Leather imports continue to grow

Despite cattle hide wettings being up 19% - 16.4 million cattle hides were soaked in 2002 compared with 13.8 million in 2001 - there was much gloom in the leather footwear segment of the business. Footwear imports grew to 1.6 billion pairs in 2002, up 8% from the previous year. China led the onslaught with 1.3 billion pairs out of the 1.6 billion. The average cost of a pair of non rubber footwear entering the US market from China was $6.92, down from $7.06 per pair in 2001. 'Upholstery leathers counted for most of the action in the import and export categories. Of the $2.1 billion in imports, $1.8 billion was in the upholstery categories. 'Of the $1.2 billion in US exports, $416 million was in the upholstery category and $294 million was wet-blue. The largest market for US exports was Mexico at $492 million and the second largest market was China/Hong Kong at $174 million. 'If the last ten years of the leather tanning industry in the US and western Europe could be summed up in one word, that word most assuredly would be contraction. Contraction driven by loss of traditional domestic customer bases... not the likes of EPA or animal rights issues. 'But the tanning industry is not the only US industry forsaken... numbered as casualties as well are the steel industry, the shipbuilding industry, tool and dye making, footwear and apparel manufacturing to name but a few. All manufacturing is somewhat at risk with an estimated 12% of the US work force now engaged in manufacturing, down from 71% in the 1950s. 'As one prominent economist put it, the factory of the future will have but two employees... a man and a dog. The man will be there to make sure the dog gets fed. The dog will be there to make sure the man doesn't touch the machinery. 'There are some who hint that Globalisation is bad for us because it has brought us SARS, Aids, West Nile Fever and Mad Cow Disease.... Others say that Globalisation is good for us because it has delivered legions of low-wage workers to the marketplace. Add to the equation: * the worldwide proliferation of free trade agreements purporting to lower tariff and non-tariff barriers to trade * the rapid, almost blurring, movement of money around the globe * trade distorting subsidies granted under WTO to the myriad of developing countries And you have a ready made formula for redistributing wealth. Current economic thinking is to tilt the balance and give more trade concessions to the less fortunate countries in order that they become self-sufficient more quickly and in doing so, evolve into markets for our goods. 'In theory this is admirable... except for one thing... somewhere in this process we eventually wind up no longer making any goods to export to those markets. 'But keep the faith... in a hundred years or so most of today's developed countries will be broke... devoid of capital... and guess what? All that shoe business that left our shores over the past 20 years will return here because our workers will then be willing to work for ten bucks a week. Kidding? Of course I am.' The facts Since the peak of 1999 the number of US cattle hides available for making leather have remained stable. However, the domestic leather industry continues to suffer with falling automotive leather sales and higher imports of cheap footwear produced in China. The year 2001 was a particularly difficult time for the US leather manufacturing industry and names such as Salz, Blackhawk Leather, Pfister & Vogel and A L Gebhardt all went out of business. Other names such as Irving Tanning and Prime Tanning also announced closures at the time but both have subsequently continued to trade. Since 2001 the world has been affected by September 11 and an economic slowdown in world trade. It is the latter that is now affecting the health of the US tanning industry and coupled with China's entry to the WTO, business has become even tougher rather that better for the nation's leather makers. Thankfully, the pace of tannery closures appears to have slowed since 2001. The US leather sector today is largely a supplier of wet salted and wet-blue hides with a few large world class upholstery manufacturers. Other non-upholstery tanners have either chosen niche markets or selected high value customers for their leathers. Being close to an abundant supply of good quality raw material, tannery automation and clever sales and marketing are today the principle tools for staying ahead of the international competition. With the increasing levels of foreign shoe imports from Asia, especially China, the number of US footwear upper tanners has continued to fall and those in business are more niche players than volume producers. In the past ten years many of the bigger names have shifted operations out of the US to Mexico and China. Today, most 'American lifestyle' leathers are produced in China for local footwear makers who in turn export the finished shoes back to the USA. Last year China exported 1.25 billion pairs of shoes to the US excluding rubber and disposables, including vinyl. This equates to five pairs per US citizen in a year. Brazil is the next highest exporter with 9.7 million pairs sold to the US. A full list of the major imports by country of footwear in terms of value and quantity can be seen in tables 6 and 7. All the statistics contained in this article were supplied by the Leather Industries of America (LIA). Environment Other than labour costs one of the largest disadvantages of tanning in the US, particularly in the beamhouse, are strict environmental limits on emissions and discharges set by the US EPA. The problems have often been debated and were recently discussed at the ALCA conference in mid June as well as the IULTCS congress held in Cancun at the May. Despite the high level of national and international research into making tanneries more environmentally sustainable, closures continue to take place. An example of the regulations impacting on the business occurred recently at the S B Foot blueing plant in Texas. S B Foot Tanning, one of the most famous nubuck, upper and upholstery producers, closed their Texas blueing plant in Cactus near Amarillo. All production will now be relocated at S B Foot's Thru Blue (a partnership with Twin City Tanning) plant in St Paul, Minnesota. S B Foot, who operate their non-beamhouse operations in Red Wing, Minnesota, gave high environmental costs as the main reason for closing the Cactus plant. In 2000 they incurred fines worth $510,439 and also agreed to spend a further $926,500 to reduce chromium and sodium discharges. The tannery in Cactus was due to auctioned in July. Upholstery US automotive sales contributed to the decline in hide prices into June as the dominant selections used for the increasingly expanding volumes of leather being used in car seats, all fell. In late June, from the three major US automotive upholstery manufacturers, Eagle Ottawa, Garden State and Seton, two had significantly curtailed production while Garden State Tanning experienced industrial action from union members at one of their plants. The situation appeared to have been resolved in July. However, it has not all been bad news for the automotive supplies. Eagle Ottawa, one of the companies who took Australian tanners, Howe, to the WTO over the Australian government's export facilitation scheme with low interest loan and won, had been rumoured in the industry to have been awarded the contract to supply Mitsubishi with leather seat covers. However, it is unclear whether the business will be in South Africa rather than the US. Most OEMs in the US still prefer to source automotive upholstery leathers from US producers. Raw and wet-blue hides The most valuable sector in terms of US exports is the raw salted and wet-blue tanning business. Table 1 and Figure 1 show that US cattle hide wettings rose sharply throughout the 1990s but fell in 2000 and 2001 before levelling out. According to LIA figures, 35.7 million hides were available for leather in 2002. However, over 20 million were directly exported in the salted state with the major markets being South Korea, China (including Hong Kong and Taiwan), Mexico, Japan and Italy. In a congratulatory letter commemorating 50 years of support by the United States Foreign Agricultural Service for the hide and other industries, the United States Hide Skin and Leather Association said that in the past 20 years exports of American hides, skins and wet-blues have grown from $279 million to $2.4 billion. In the period May to July 2003, the average weekly export of wet-blue hides was 77,500 pieces. The major export destinations were Hong Kong, Taiwan, China and Italy. The lack of demand for leather from the consumer can be equated back the prices of US wet-salted hides. Since May 2002, hide prices across all major selections have remained stable at the low/medium end of the price scale. Prices rose slightly from December to March but subsequently fell into May and June of this year reflecting lower demand from tanners. A temporary blip in US hide prices occurred in late May and June when a single animal was diagnosed with bovine spongiform encephalopathy (BSE) in Canada. The US, Japan and more than 20 other countries banned Canadian beef after a bull in Alberta tested positive. South Korea, the third largest importer of US beef, was considering changes to its import standards, following Japan, due to the BSE case in Canada. Japan, the biggest importer of US beef, has requested that the US industry devises and implements a tracking and certification programme to document the origin and health of imported beef products. Into early July cattle prices in Canada, particularly in Manitoba and Saskatchewan fell sharply and cattle auctions were being held back. In Alberta, closer to the BSE case, auctions did take place but with a US export ban in place, business was slow.