When considering the cost to produce and import wholesale white towels for the hospitality industry, one often focuses on the price of cotton alone. While the price of cotton is a major element, many factors combine to ensure your next hotel room is stocked with plush white towels.
Although the US is the third largest cotton producer, most cotton is exported for textile production. The 1970s witnessed an exit of domestic textile manufacturing capability. “Cut & Sew” operations sourced abundant cheap labor overseas in India, Bangladesh, Pakistan, and China. Large new factories, unencumbered by antiquated technology were built next to cotton farming communities to keep transportation and labor costs low.
As a result, the US imports the majority of their cotton to the Middle East and Asia for spinning and finishing.
Source: ‘OECD-FAO Agricultural Outlook OECD Agriculture statistics (database).
Over the previous two years cotton prices rose steadily to a two-year high* of $114 in November 2021. The price of cotton is currently at a ten-year high of $138, up 21% since November 2021, a whopping 100% rise over November 2020 ($69)
Apparel for retail and institutional markets dominates cotton product construction. Apparel provides higher profit margins for US importers than terry towel, fabric, or yarn. Competition for cotton will heat up as the USDA forecasted a cotton deficit during their agricultural Outlook 2022 Forum:
“The US Department of Agriculture’s (USDA’s) first 2022/23 world cotton projections anticipate that global consumption will exceed production, reducing world stocks by 2.5 million bales. World cotton production is expected to rise by 3.2 percent, with harvested area rising in some countries. Global consumption is expected to grow at about the long-term average rate, as the world economy continues its recovery from the severe downturn in 2020 and supply chain problems in 2021.”
Oil fuels transportation from overseas trucking to global shipping and finally delivering goods to consumers.
Oil price places additional strain on producing polyester yarn for the hospitality and janitorial industry.
During the same time period used for our cotton price comparison, crude oil increased 36% in six months, from $77 on November 1, 2021, to $105 in April.
The forecast is not as transparent for crude oil. Russia’s invasion of Ukraine contributed to the recent sharp increase in crude oil prices.
While US-based oil will most likely stabilize at $113, the US Energy Information Administration (EIA) notes that Brent crude will rise to $116 for the second quarter.
“In our March 2022 Short-Term Energy Outlook (STEO), which was finalized on March 3, we increased our forecast price of international benchmark Brent crude oil to $116 per barrel (b) for the second quarter of 2022. We forecast that the price for WTI, the U.S. benchmark, will average $113/b in March and $112/b for the second quarter of 2022.”
-Source: EIA Short-Term Energy Outlook (STEO)- Presented Thursday, March 3, 2022
2021 saw a meteoric rise in container shipping prices. Monarch Brands documented the many reasons why container shortages plagued 2021. At one point, a 40ft container from China to Los Angeles shot up to 25K.
While the high tide from China has receded, freight from other key hospitality textile producing countries like India, Pakistan, and Bangladesh is at an all-time high.
For example, on November 1, 2021, a 40ft high cube container freight from Bangladesh to Los Angeles cost $6,000. Today, that same container costs up to $16,000. Freight from Pakistan and India to Los Angeles is $12,000.
Every day Monarch Brands, like every importer, deals with reneged quotes from shipping companies. We are somewhat protected by our import volume however, we have seen container prices quadruple in the space of 18 months.
In the recent report Navigating the current disruption in containerized logistics McKinsey & Company forecasts that container rates will remain elevated throughout 2022.
“Global supply chains have seen unprecedented disruption, and container freight rates are at record highs. COVID-19 led to a boom in US containerized consumer goods demand, causing congestion, and reducing effective container logistics capacity. Global container shipping rates have, on average, increased to four to five times their 2019 levels while some spot markets have seen even higher rates.”
Historically, the price of LNG is cyclical, with peaks and valleys occurring on a macro trend line that oscillates while trending down. However, several factors give cause for concern for the future of LNG.
Many textile producing countries (e.g., China, India) are turning to cleaner LNG instead of coal powered energy generation. While sanctions remain, one of the biggest exporters of gas (Russia) will no longer be able to supply the needs of China’s growing economy. More demand, less supply, higher prices for textile-producing countries.
The textile industry uses massive drying conveyor belt machines at various stages of production. Dryers, like the one pictured below, remove moisture content from fabric or garments to relax the fabric for finishing. When the price of gas increases, the cost to run these machines increases.
While Liquified Natural Gas is a tertiary driver compared to those outlined above, volatility in the market and increased global demand means the price may be pointing towards a long-term upward trend.
“The price of the May 2022 NYMEX contract increased 42.4 cents, from $5.605/MMBtu last Wednesday to $6.029/MMBtu yesterday. The price of the 12-month strip averaging May 2022 through April 2023 futures contracts climbed 46.8 cents to $6.029/MMBtu..”
Source:: EIA – Natural Gas Weekly Update – April 6
While COVID may be in the rear view mirror, the long lasting effects on the global economy are very much ahead of us. We are in the middle of a perfect storm raising the level of all elements of production and shipping coupled with loosening of restrictions and the ability to travel. Textiles, like many other products will cost more to manufacture, which means we have to charge more for them.
Your customers will have to pay more to operate their hotels and laundries, which will drive up hotel rates and the price of dining out. All imports are experiencing similar issues. All consumers are paying more for an item today than they did last year.
Even domestic production is not immune from problems. Labor shortages, lack of raw materials, and increased freight costs affect everyone. We do not know when (if ever) life will get back to ‘normal’. All we can do is keep communicating with you, so you can communicate with your customers. Transparency the key to long term success.
