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Rising Cotton Prices: What is Their Impact?

CHICAGO — Have you seen textile prices increase from 8.5% to 20% recently? Have you noticed that no one is offering long-term, price-guaranteed purchasing agreements?
Cotton prices continue to climb, and so do the cost of finished goods. We are facing a fundamental change in the way the textile industry operates.
For the past decade, prices have been incredibly stable due to manufacturing relocating to low labor-cost countries. But several factors are combining to drive the cost of textiles higher.
The first and most obvious is the worldwide shortage of quality cotton. Domestic production is down because many cotton fields were switched to crops that could help produce bio-fuels. Bad weather in India and Pakistan also reduced the yield and quality of the fiber. China has become a major consumer of cotton and is a more active trader in the world market. The current political unrest in Egypt may hurt the cotton crop there.
We have lost the ability to relocate manufacturing facilities to lower-cost countries. Textile mill workers are earning higher salaries. Companies must pay more to keep skilled workers. While these changes will put annual price pressure on textile products in the future, it doesn’t account for recent price increases.
We are also seeing another run-up in oil prices due to several developing situations in the Middle East.
Even before this latest crisis, gasoline prices were expected to rise to $4 per gallon by the end of the year (this has already occurred in metropolitan areas such as Chicago and New York City). Now, some experts are predicting a possible rise to $5 per gallon. Since most textiles in use today are a polyester/cotton blend, the increase in oil prices will also drive up the cost of polyester fibers.
Retail markets are expecting 25-35% price increases for clothing this fall. Institutional textiles will be in shorter supply than in past years. Suppliers will be able to raise their prices to unheard-of levels and still sell all their inventories. Some smaller textile companies may go out of business. Laundries that have always purchased textiles on the spot market may lose the ability to buy them.
We managers are caught in the middle of this fundamental change. Because of long-term price stability, we have extended the length of our service contracts with customers. While most contracts have modest annual price increases built in, these will not be enough to keep up with rising textile costs. To stay profitable, we must monitor our bottom line and work with customers to extend product life, decrease excess inventory and, if necessary, increase prices.
The textile companies I do business with tell me to expect further price increases during the year. The full impact of the cotton shortage has yet to be felt.
During the last shortage, some mills in Pakistan used inferior fibers to make bath blankets and washcloths. The products arriving on my dock had a distinctive gray cast. We also determined that some mills were overstretching the fiber on the looms to meet finished-size requirements while using less material. Once these blankets were washed, we experienced extremely high shrinkage rates.
Keep a close eye on the quality of textiles that you are purchasing. If history is any indicator, there will be some unacknowledged “downgrading” in product quality.
The best way to mitigate any supply and product-quality problems is to develop a long-term relationship with one of the large textile companies. They are doing everything they can to ensure that their loyal customers will have the textile supplies they need, while turning away new-business opportunities from customers they have dealt with only infrequently over the past several years.
Navigating troubled waters like these gives us the opportunity to show off our management skills and prove our worth.

Have a question or comment? E-mail our editor Matt Poe at [email protected].