It is not long until the next APLF (13-15 March 2019, Hong Kong) and you can expect to see all the key individuals there looking to decipher all the market signals they can identify.
2018 was a difficult year for many tanners but the underlying drivers had been around for a good long time. As ever it was the timing and the severity that caught so many out. For 2019 it is clear that additional circumstances and issues will play a bigger role in deciding the future prosperity of the tanning industry and that volatility will increase.
The leather industry has already responded to the combined issues of rising costs in China and heightened consumer expectations on service and personalisation – not overlooking better management of environmental matters – by starting to redesign supply chains. Hence the growth in places like Vietnam and Cambodia, and the rebirth of Portugal as a great source of leather footwear.
The loss of market share of leather in the footwear business was also more pronounced in 2018 and reminded some in the industry, who appeared to have forgotten, that leather faces competitive materials in every sector. It has, therefore, to keep up with technological advances. If it cannot compete in the area of engineered uppers leather will lose out; and this started to happen in 2018.
2019 will see even more complexity and volatility
The unusual announcement from Apple at the start of 2019 that its sales were not gong to meet expectations was in large part explained by a downturn in the Chinese economy. This is just the latest symptom of a cocktail of trends that are coming together are creating new pressures for the leather industry and its partners.
The biggest element is probably the sheer volatility that comes from an unpredictable and belligerent US President. Cliff edge negotiation and living on debt has been his business style but neither offer a good basis for industries like leather with long, complex supply networks.
Consequently before the end of 2018 it was already clear that many leather using plants were packing up in China and moving to where labour is cheaper and tariffs can be avoided. Given China’s huge size this means fragmentation involving new locations as well as a return to old ones like Indonesia. Brands have been getting out their school atlases and looking around the world for undiscovered locations that would fit.
It was no coincidence that at last year’s Hong Kong APLF that Ethiopia had a strong presence with a government minister attending. It was already timely for more investors to look there and while still a risky location the developments since Abiy Ahmed became Premier last April have been very positive.
Other destinations include Bangladesh, which would have benefited a lot more if the tannery move from Hazaribagh, Dhaka, to the new industrial zone in Savar had not been endlessly delayed and only partially successful. The unsatisfactory general election that has recently been concluded does not create confidence that they will deal positively with the big outstanding environmental and employment issues.
India’s new government moving to a fundamental Hindu approach with underlying opposition to meat and the leather industry adds one more uncertainty and the EU’s serious issues with Myanmar creates difficulty in a much smaller emerging spot.
As a consequence the entire pattern of the leather trade from raw to consumer could be significantly reshaped by these new barriers, trade tensions and all the uncertainty around the strength of the Chinese economy.