile and apparel imports from Asia were either relatively flat or falling.
U.S. textile manufacturers were winning the battle with Asia. But then the devaluations hit and imports have skyrocketed. In the last four years, imports of Asian yarn have increased by 218 percent, while Asian fabric is up 61 percent. Imports of apparel from Asia have increased by almost 60 percent.
Let me reinforce the point about the devaluations with a few more observations. In the five years prior to the devaluations, U.S. textile shipments hit new records every year, and hit an all-time high of $84 billion in 1997. Our profits were also strong, hitting an all-time high of $2.1 billion in 1992 and staying high through 1998, with near-record profits in that year.
In the 1990s, our productivity increased faster than motor vehicles, aircraft, machinery and a host of other industries. And finally, during the 1990s, we spent more than $25 billion on new plants and equipment in the United States.
As everyone can see, the competitive situation is badly out of kilter. There are a number of things that the U.S. government can do to help put it right. One very important step would be for the U.S. government to extend federal loan guarantees, as it has done in the past for other industries and for agriculture.
This would quickly make available the cash many textile mills desperately need to see them through the crisis. The government could help in a longer terms sense by extending the tax loss carryback to 10 years.
The real problem stems from these artificially low-priced imports. In many cases, the prices we are seeing are so low that a case can be made for the United States to take anti-dumping actions. Government figures show that prices for some textile goods have fallen even farther than their countrys currencies.
Some are even below the cost of our raw materials. Our government needs to step in and initiate broad anti-dumping cases against these goods. It needs to send a critical message that it is not going to stand by and let illegal dumping drive substantial portions of this industry out of business and displace U.S. workers.
One last thing regarding these artificially low currencies: People should understand that the U.S. government bears some responsibility for them as well. When these countries devalued, the United States, along with other developed countries, stepped in to approve tens of billions of dollars in IMF bailout packages. As part of these packages, Asian countries were supposed to stop the fiscal policies that got them into this situation in the first place.
Very few reforms appear to have actually occurred and most of those big, state-supported, inefficient companies, including a lot of textile companies that were supposed to be shut down, are still in business, still receiving government help and still shipping product to the United States. These propped-up companies are a big part of the problem.
In addition, the U.S. government has made the whole situation more difficult by its support of a strong dollar. This has helped keep Asian currencies even lower than they might otherwise be and has created more problems for our export business elsewhere in the world.
As you may know, the strong dollar is not just a textile problem, but one that the National Association of Manufacturers, the American Farm Bureau and the automotive industry, among others, are calling the No. 1 trade problem facing them today. So the administration needs to take steps to bring the value of the dollar back in line with reality.
There is another area that is textile specific that we could use the governments attention and that is the problem of smuggling, particularly through NAFTA. As many people know, our ability to increase exports to Canada and Mexico because of NAFTA was a key reason that we were able to expand output in the mid-1990s. These vital markets are now being stolen away from us by smuggling of Asian textile and apparel products illegally claiming Mexican or U.S. origin.
Several years ago, U.S. Customs investigated the problem and estimated that half a billion dollars is being smuggled in from Asia just through the port of Los Angeles-Long Beach. And while Mexican Customs, to its credit, has cracked down hard on its side of the border, U.S. Customs has yet to act.
The problem has deteriorated to the point that last month Mexican Customs restricted the border for textile products to 12 specific ports because they just couldnt trust what was coming in from the United States. If that is not an indictment of U.S. Customs, I dont know what it is. We need U.S. Customs to get going right away on this problem and shut this illegal pipeline down.
Our challenge to the U.S. government and the U.S. Customs Service is to start enforcing the NAFTA and other bilateral agreements. We hear a lot of talk out of Washington that government is going to start enforcing trade agreements. President Bush and Commerce Secretary Evans have both said that enforcing trade agreements is a top priority.
Well, here we have a case smuggling through NAFTA where the government itself has admitted there is massive illegal activity and yet we dont see much if anything happening on the enforcement front.
One other important point on this smuggling if hundreds of millions of dollars of Asian textiles can get through this loophole, anything else can, too. The national security implications, especially following the tragedies in New York and Washington, of this open pipeline into our country are clear and frightening and also need to be urgently addressed.
There are also some important longer term steps that the government should take. One of them concerns our tariffs. The WTO is holding its annual meeting in November and the member countries hope to launch a new trade round. If a new round comes about, our government must take our textile and apparel tariffs off the table during any new negotiations. As you know, we were the big donor sector in the last round but we were also promised textile market access.
In fact, the Clinton Administration set very specific goals. Unfortunately, the White House never came through. We never got the market access we were promised, and Asia, in particular, has kept its markets almost completely closed to our exports. In fact, as an ATMI report published last year showed, in a number of cases the barriers have become even worse.
So from our perspective, we are still waiting for what we were promised from the last round. And while we have been waiting, imports have doubled to the stupendous level of 33 billion square meters. So there is no excuse for any more access to be given in our market while we still have no access to foreign markets.
The writer is president of ATMI and chairman of Guilford Mills, Inc., Greensboro, NC.
By Gladys Beattie
The textile industry is beaten down, pleading for a chance for some fairness and acknowledgment from our leaders in Washington.
Over the last 200 years, the industry has moved from higher-cost areas to lower-cost areas. The incentive to move? Labor. A no-brainer in any history book. Over decades it migrated from Europe to New England to the Southeast, all to ease labor costs for what was then a labor-intensive process.
Now, U.S. textile weaving mills produce more fabric per hour per person than any other nation in the world.
Now, many textile mills run an average of 98 percent efficiencies.
Now, labor is typically less than 20 percent of total costs.
But now, the industry is moving again, yet for different reasons this time. Our cost structures have very different components, such as OSHA requirements, health care, retirement plans, insurance and many other mandates usually not required by Far East competitors.
Today, our mills are closing. Even the banking industry resists extending credit during tough times, as they see little future and return on investment risks for our industry domestically. These companies cannot reinvest in their businesses, because they are simply desperate to hold on.
The textile industry is obviously heading to the East, not necessarily for labor reasons, but for other low-cost manufacturing reasons. For example, our water-jet weaving customers using water for production must recycle and/or return it to the environment cleaner than its initial state. Those expensive measures are not even a cost consideration in underdeveloped countries.
Our customers, weaving mills worldwide but mostly in the U.S., have profit margins that more often average in the single-digit numbers in good economic times. Most retailers are making double-digit margins consistently. Good for them, but when it comes to their bottom line, recession or not, these retailers are not concerned where the fabric is purchased.
Now, a strong U.S. dollar allows a 30-40 percent automatic price advantage. Then add the savings from operating in an underdeveloped nation and were at least at a 50-60 percent price disadvantage.
But retailers, and other big service-oriented, free trade advocates, have strong lobbying efforts assisting political votes with cash to push their interests through legislation. We have little voice and less supporting monies to spare in Washington compared to those larger industries and groups that benefit from a cheap work force. The free trade war goes on and jobs and closings are an everyday reality.
Tragically, yet necessarily, the U.S. must rethink national defense in todays modern world. It takes two months or more, at best, before fabric will arrive at our shores if the government places the orders today. Are Americans willing to wait that long for clothes, ballistic materials, tarps, tents and parachutes to launch an attack on the enemy?
Can we trust that these countries will supply us when they may be the ones we are at war with? Washington is trying to engage in free trade policies with these Third World countries that do not care for their people as much as we humanitarian Americans do.
Look at our company, for example. We started operation in 1913 and continue to reinvest in our products, automation, people and information systems. We supply manufactured parts mandatory for the weaving process to these struggling mills. Our reputation is well known for quality.
Now, most every customer account is scrutinized, as we fear their possible closing or bankruptcy or default of payment. Of course that is inherent in any business down cycle.
How has our company made it though four generations? We sell on quality, service and delivery. Yes, all generic terms, but all those terms have a tremendous cost savings to mills using our products and improving their efficiencies, hence their bottom line.
What we face today is denied value in quality and service. They say cheapest price for their own survival. Is quality a concern to Americans when it comes to shopping for back-to-school clothes? As you buy those less expensive Wal-Mart clothes, tell me how long the knees hold out until holes appear?
The retailers are killing themselves in catalog sales. We all know most apparel is made overseas. When have you ordered from an online retailer for your particular size of jeans, only to discover everything must be tried on to uncover sewing and fitting discrepancies? You send it back and lose the benefit of buying less-expensive apparel through UPS charges.
Whats it like for the little supply companies, who are mostly privately held family oriented businesses? Now, we scrutinize our receivables, guessing which customers are high risk for business. We are watching and networking among ourselves to see which ones will make it through this trying time. We ask ourselves, will banks extend more money, yet one more time, to ride out the worldwide oversupply of textile fabrics?
By Robert J. Edsall
Is the demise of textiles imminent? Is the condition of the industry beyond hope? By the looks of all the symptoms, the answer appears to be, yes. But what does one do who is sick ? Quite naturally, call the doctor.
There was a time in textile history when the mill doctor was relied upon for guidance, vision and insight and was instrumental in the prosperity of American textile companies. Companies like Cannon Mills, Callaway, Cramerton (later Burlington), Stevens, Thomaston, West Point and many more went to the mill doctor for their expert counsel and know-how.
Who were the mill doctors? Names that still carry lasting legacy D.A. Tompkins, Stuart Cramer, Amos Lockwood, Stephen Greene, J.N. Pease, Robert Dalton Sr., Chip Roberts, J.E. Sirrine and Ralph Loper. These engineers were men moved by the spirit with practical vision and contributed in more ways than anyone else to the growth and development of the U.S. textile industry. They continually preached the economic gospel of textile expansion.
The textile industry is sick today. And it needs a doctor. Its sickness is not a single aliment but rather the result of many factors, working together, over a period of many years. Therefore, the cure will not come about quickly or simply. Major surgery is costly and the healing and rehabilitation process takes time.
The first step: identify the problem(s). An examination reveals at least six areas where treatment is needed. Three are internal, three are external.
First, the internal: The disease of secrecy led to the perception that textiles is smokestack and antiquated, not a place you would want to make your career.
Second, the disease of deterioration/disregard to stay healthy family ownership (often third and fourth generation) that lacks the basic commitment to the industrys prosperity; eventually destroys.
Third, the disease of silence abdicating responsibility to speak out and stand up. Subtly sets in and causes weakness, insecurity, lack of power and eventual loss of identity.
External: These are attacks. They come from an enemy. And unless destroyed will destroy you: 1) illegal imports; 2) greed takeovers by investment vultures; and 3) lack of local, state and federal commitment to guard and protect the prosperity of textiles.
When I began my career in textiles with Textile World magazine in 1958, the industrys total capital expenditure was $288 million! Its image, as perceived by other major American manufacturing industries chemicals, paper, steel, electrical, etc., was an industry surrounded by secrecy, controlled by families and grossly out of date in technology. The industry had a big problem then, but in retrospect I dont think it realized it or would face it. 1958 was not an exciting time in textiles!
The industry operated in secret, behind a curtain. Not being open and sharing the truth about textiles to employees, communities, states, the country and the rest of the world has injured the industry. How, you say?
One example is, for years and years the textile division was the largest contributor to the United Way of Greenville, SC. But along comes new industries in the area (no problem with that) and at a United Way meeting a non-textile person stands up and says, we need an industrial division that better reflects all business, not just textiles.
And, lo and behold, the textile division was erased and all identity and press coverage was lost because the textile industry didnt stand up at the meeting and say, fine, you have your industrial division, but it wont come at the expense of the textile industry. Textiles built this town (Greenville) and as the hub we are the most important provider to our communities. Let me share with you, Mr. Industrial Person, how this community prospers because of the textile industry.
If those statistics and facts were presented, Mr. Industrial Person would have sat down quietly in silence.
Another example of abdicating textiles importance: The name change of Textile Hall to Palmetto Exposition Center. Should never have happened.
The textile industry built Textile Hall. There would be no trade show facility in Greenville like Textile Hall without the textile industry making it happen.
These are examples of self-inflicted injury. No one to blame except the industry itself. The loss of prominent identity and association with valuable benefits to the community is a huge loss of power and influence a sign of weakness, insecurity and being intimidated.
Now go to Washington if youre powerless and easy to be intimidated and guess what youll get? Nothing!
Another great example of injury to itself is hiding behind a curtain to keep proprietary processes from being seen by outsiders. To a large degree this secrecy cost American mills their own textile machinery industry an industry they could have worked with locally and at home.
What do I mean? American textile machinery manufacturers are relatively small and had to rely on companies like General Electric, Westinghouse, U.S. Steel, etc. to develop new drives, motors, controls and materials for textile applications. So, Westinghouse says, how many cards or slashers will be bought in the next two to five years?
Better do a survey and find out. Ask the mills. OK. How many cards do you operate and how many do you intend to replace/buy? Mill answer: We dont give out that kind of information. So Westinghouse, instead of developing a new slasher drive, develops a new drive for the paper industry instead. The American slasher manufacturers must continue using the old drive.
When American mills started visiting the International Textile Machinery Exhibition-International (ITMA) trade shows in the late 50s and 60s, they saw foreign-made slashers with drives they had never seen before and said, our American textile machinery manufactures havent kept up with new technology! And dependence on foreign-made textile machinery products was born.
Another self-inflicted injury can be seen in one of Americas most successful machinery companies, John D. Hollingsworth On Wheels. Talk about invisible. Here was a company that operated in almost total secrecy.
Now, Mr. Hollingsworth had every right to be personally invisible. Where he failed totally was not recognizing and sharing that his prosperity was the direct result of the prosperity of the textile industry. Without the textile industry Mr. Hollingsworth would not have made millions of dollars.
What a shame he never saluted and bragged on the industry. Or invited the community to see his marvelous manufacturing facilities. Oh, how tragic to operate in darkness.
Even after his recent death and millions of dollars being given to others, the textile industry still has not been recognized for making it possible for him to become a multi-millionaire. No wonder high school and college students arent saying, wow, I want to be in textiles thats where I can become a millionaire look at John D. Hollingsworth. Not only couldnt they see him, they didnt even know he existed.
Greed takeovers. The invasion of investors who take over a company are like thieves. They rape the company of the jewels for their own greed. Like vultures that pluck out the eyes of their victim first, these robbers pluck the cash first to line their own pockets. When stockholders or family must approve the rape, they too are motivated by their own selfishness.
Totally unfair, and tantamount to being robbed, the employees and the company are crippled, or worse. The actions of the Icahns, Farleys and Murdocks of this world should be recognized as robbery and every weapon employed to defeat them.
Now, what are the problems brought about by second, third and fourth generation family ownership? The underlying cause of family-owned mills that have failed or are failing today is a lack of commitment to the textile industry and its prosperity. There is no crime in losing interest and not wanting to continue in an occupation where you are not happy. But, the family should seek and find a buyer who will continue operating the business for the best interests of everyone.
A good example is when the Harden family, owners of Harmony Grove Mills, found banking more appealing then textiles. They found a buyer, Mount Vernon Mills. The new owner, not motivated by greed or a hostile takeover, made the kind of commitment to the employees, the industry and customers that results in good things happening for all.
Look at Arkwright Mills as another example of a family selling to a company that practices integrity, fairness and honesty the old-fashioned laws that are as real as the law of gravity.
Illegal imports. No question this is a major injustice. But, expecting it to be resolved by enforcing trade agreements, etc. is wishful thinking. Transshipping, fraudulent labels, counterfeiting branded goods, infringement of copyrights and more have been going on for decades. Have they stopped? Of course not. Will they? You and I know thieves do not play by the rules or abide by laws. There must be another answer.
Failure to support the business hub. In October 1979 the original Textile Industries magazine cover story was, South Carolina: Textile Gold Mine. With a gold mine in your back yard 427 mills, 200,000 employees and $1.5 billion payroll wouldnt you expect the owners of the mine cities, towns, government, etc. to guard and protect their richest asset?
A productive gold mine will attract new miners and bring wealth seekers to the mine. Why then have chambers, state development boards, clubs, associations and various organizations been allowed to preach diversification at the expense of its pot of gold? Theres nothing wrong with diversification, as long as the hub is greased and kept in perfect working order. Instead, incredible bribes and deals are made to win a new business.
Editors note: Several industry leaders provided STN with in-depth opinions about the plight of the U.S. textile complex. Following is one of several articles based on those analyses.
Howell W. Newton has seen bad before. But never this bad.
I have been associated with this industry and this company for more than 30 years and never in my life have I seen a more devastating set of circumstances hit the industry and our business as we have seen in the last 14 months, said Newton, president of Trio Manufacturing Co., Forsyth GA.
So much so that the company has moved into survival mode, Newton said. My livelihood and the livelihood of the associates with our company depend on our ability to turn the tide for our industry and our company, he said.
The yarn manufacturer began feeling the downturn in July 2000, just a few weeks after celebrating its 100th anniversary and its most profitable year ever. Since then, however, revenues have dropped more than 33 percent.
To offset the loss, the company has been forced to implement rotating layoffs, thus placing many of our loyal and dedicated associates on unemployment compensation for extended periods of time, Newton said. Most job elimination has occurred through normal attrition, however, he added.
Travel and entertainment has been limited to only those activities that generate new business, and support for local charitable endeavors has been limited, he added.
Newton blamed the two-year skid on a multitude of factors, not the least of which is the strong U.S. dollar.
But I also believe that retail has focused more globally and, with the strength of the dollar, they were certainly encouraged to consider importing products that compete with domestic suppliers, he said.
And, he added, the government bears part of the responsibility. It is obvious to me that our government is not interested in the manufacturing sector of business in this country, Newton said. I am not for protectionism, but I do believe we should insist on fair trade throughout the world. When other countries do not honor trade agreements, then our government has the responsibility to take action against those countries. Our government appears to be extremely weak in this area.
Editors note: Several industry leaders provided STN with in-depth opinions about the plight of the U.S. textile complex. Following is one of several articles based on those analyses.
Times change with increasing rapidity. The U.S. textile industry, healthy and powerful in the mid- to late 1990s, has seen plants close, workers laid off and dramatic price deflation for the yarns and fabrics it makes.
The issues that brought the industry to these hard times are many and complex. Surging imports caused by the devaluation of Asian currencies, an economic slowdown here in the United States and government policies that dont value the manufacturing sector have all eroded the industrys economic viability, according to John Anderson, vice president of marketing for the Fibers Group of Wellman, Inc.
There are three or four factors that brought us here, he said. The obvious one is the Asian financial crisis. Prior to that moment in time, we were on an expansion path. The U.S. textile industry was growing despite an increase in imports with each passing year.
The future of NAFTA looked bright. It looked like people would be modernizing. People would need new fibers. When those currencies devalued and stayed devalued it totally changed the playing field, as we are experiencing right now.
Wellman, like every fiber and textile company, has made adjustments to weather these difficult economic times. In 1999, the company began a cost reduction/profit improvement program, in which it exited the wool business, closed its New York office and took out a layer of management in its plants.
The company has basically cut its selling expense in fibers by 40 percent from what it was two years ago. Wellman reduced its spending in areas like trade show attendance and participation in industry associations. On the other hand, the fiber producer has not reduced spending on research and development and has expanded budgets for international travel.
It has forced us to reconsider a whole strategy, Anderson said. We built a brand new plant in Mississippi. We made that investment decision back in 1995-96, anticipating continued growth in North America. The plant has modern yarn forming systems that require very sophisticated fibers. Its sitting idle.
Anderson is referring to Wellmans state-of-the-art Pearl River plant. The fiber portion of that facility has shut down. Polymer production for other applications continues there.
The plant was started up a year ago. Market conditions were such last December that the company chose to shut it down rather than have two plants run at reduced capacity. If anything, market conditions have deteriorated since then.
The surge of imports, slow U.S. economy and high debt level of many textile companies has been an ominous combination, leading to a string of foreclosures and Chapter 11 restructurings in the industry. Many more mills may not last long enough to see the business cycle improve.
There will be a general turn in the economy and a general turn in the textile/fiber complex, Anderson said. But it will be markedly different than the industry that went into this situation in 1997-98. We have seen a fair number of American textile mills just disappear from the scene. We will continue to see that happen, sadly.
Time and distance remain the industrys primary advantages against foreign competitors. On the other hand, the intense competition both in manufacturing and at retail has hurt the bottom line of everyone in the textile business.
The industry needs to be a lot less antagonistic and a lot more collaborative when it comes to putting together fast paths to market, Anderson said. The whole supply chain in this hemisphere needs to work more closely than it has on figuring out how we bring new product to market quickly.
The other key thing is innovation. Its fiber. Its fabric. Its fashion. People need a reason to go into the stores. We ought to understand our own markets better than the people on the other side of the world.
Anderson has seen just that kind of innovation take place in nonwoven products. As examples he points to Swiffer and Grab-It. These are indispensable household products that didnt even exist just a few years ago.
Editors note: Several industry leaders provided STN with in-depth opinions about the plight of the U.S. textile complex. Following , in Q&A form, are responses by Roger L. Berkley, president of Weave Corporation, Hackensack, NJ, a 91-year-old family-owned upholstery and apparel fabric producer.
STN: What factors led the industry into these dire straits? And, specifically, what effects did those factors have on business and business conditions?
Berkley: The primary problem has been a failure on the part the U.S. government to develop a consistent industrial policy and, therefore, a logical approach to preserving the American industrial base. The shoe industry is gone. The steel industry is virtually gone. The auto industry is weak. The list goes on.
As a result of this seminal policy failure, the various administrations over the last few decades have negotiated trade agreements based upon political pressure and lobbying, both domestic and international, and the textile industry has been a big loser because other nations value their textile industries more than we do ours and they have been aggressive in winning access to the U.S. market.
Further, our industry has been too insular in its approach to the emerging international trade picture. In the 1980s we fought to close our borders to textile imports. We squandered our political capital to fight a battle that would inevitably be lost because it was unrealistic. We should have fought to ensure freer access to international markets and removal of protections given to raw materials producers that kept us paying too much for fiber and yarn.
As an industry, we came to internationalism too late. Some have not yet recognized the realities of the marketplace. Those folks are already dead they just dont know it yet.
STN: What effects did those factors have on business and business conditions?
Berkley: Weave Corporation is a niche player. My father used to tell me that when people asked him how the textile business was doing, he would answer that he didnt know, he only knew how we were doing. We are in a segment of the industry where the small, highly customized, highly responsive, upper-end manufacturer can operate profitably. The custom nature of our business allows us to compete on the international stage, although the strong dollar has been a hard blow.
STN: How is your company coping during these times?
Berkley: We are coping with the current economic downturn by being ourselves. Since we are privately held, we have always operated a lean, efficient operation. Today, we scrutinize every aspect of our business to make sure we are focused on our goal, which is profitability.
STN: Has your company been forced to implement other cost-cutting measures?
Berkley: We have reined in SG and A expenses, and we are watching our yarn inventories closely.
STN: What will the industry look like when this transformation is complete?
Berkley: I believe that the U.S. textile industry that emerges from these hard times will look very different. Manufacturing will be scattered around the world, with a heavy concentration in Mexico and the Caribbean. Domestic manufacturing will be limited to those companies that offer high value-added product and are quick and geared to customized product. Even such companies will depend upon the world for raw materials and maybe even some manufacturing.
STN: What effect has NAFTA had on your business and the industry in general?
Berkley: NAFTA has had a limited effect on our business. Mostly it has dumped a ton of paperwork on us as we and our customers export more and more to NAFTA countries. Since our customers are exporting more product to NAFTA countries, we have benefited as well. As for the industry in general, NAFTA has been a mixed bag. Those who have taken advantage of Mexicos possibilities generally have been helped, although at the expense of U.S. jobs. Those who have not or could not exploit those opportunities are suffering and may not make it.
STN: Will the CBI legislation help the industry? Is your company involved or plan to be involved in the Caribbean?
Berkley: CBI will help the way NAFTA has helped. We are not involved in the Caribbean.
STN: Do you think government involvement in the industrys plight is crucial to survival? If so, how?
Berkley: At this point, the U.S. government needs to step in and exert its power to guarantee a level playing field for U.S. industry on the international trade front. We must demand a reciprocal arrangement with each country that wants access to our market. If country A wants duty-free, quota-free treatment from us, then they must grant the same to us.
The plight of the U.S. textile industry is causing distress to its suppliers, as well, particularly many of those that provide textile machinery.
Parks & Woolson Machine Co., Inc., a Springfield, VT-based producer of fabric-handling machines, is one of those suppliers that is feeling the pinch, according to Al Peterson, president.
The impact of companies going out of business and the consolidation of many companies has diminished our ability to produce sales needed to maintain our work force, he said. The contraction has produced a surplus of equipment and the strong dollar has impacted our ability to market internationally.
As such, the company has slashed both its work force and production hours by about 40 percent, he said.
The contradiction is that while the overall economy has been good and demand for many of our components strong, we are faced with higher prices and longer delivery times, Peterson said. This situation versus the competitive pricing due to foreign machinery pricing is difficult to contend with. We have sourced some components outside our normal supply chain to take advantage of the weaker Canadian dollar.
Meanwhile, American Truetzschler of Charlotte, NC, the U.S. subsidiary of Truetzschler GmbH and Co. KG of Germany, is also being hurt by the downturn, according to CEO Kurt Scholler. The company, which specializes in preparation machines for the yarn spinning and the nonwoven sectors, has been forced to implement short work weeks and cost-cutting programs, he said.
There is very little willingness to buy new equipment to expand existing capacity, said Scholler, president of the American Textile Machinery Association (ATMA). So equipment sales in our company have primarily been replacement sales. Older and less efficient equipment has been replaced by more efficient equipment.
Another capital equipment manufacturer, Sulzer Textil, has seen its orders for weaving machines in the U.S. drop, too, paralleling a trend among loom makers. But by offering all leading weft insertion technologies, the company has not been affected as badly as some, according to Fritz Legler, president of the Spartanburg, SC, firm.
We have a machine that will suit our customers needs. So, judging from that and knowing what we have sold so far this year, I should be reasonably satisfied and content with the orders we have received, Legler said.
Sulzer Textil has made some adjustments as a result of the slowdown, but nothing dramatic, he added.
Overcapacity of resources was adjusted to the level required of the industry we serve, he said. It was done in a way so as not to have a negative impact on our customers. Sulzer Textil cannot let slip the high service standards set in this country.
Another provider, Industrial Lab Equipment (ILE), Charlotte, NC, has eliminated about 50 percent of its personnel, reduced its purchases of raw materials and electro-mechanical and electronics by $1 million and cut costs in areas such as electricity and salary, according to Harry Simmons, president.
While some textile manufacturing mills say they have realized benefits from the North American Free Trade Agreement, several textile machinery suppliers say that peripheral dividends in their favor have been limited.
NAFTA is an anomaly, said Parks & Woolsons Peterson. We hear about the benefits but have not experienced them. Plants that have relocated in Mexico have not benefited as expected and it has not stimulated purchases of machinery.
As he mentioned earlier, however, his company has taken advantage of the legislation to source in Canada.
Three other machinery makers said the legislation has not affected their business either way, even indirectly.
That isnt the story across the board, however. Sulzer Textils Legler said the law has strengthened its position in Mexico. We have had a good number of important projects going on south of the border with leading American companies, he said.
Another equipment manufacturer, who asked not to be identified, said that NAFTA has made Mexico its most reliable export destination, although not by much.
Others said the U.S.-Caribbean Trade Partnership Act of 2000 has the potential to provide benefits down the supply chain.
Like their customers, industry suppliers for the most part say that U.S. government action is essential to survival.
I do not think the textile industry needs governmental protection. I think what the industry needs is for government to create a fair playing field, said Scholler. A huge amount of illegal shipments of textiles is coming into the United States, so by exercising better customs control, theyre using existing legislation to help this industry.
But that is not, in my view, a protectionist measure. When you talk about protection, normally you associate someone weak who needs protection, he added. But that is not the case when it comes to the textile industry. What I have seen happening over the last 10 years in the American textile industry is a tremendous effort to improve working conditions, efficiency, environmental standards and safety. You can hardly say this is a weak industry.
If somewhere there is a manufacturer in the world who has a better product at a better price because that company is just doing a better job from the standpoint of being smarter and better equipped, then yes, that would be fine. That is a real competitor. But a lot of competitors are competitors sponsored by foreign government and I think only the U.S. government can do something about that.
Legler, who is Swiss, experienced a similar recession in the European textile industry in the 1980s. He said, however, that the American textile industry is responding more quickly to its downturn, but still needs support from Washington.
Traditionally speaking, protectionism is not and will never be a panacea, and we will all have to embrace the goodies of free trade, he said. On the other hand, free trade has to be implemented fairly and squarely throughout the world and everybody has to live up to a certain codex.
In that sense, I believe that the U.S. government can certainly assist the suffering textile industry. U.S. plants need access to offshore markets. This can be reached through their own marketing efforts and also through governmental support to open other markets.
Editors note: Several industry leaders provided STN with in-depth opinions about the plight of the U.S. textile complex. Following is one of several articles based on those analyses.
Fabric producer Cone Mills Corporation of Greensboro, NC, has been hit particularly hard by the downturn of the domestic textile industry. But the 110-year- old company is heavily involved in a plan to return to profitability.
Over the last 2 1/2 years, Cone, through layoffs and attrition, has seen its employment drop about 50 percent. The company has exited four businesses and three markets; implemented two downsizings; and reduced its headquarters size by about 70 percent.
I believe Cone has gained relative competitiveness, but this expected positive impact on profitability has been more than offset by tumbling industry conditions, said John Bakane, president and CEO of Cone, the worlds largest producer of denim fabrics and the largest commission printer of home furnishings fabrics in North America.
Bakane cited four factors that have led the industry into troubled waters:
unprecedented liberalization of U.S. trade policy, resulting in record trade deficits and wholesale disruptions of supply/demand balance in the U.S. soft goods industries;
unprecedented investment in developing country textile and apparel capacities, often in countries that do not have market disciplines or infrastructure, which has resulted in subsidized capacities around the world;
record worldwide expansion extended in part of the Federal Reserves Save the World monetary policies in 1998 and 1999, resulting in staggering excesses of capacity around the world; and
a record bubble in U.S. technology equity values, which attracted and misallocated resources to this sector from all over the world and is partially responsible for the revaluation of the U.S. dollar by about 40 percent in four years.
A strength of the dollar, in conjunction with excess and subsidized foreign capacities, has seriously hampered U.S. manufacturing competitiveness, he added.
The strong dollar, weak U.S. economy and the painful worldwide adjustments of excesses built up over the past nine years are the biggest external impediments to the industry, he said. Non-economic decision-making by company managements around the world is the biggest impediment to the industry internally.
Bakane predicted that the domestic industry will survive but will be much smaller, more focused and more entrepreneurial than in recent years. I believe the day of the diversified textile company, often being a marginal player in many businesses, is gone. In the future, companies will only engage in businesses in which they are No. 1 or No. 2. I do not believe that margins or capital markets will support the added costs of decentralized multi-business textile companies.
Cone has followed a business model based on four principles, he said:
engage in businesses in which Cone is No. 1 or No. 2;
engage only in those businesses defensible in this hemisphere;
attract, motivate and retain quality employees; and
have a low-cost mentality and a migration path to low-cost manufacturing for basic products.
Two Carolinas yarn spinning companies are making the necessary efforts to remain viable players in the industry.
Both more than 75 years old, Cheraw Yarn Mills of Cheraw, SC, and National Spinning Co. of Washington, NC, vary in size and spin primarily different types of yarns. Yet both have had to tighten the screws to cope with overcapacity in that sector of the industry.
Privately held Cheraw Yarn, which currently employs about 250 people, has allowed normal attrition instead of layoffs to reduce its work force, according to Malloy Evans, president.
We have done other things to reduce costs, such as being sure we are as energy efficient as we can possibly be, he said. That is a big cost to a spinning mill. Weve spent a lot of money on upgrading air compressors and refrigeration equipment.
Weve also been watching our inventories like a hawk. If we need to stop production, we just stop, to do what we need to do.
Being privately held, the companys financials arent available, of course, but Evans said the company remains steadfast in its commitment to its employees and its profitability.
We have very loyal employees, he said. We communicate with them and they do understand. They see TV, they read the papers. They know whats going on. But we do try to comfort and reassure them as much as we can.
National Spinning, which is employee-owned, has whittled down its employment numbers by about 400 people over the last two years, most of which has been accomplished through attrition, as well, said President and CEO Jim Chesnutt. The company has 1,600 employees at six locations.
Chesnutt reported good news on the fiscal front.
We will be in the black for the year and, I must tell you that, based on what I read and what I hear, were very humbled that we have taken the steps to keep our company profitable, he said.
Both Evans and Chesnutt agreed that the strong U.S. dollar has played a key role in crippling much of the domestic textile industry and called for government action in that area. They added that enforcing current trade laws and using common sense when negotiating new ones are crucial to the industrys well-being.
I am appalled that we are getting ready to let Vietnam become a trading nation, with favor, with the United States in the next six months, Evans said. The history of our relationship with that nation is well known and thats a graphic example of something thats just not right. And a lot of people out there feel very strongly about that. Were saying, come on in, Vietnam, and bring your textile goods with you.
Added Chesnutt: I think there are people in Washington who dont have a clue that in Beaufort County, NC, the unemployment rate is 10 percent or that Cleveland County (NC) has 7,500 people out of work. I dont think they have a clue understanding how those people will survive when all these textile mills are closed down.
Nick Picciotti, co-owner and vice president of Seville Dyeing Co. Inc., Woonsocket, RI, said his heart aches for what is happening to the domestic textile industry particularly his own company.
Since its employment peaked at 520 people two years ago, Picciotti and his brother Bob have been forced to pink-slip about two-thirds of their employees. Only about 160 remain.
The situation is incomprehensible. Layoffs, loss of benefits to people, pain and suffering are consistent, said Nick Picciotti. All that is connected with treating employees as important, integral cogs in any industry is being lost.
The ordeal of laying off excellent employees has been heart-wrenching, he added. The loss of income, health benefits, 401 plans and dental care have weighed heavily. I have good employees who have been with me 15, 16 years. What do you do, just throw them out? Say get out of here?
The 20-year-old company, which dyes, finishes and prints raw fabric, has been hit by rising utilities costs and shrinkage of its customer base, which resulted from the industry downturn. Seville is now operating under state receivership.
Most of our customers in the New York apparel industry have closed, he said.
On top of these problems, utilities have increased due to electricity, gas, oil and sewer rates, all of which are big numbers in textile wet processing, Picciotti said. Sevilles utility bills have increased $1.2 million per year in cost, not usage, he noted. In addition to cutting jobs, Seville is coping by trimming inventories to a bare minimum and by consolidating two plants into one, he said.
Were going to try to battle it out, see if we can get through it, Picciotti said. But if theres not a significant change in the amount of business in this country, theres no way anybody will make it. Well all go into the hamburger business, I guess.
AT A HOTEL at St. Thomas in the U.S. Virgin Islands last summer, miniature U.S. flags were distributed to guests by the pool. The tourists, mostly American, were to wave the Stars and Stripes during a the Fourth of July ceremony that included the playing of the National Anthem. Among those vacationers was the editor of this publication, who noticed that the flags included those three little words that will dampen an Independence Day observance faster than a swarm of bees: Made In China.
Old Glory, Glory, howd they sew ya?
We wonder. Has globalization come to this? That the symbol of American pride can be manufactured in a Communist country and imported to a U.S. territory? And the well-worn stamp, Made in China, would be unabashedly printed on it?
Green berets worn by U.S. service men and women almost were relegated to a similar fate earlier this year, until someone came to their senses and decided that China should not be making our military garb.
But as for U.S. flags, theyve been getting plenty of mileage in this country since September 11, of course. And we would like to think that Americans in the States are waving them with pride, without having to worry about their country of origin. Yet the way the textile industry has shifted over the last few years, who knows? Perhaps China, or some other country, has made a star-spangled deal with bargain-hunting retailers.
Though important, the flag issue is merely symbolic. A very real issue arising these days is the importance of textiles to national security. In a calamitous way, the recent attack on America puts U.S. textile production and manufacturing, in general in a new light. With war looming, the ability to produce and deliver such items as camouflage, tents, socks, parachutes, etc. in a timely fashion is imperative.
WHICH BRINGS US to our annual Textile South edition. Included in these pages, under the theme U.S. Textiles: Hanging By A Thread?, is an exposé of the distressed state of the domestic textile industry. Information has been gleaned from various sources within the industry, as well as those who closely observe it. Our purpose is to heighten awareness of the plight, especially among those who are in a position to do something about it namely, elected officials in Washington. We have mailed this edition to every U.S. Congressman and Senator, along with President Bush and his cabinet.
Our intention is not to neatly package an agenda related to this downturn, but to provide a forum for industry representatives to express their thoughts on and solutions to the matter. As with most entities, opinions are diverse within the textile manufacturing community.
Some may criticize us for dispensing such a wide range of insights. Doing so, they may say, would be counterproductive to the industrys ultimate goal survival. Or that this would only serve to further confuse lawmakers who already have witnessed the infighting that has existed in this industry.
But we believe, elected officials, that you will notice a few common themes emerge from this exchange themes that will help you better understand the critical condition of this industry in future legislative considerations. A prevalent theme we have gathered: This industry wants free trade, provided it also is fair trade.
We hope you are enlightened.