Apparel manufacturing in Canada pt 2

Posted by Kathleen Fasanella on Oct 19, 2005 at 1:50 pm / Sourcing / Trackback

As I was saying – in addition to a world class reputation for quality, the primary advantages of partnering with our friendly neighbors to the north are:
1. NAFTA
2. Terms of trade
3. Shared language and cultural history
4. Established relationships with US mills and suppliers
5. Proximity and accessibility
6. Response time
7. Lower transaction costs
8. Lower shipping costs

I’ll describe the advantages of each of the first four elements today. Tomorrow I’ll cover the remainder in detail.

NAFTA:
The North American Free Trade Agreement (wiki definition; the legislation/documentation) is an international trade agreement linking the US, Mexico and Canada into free trade zone. This means tariffs on imports and exports are either eliminated or phased out with the goal of reducing costs on the North American continent. While not without a great deal of controversy on both sides of the borders, it’s seen as a net gain for participating nations. What this means to apparel producers is that one can have their products manufactured in one country and export the result into another without the overhead of customs duties. Considering that some import duties on apparel exceeded 38%, the savings are quite considerable.


Considering the complexity of NAFTA, I imagine you’ll have to rely on your Canadian partner to walk you through the intricacies. For example, the country of origin of your fabrics may not qualify under NAFTA in which case your goods would be subject to TPL (tariff preference level) duties. If you use non-certified NAFTA fabrics, one will need a better understanding of TPL (tariff preference level) which is roughly described as a duty based on a square meter of fabric equivalent that’s established by US Customs. Still, TPL is lower than regular import duties, saving you as much as $2-$3 dollars per item based on the square meter of fabric going into each product. Usual import duties from the far East are leveled on a per item basis rather than per yardage. TPL costs much less, amounting to cents per garment. You’ll also need to have a broker. While your a Canadian contractor can assist you, you’ll have to do some homework too.

The official US government site is less useful than one would hope. Since this is a bunch of stuff to wade through, I asked David Rushton for the skinny on broker’s fees and he said costs of $60-$100 are typical. Lastly, if you’re going to export and import, you will be held responsible for knowing the material in “Threading Your Way Through the Labeling Requirements Under the Textile and Wool Acts which I wrote about before. Out of everything on this page, that last link should definitely be on your desktop. In fact, I should have added it to the left sidebar a long time ago. Your products must be labeled “Made in Canada”, I’d get some with the red maple leaf; they’re pretty.

Terms of trade
Technically speaking, terms of trade is “the ratio of the price of an export commodity(s) to the price of an import commodity(s)” (from wikipedia). Without getting into a long drawn out discussion (feel free to put yours under comments), this means that you get more for your US dollar when buying Canadian goods and services. The rate of exchange varies but it means that something that costs $25 USD to make here, would only cost $21 to make in Canada. You can find a currency exchange rate calculator here.

Speaking of currency, have you thought of how you’ll pay for services? As Canada has an established international financial infrastructure, you’ll have no problem paying costs the usual way with credit card or bank checks although a bank wire can cost $15-$20. Since many of you are paying COD, David Rushton suggests you ask your vendor for the standard 2% discount for cash. Of course they may not offer it but they usually give it to you if you ask because a 2% discount is an accepted standard. By the way, it wouldn’t hurt if you also offered a 2% discount to your COD customers as well.

Shared language and cultural history
Everybody is justifiably concerned with being able to communicate with business partners but if you’ve only lived in the United States all of your life and have had limited business dealings with those coming from other nations, you may minimize the importance of having a shared cultural history. At the very least, having a shared history means you know your partner won’t schedule important meetings on Christmas Day. Similarly, you won’t commit the reverse errors. Well, not to the same extent anyway because although every nation has a July 4th, none of them celebrate it the way US citizens do. Building productive relationships with Canadian partners will require you to become familiar with their holidays and social history. As a matter of fact, refer to this listing of Canadian holidays to prevent making an insensitive gesture yourself.

Established relationships with US mills and suppliers
As I mentioned above under NAFTA and as there are distinct advantages to using fabrics milled on the North American continent, both US suppliers and Canadian manufacturers have made a priority of developing relationships. Canadian manufacturers have developed excellent relationships with US mills such as Doubletex, Consultex, Metro Textiles, Gordon Fabrics, Maldin Mills Manoir, Tricotliesse, Koda Knitting, Rupa, United Knitting and Texten. While they’ve been able to secure as little as 100 yard minimums, 350-400 yard ranges are common as well. David Rushton assures me that it is quite common to have fabrics delivered in Toronto within 24-48 hours.

Tomorrow I’ll pick up where I left off and discuss:
5. Proximity and accessibility
6. Response time
7. Lower transaction costs
8. Lower shipping costs

2 Responses to “Apparel manufacturing in Canada pt 2”

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Fashion-Incubator
October 20th, 2005
4:53 PM

Apparel manufacturing in Canada pt 3

This is the third segment in the sourcing in Canada series. Refer to the first and second entries as needed. I had difficulty writing this portion because a discussion of the remaining advantages tends to force a comparison between Mexico…

Fabin
July 2nd, 2009
10:52 AM

Great article. We are very interested in Canadian mills. Would you happen to have contact information for places like Consultex?

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