Why do my wholesale towels cost more today?

Over the last six months, there have been some changes in variable costs that contribute to the price of wholesale towels, microfiber, sheets, and basically, most commodities imported from Asia. The question “Why” can be most easily answered by breaking down the cost components that go into creating the product and getting it to your door. Cotton products (towels in our example) have cost components that include:

1. Raw material: Growing cotton

2. Construction: Weaving, dyeing, stitching, and packing

3. Overseas Freight: Cost to ship the product into the US

4. Domestic Freight: Cost to ship the product to the consumer

Let’s start from the top and work our way down. 

Raw material: Growing cotton

On average, cotton makes up about 60% of the cost for institutional cotton towels. Six months ago, cotton hit a low of slightly below 50¢ per LB and is currently at a six month high of slightly under 80¢. 

An increase of 20% would reflect a 12% cost increase in the FOB price (before ocean freight and duty get added).

Compounding the price increase is the fact that cotton is traded internationally in USD. Currently, the dollar trades at a lower rate against most Asian currencies. The largest international growers are India and Pakistan. Essentially it takes more “dollars” to purchase cotton in these regions due to currency values alone. 

You can see the historical currency charts below showing a weaker dollar against both the Pakistan and Indian Rupee:

Construction: Weaving, dyeing, stitching, and packing

While cotton trades in USD, mills pay for cotton production in local currency. So, as the manufacturer is paying for labor and utilities, they need more of our less valuable dollars to pay for their production costs.

In addition to exchange rates, there are natural market conditions that cause fluctuations in cotton pricing. It can spike some years due to weather events lowering crop supply or dip due to a great harvest. This year, production issues were due to COVID-19 (labor shortages Etc.) and unexpected demand for textiles as retailers and wholesalers anticipate a rebound for products in 2021.

“According to the data released by the Confederation of Indian Textile Industry (CITI), the recovery for the domestic market is expected to be quite steep post-pandemic with the domestic market estimated to reach USD 120 billion (INR 9,074 billion) by 2024.”

Source: Televisory

Overseas Freight: Cost to ship the product into the US

Now let’s take a look at getting those wholesale towels across the pond! Wholesale towels typically ship in 40′ containers from Karachi, Chittagong, Mumbai Etc. There is a cost per LB to move the product. A 40′ container holds about 22,000 LBS of towels packed in boxes or 42,000 LBS of towels if compressed and packed in bales. Textile containers typically book by volume, not weight.

According to Asia Times Financial, the cost of chartering a 40ft container from China to the US East Coast hit a record in December of $4,928, up 85% since June 1 ($2,663), according to Freightos data in Refinitiv Eikon. Rates to Europe have jumped 142% over the same period and 103% to the Mediterranean via the Suez Canal. The rates for some shorter-haul – and lower-margin – routes have jumped by even more. The Ningbo Containerised Freight Index from China to Singapore/Malaysia soared nearly 300% between early October and December as a bidding war for shipping space broke out among Southeast Asian exporters. 

So if we look at cotton products, the overseas freight costs have risen about 50-85% depending on Country of Origin. Simply put, if it cost $0.14 per LB to move towels in June from Pakistan to NY, today it costs $0.24 per LB. On a 10.5 LB towel, that is an increase of just under $1/doz (or $1,990/container)

The Math

You can fit 2,095 dozen 10.5lb Towels on a container (22,000lbs ÷10.5)
Freight at 14c = $3,080 ($1.47 per dozen)
Freight at 24c = $5,060 ($2.41 per dozen)

The Increase

Per dozen = 95¢
Per case =$2.84
Per container= $1,990

This logic holds on all products arriving from overseas. It just becomes a percentage increase in cost based on the value and volume of the commodity. If we transport recycled rags, this percentage as a product cost is enormous (up to 30%). On a 1000 thread count sheet set, it might be less than half of one percent.  Our example, towels, falls somewhere in between.

Domestic Freight: Cost to ship the product to the consumer.

Finally, we need to put those wholesale towels in the hands of consumers. In our case, that would be using common carriers driving pallets of goods to the destination. If we look at the cost per LB basis again, we can typically put about 20,000 LB on a full truck or about 650 LB per pallet. Pricing for domestic transportation has risen significantly due to driver shortages and increasing demands. You can see costing changes for various haulers over 2020 here:

Again costs increase based on the volume shipped and cost of the commodity. Going back to my rags vs. sheets example, the cost of an inexpensive item like a recycled rag (low cost/high volume) is dramatically more affected than a 1000 thread count sheet set (high cost/low volume) on a percentage basis.

What does this mean to you? 

It does appear that, at least for the next six months, our industry will face price fluctuations as markets settle into the new “norm.” Indeed, we have no predictions about what COVID (or the lack thereof) will have on the global supply of raw materials, pent-up freight, consumer demands, and exchange rates. As 2021 unfolds, look for the signs across every commodity and product imported to the US. While I believe this tilt will right itself, there will be stresses to bear.

Author: Hal Kanefsky
Title: President, Monarch Brands
Contact: [email protected]