This is an interview with Chris Walker, a Vietnam Sourcing Expert with Vietnam Factory Tours how rising oil prices and the Middle East crisis are affecting apparel manufacturing, transport costs, and factory profit margins.
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BARNES: Is that okay for me to record? Is that cool?
WALKER: Yeah, that’s fine.
BARNES: All right. Fantastic. So I guess first, Chris, what is it that you do? Factory tours? You help? Can you just sort of give me a brief summary?
WALKER: Right. Do you know what an agent is?
BARNES: Sure.
WALKER: Right. They do a lot of work upfront for free and then, once the goods are shipped, they get a commission based on the FOB value of the container.
BARNES: Sure. Okay. And you’ve been in Vietnam for a while, right?
WALKER: But I don’t do that.
BARNES: Oh, okay.
WALKER: That’s my point. I don’t work as an agent. I help people find factories. They pay me in advance.
BARNES: Okay
WALKER: So people pay me a small fee.
I listen to their needs and I understand what kind of factory they want, and then I look in my rolodex and I introduce them.
Kind of, you know, like a lawyer who’s getting paid an US$80,000 to US$150,000 salary to be a lawyer for some big firm, and then somebody comes along and they’re like, “Oh, by the way, you know, I might hire you in the future for your law services. Can you introduce me to a factory?”
Then the lawyer, who’s already getting a salary, will introduce them for free, right?
Hoping that he’ll get the legal business.
But I’m independent.
I don’t get a salary from anybody.
So, I don’t give away referrals for free, and I don’t do it flippantly, you know.
I make referrals, but I make sure that they’re good referrals, and I make sure that there’s good positive communication to get the ball rolling.
But I get paid up front, and that’s it.
Then I don’t get involved in anything after that.
BARNES: Yeah. Cool. I mean, it makes a lot of sense, right? Because then it sort of removes your need to get the sale in the end. Because you take the cash up front —
WALKER: Right. And then basically I’m working for the customer, not for the factory that pays kickback.
BARNES: Sure. Sure. Okay, cool. And so I guess what I’m sort of looking at is how the manufacturing industry has sort of been affected by the Middle East crisis. I know, looking at the data, that things are starting to slow down a little bit. My understanding is it’s still kind of okay, but yeah, definitely tapering off. I’m just wondering what you’re sort of seeing on the ground.
I guess, starting with the factories that you’re talking to, are they struggling, or what are their concerns?
WALKER: So, from the factory side, what they’re struggling with is just the increase in raw materials.
BARNES: Sure.
WALKER: The cost of electricity has gone up.
The cost of anything that’s made with petroleum has gone up.
The cost of transportation has gone up because of the cost of diesel fuel for the shipping lines.
So, you know, basically all the operating costs that are somehow connected to the price of oil have gone up.
Which is a no-brainer.
I imagine you figured that out already.
And the other thing is polyester.
So, one interesting thing, and you could just ask AI.
AI can probably give you a better, more robust answer, but the bottom line is that one interesting shift that’s happened is polyester used to be the fiber or yarn of choice because it was cheaper than rayon, lyocell, silk, wool, and all the natural fibers like cotton, right?
So cotton and all the natural fibers are expensive.
Then the synthetic fibers, polyester, plastic fibers, nylon, etcetera, were cheap.
But because the price of oil’s gone up and demand for the natural fibers has come down a little bit, there’s more supply.
So there’s a bit of an equilibrium happening with the price of yarn for apparel.
BARNES: Okay.
WALKER: So that’s interesting.
But I would just ask AI, and AI will explain it in more detail and give you some facts as far as how much the price of cotton has basically tracked the price of cotton over the last two years versus the price of polyester yarn.
BARNES: Okay.
WALKER: You should see the price of polyester yarn increasing relative to cotton, for example.
BARNES: Okay. And so is this changing buyer behavior then? Are they asking for more polyester as opposed to natural fibers?
WALKER: I think it’s too soon to tell.
I mean, all buying of fibers and yarns happens like a year in advance before it hits the market.
But certainly the people who sell polyester, the polyester they have in stock, they bought back when the price of oil was cheap.
But they are already looking ahead, and so they’re jacking up the prices, you know, using the excuse of the war.
BARNES: Sure.
WALKER: Knowing that six months or a year from now their input costs are going to go up significantly.
BARNES: Right. So, yeah, I assume that in a year, then, from what you’re saying, we’re going to see the really big impacts pass through. Is that fair to say?
WALKER: Well, the impact is already happening.
Like when backpack factories or apparel sportswear factories quote price, they’ve already factored in the premium, the increase in the cost of polyester fibers and polyester yarn.
BARNES: Sure. Okay. And are they having problems passing on the additional costs? Are buyers, I mean, they’re obviously not happy about this, but are they accepting that that’s the way it’s going to be or—?
WALKER: No. Everyone is just losing profit margin.
BARNES: Sure.
WALKER: Because the consumer is the one you should be asking about.
You and me, when we go shopping, are we saying to ourselves, “Oh, the poor people in Iran, there’s a war, and you know, Trump, and he’s got all these additional costs, and you know, the Israelis, they’ve got their expense budget, so we need to pay a little extra so that they can have more money for their war”?
It doesn’t happen that way, right?
The consumer only cares about the consumer.
Most consumers buy on price, right?
We don’t care about what’s going on in the war.
I just care about, “I’m going shopping today.”
I want to buy a quality garment as cheap as I possibly can.
So the buyers have to make the consumers happy.
The brands, the Targets, the Walmarts, all the retailers, they have to make the consumer happy.
They don’t care about the war.
And the consumers don’t want to pay a premium for the war.
So then it means that the retailers or the buyers have to give up some of their profit margin, and then they insist that the rest of the supply chain give up their profit margin.
So everybody’s just working on a significantly lower profit margin.
BARNES: Sure. Sure. And I mean, overall, are orders coming down then? Are you finding less inquiries coming through or—?
WALKER: So, in order to ask that question intelligently, you should qualify it by country.
If you ask the Chinese whether they’re seeing fewer orders, absolutely, yes.
Because of the Trump pressure and then just the overall negativity towards China.
And, yeah, just those two things.
Plus, in China there are thousands, no, like tens of thousands of factories competing with each other.
So it’s even harder to get orders because there’s so much competition between factories in China.
But in Vietnam we are small.
Okay, we’re like one-tenth the size.
So even if there’s pressure from Trump’s taxes, and there’s just a slowdown in overall orders, and the price of oil goes up, we’re not feeling it.
Vietnam is still getting a lot of orders and a lot of inquiries because we’re small, right?
So you’ve got to look at it country by country.
But if you’re asking me about Vietnam, I would say Vietnam is still the first choice for anybody that wants to do apparel manufacturing.
The first place they go to is Vietnam, and therefore we’re still getting a lot of inquiries.
BARNES: Sure. Well, it would be relative, right? Everyone is suffering from the fuel crisis, like Bangladesh —
WALKER: So Vietnam is suffering the least.
BARNES: Okay. Yeah. Interesting.
WALKER: But I don’t think Vietnam is a good country, if you’re going to make generalisations, right?
If you’re going to try to speak to the whole world, the whole market, asking people in Vietnam is not going to give you a good insight into what everybody is experiencing.
Because we’re lucky.
We’re like the, I use the analogy of a supermodel.
You know, when a supermodel walks into a bar to get laid, she’s going to get hit on a lot because she’s a supermodel, and all the guys are going to buy her drinks.
Whereas the girl next door, who’s maybe a little bit overweight, not so sexy, she’s going to have to work harder to find somebody to go home with.
Well, Vietnam is like a supermodel.
We’re getting hit on left and right.
And we don’t have to lift a finger to try to get somebody to do business with us because if the first guy comes in and they want a super low price, we just tell them, “Okay, sorry. We can’t hit your price.”
And then they say, “Go away.”
Then they invite in the next person who’s waiting out in the lobby.
So it’s like people are lined up to get into Vietnam.
But China is the opposite.
BARNES: So you’re saying that there’s more demand than there is supply in Vietnam?
WALKER: Exactly. Exactly.
BARNES: Interesting. Sorry, you were going to say on China —
WALKER: Well, China is the opposite.
There’s much more supply of capacity than there is demand for capacity.
BARNES: Does that concern you, though? Because then people would go, it should be cheaper to get things made in China, or it should bring down the price anyway.
WALKER: Anybody who’s not American, only the Americans are staying away from China because of Trump’s taxes.
Everyone else, if they’re smart, they’re in China.
BARNES: Yeah. Okay.
WALKER: Now, then you’ve got the Europeans who just don’t like China for whatever reason, you know?
So they might shy away from China, but that’s just, to me, being stupid.
But the Chinese are still number one.
They’ve got the capacity, the raw materials, the know-how, the work ethic, the productivity.
And, of course, you have to be careful and choose your partners.
You have to choose carefully who you sleep with.
And you’ve got to wear a condom, right?
If you’re not careful with who you choose, it’s just common sense, you know.
BARNES: Yeah. Yeah. Okay, cool. All right, man. Look, that’s pretty much all I needed. Did you have anything you wanted to add? Anything you think I’ve missed?
WALKER: Well, usually people ask me why Vietnam, you know, why go to Vietnam?
And my personal opinion is it’s not price, and it’s not quality.
Because China can offer a better price, Bangladesh can offer a better price, Egypt can offer a better price.
Mexico can even come close.
So there’s a lot of other places that you can go to get stuff made.
And it’s not quality either because, while Vietnam does make good quality stuff, so does China, so does Bangladesh, so does Mexico, so does Ethiopia, you know, wherever.
Quality is a function of the brand doing the proper quality control, wearing the condom, right?
So you can find good prices and good quality in almost every manufacturing country around the world.
You just have to choose the right partner, and you have to do your due diligence.
So then why Vietnam?
The main reason is that the Vietnamese government runs the country well.
So they look out for the lower class and the middle class so that the lower class and middle class can rise up and feel happy to go to work.
And the really smart lower and middle class, they can actually go out and be entrepreneurs and create value.
So the government supports all that, relatively, right?
It’s all relative compared to the competition.
And it’s just a beautiful country in terms of the way that they think and act, their values, morals, and beliefs.
BARNES: Sure.
WALKER: So here’s something interesting.
You can look this up, and if you want to add it to your article, it’s kind of a fun story.
Just Google it or go to AI and ask for a Vietnamese government document.
Then look at the very top.
There are three words on every Vietnamese government document.
What do you think those three words are?
BARNES: I should know it. Happiness. Oh, I can’t remember, but I’ve read a lot of them.
WALKER: Happiness, freedom, and independence.
BARNES: Sure.
And that says it all.
Yeah, you can label them as communist, blah blah blah, but the reason why the country is communist has nothing to do with their core values.
Their core values are happiness, independence, and freedom.
Don’t fuck with Vietnam.
BARNES: Sure. But, I mean, do a lot of buyers, people who are looking to get clothes made in Vietnam, is this something that they’re interested in? Because you were kind of saying before it’s price.
WALKER: They don’t ask about it, but they feel it when they’re here.
And the thing that I always like to point out is that most everyone, when I’m saying goodbye to people after they’ve visited factories and stuff, they always say, “I can’t wait to come back.”
But no one says that about China.
Everyone says, “I hope I never have to go back there.”
BARNES: Yeah. Yeah. I mean, yeah, totally. Okay. Sorry. Did you have something else to add or—?
WALKER: No
BARNES: All right, cool, man. Well, yeah, I’ll wrap it up there. Thank you very much for your time. I’ll let you know how it goes.