Live from the CCI Summit: Partnerships Lead to Sanctity

Legendary author Aesop is usually credited with coining the phrase "united we stand; divided we fall." More than 2,500 years later, it's still true, and the evidence of that was seen here in Rancho Palos Verdes, Calif., at the 2012 Cotton Council International (CCI) Sourcing USA Summit.

CCI's leaders knew that to have a credible discussion on contract sanctity, the perspectives of both merchants and mills would need to be represented. They also knew that the presenters would have to be people whose opinions carry a lot of weight in the industry.

Fortunately for the 420+ attendees, CCI made very good choices. To represent merchants, they chose Antonio Vidal Esteve, immediate past president of the International Cotton Association (ICA), the cotton industry's primary arbitral body. To represent mills, they chose John Cheh, vice chairman and CEO of the Esquel Group, a company that produces more than 100 million cotton shirts each year.

Despite the occasionally contentious relationship between buyers and sellers, the one thing these two industry visionaries agreed on was that the best and fastest way to ensure contract sanctity is to form stronger relationships with trusted business partners throughout the entire value chain.

"Fortunately, the people who were ICA presidents before me knew that changes were coming and took appropriate steps to ensure we would be able to deal with them," Esteve said. "One of the ways they did that was to reach out to their partners throughout the supply chain around the world. There are now 26 ICA directors from 18 countries; agents and brokers are now able to become members; and we more than doubled the number of mill members in recent years. The ICA had to develop stronger relationships with out business partners, and that's what has helped us get through the tsunami of defaults we've seen these last few years."

To be sure, price volatility and host of other factors are the primary causes of weakened contract sanctity, as evidenced by some of the facts Esteve shared, such as the extreme numbers of arbitrations ICA has seen so far in 2012 (225 so far, after 240+ in 2011), the fact that awards today are much higher than those in the past, and that arbitrations take much longer now than they have in prior years (135 days vs. 90 days).

But Cheh agreed that focusing exclusively on money is not the answer, saying that improved trust and teamwork are the foundation that the cotton industry will rely on during difficult times. "Continuing down that path of partnership is the way to weather periods of extreme disruption," he said. "I have seen companies throughout the supply chain search for -- and find -- solutions to their problems by working together. Some brands and retailers have gone so far as to offer their suppliers short-term financing to help them weather the storm."

As Matin Chowdury, director of Malek Spinning Mills, said during a panel discussion after the presentation, it doesn't always come down to money. An increasing cotton price isn't necessarily a huge problem for the industry -- as long as the rise is steady and reliable.

"I don't think there's an inherent problem for spinners with cotton at 70 cents or $1 per pound, or even $2 per pound," he said. "Textile companies can and will pay higher prices for cotton ... but only if the prices they receive for their yarn or finished products rise proportionately. The key is that we find success together, because if even a single sector suffers, the entire supply chain will feel the pain."