In recent commentary and market analysis, theSauerReport has focused on how many businesses are either planning or executing moves away from China and surrounding Far Eastern countries to lessen the impact of these restrictions on their bottom lines. The most recent reports tell us that, when Italian tanners return to work, hide prices will drop as they seize exclusivity for European suppliers.
In Vietnam, restrictions have kept more than half of the international shipping lines closed and the Vietnam Logistics Association reports that container freight rates to the U.S., at US$9,600 per 40 ft container, are now five times higher than pre-pandemic prices.
The effect is global: although retail sales continue to recover in the U.S., growth is continually impacted by tight supply chains caused by Covid-19 restrictions, and this damage can be seen in markets around the world.
A lasting change to the industry
With so many in the leather industry continuing to rely on traditional methods of selling and developing new business, via fairs and international travel, continued impacts on shipping and travel could result in a lasting change to the face of how leather is traded. theSauerReport forecasts that shipping issues could plague businesses for years to come, and as companies establish new trading relationships and settle into routines when balance sheets return to a kind of normal, will they be so eager to revert to pre-pandemic practices?
As can be seen from the last few weeks of news here on the ILM website, leather using brands across the board have seen record results in post-pandemic recovery, with increases to revenues and margins well above 100% for most on a year-on-year basis. As these brands look to continue this growth, it’s unlikely that they will take shipping-related hits to their balance sheets lying down. Where they decide to move their money will undoubtedly have a significant effect on the leather industry going forward.
Tanners have spoken
As it stands, many tanners themselves are unwilling to commit to international travel in 2021 and, with so much uncertainty around the lifting of Covid-related restrictions, 2022 may not be the return to pre-pandemic business so many expect it to be.
In the 2021 edition of the ILM Tanner Business Confidence Survey, almost 60% of tanners revealed that will not visit or attend any industry fairs or events until at least 2022. 87% said they would indeed exhibit or attend at trade shows once 2022 rolls around, with the hope that these restrictions end, or at the least ease off, by then.
Furthermore, when asked what main areas of their businesses were hit by Covid-19, and able to choose more than one option, business travel restrictions came out on top with 61% of tanners surveyed voicing their concerns. Trade and transport issues were close behind at 56%, and all evidence points to the majority of these problems falling in China and other key Asian markets.
These areas were also listed as one of the main concerns for tanners over the next 12 months and they have every reason to be worried. The reality is that, unless something dramatic happens, businesses in the leather industry will have to accept the margin-demolishing costs of international shipping to and from China or look elsewhere when growing their business to pre-pandemic levels and beyond.
Tom Hogarth, Deputy Editor
August 26, 2021
