Bangladesh’s export-oriented apparel sector has received a good number of orders in the past few months amid persisting global economic headwinds, creating hope among the local exporters, thanks to the recovery trend of the key destination economies.
Moreover, many buyers have also adjusted and increased prices significantly in line with the new wage structure for the sector’s workers, which was implemented in December last year.
Based on the number of Utilisation Declarations (UD) issued by the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), which indicates the export order trend, the sector posted a 6.59 per cent year-on-year order growth in the October-December period of FY2023-24.
During this period, the BGMEA issued 6,771 UDs to the apparel exporters. The number was 6,352 in the same period of FY2022-23.
However, the readymade garment sector posted just 2.35 per cent year-on-year UD growth and issued 13,178 UD in the first half of FY24, compared year-on-year.
The sector has been facing order shortage crisis for a long time, and due to that, in the second quarter (October-December) of FY24, it witnessed straight negative export earning growths of 13.95 per cent, 7.45 per cent and 2.35 per cent on those three months, respectively.
Besides, in the first half of FY24, Bangladesh’s exports in key destinations – which include the United States, European Union (EU) and India – performed poorly compared year-on-year.
However, that trend is now changing and order rates are increasing day by day thanks to the recovering drift of the destination economy. Exporters hope that considering the ongoing buyers' queries, the UD growth is likely to touch two digits in the third quarter of FY24.
Talking to The Business Post, BGMEA President Faruque Hassan said, “We are in a better position in receiving orders when compared to our competitors, considering the ongoing global economic situation. And we orders are likely to increase in the coming days.”
He said that the RMG sector’s key export destinations have been facing severe high inflation for a while now and their government increased interest rates to bring the situation under control. The move heavily reduced consumers’ purchase capacity and the brands were left with a big stock in their warehouses.
That is why the US and EU’s sourcing rate from the global market was reduced in the past year. But most of the countries, especially the US, which is the single largest export destination for Bangladesh, were able to bring inflation under control in recent months.
As a result, brands witnessed big sales during the holiday season, which had back-to-back festivals including Thanksgiving, Black Friday, Christmas and New Year’s Eve, at the end of last year, he said.
“Undoubtedly, I can predict that orders will increase in the coming days and it will be visible from the last quarter’s export data. To cash in on this opportunity, we need uninterrupted gas and electricity supply to the factories as soon as possible,” said Faruque.
He, however, expressed concern over the ongoing crises in the Middle East and the Red Sea as they are impacting the global economic pattern, and said that many buyers would be forced to go for price cuts to adjust to the increased freight fare.
According to the Export Promotion Bureau (EPB), despite the ongoing global economic setback, Bangladesh’s RMG sector barely managed to retain its export earnings growth by 1.72 per cent and earned $23.39 billion in the July-December period of FY24.
In the national budget for this fiscal year, the commerce ministry had set a $25.39 billion export target for that period and a $52.27 billion target for FY24.
Key destinations recovering
Although Bangladesh exports apparel products across the world, nearly 80 per cent of the total earnings come from the US, the United Kingdom, Canada and the EU countries.
In H1 of FY24 compared year-on-year, exports could not retain growth in its single largest export region - EU, single largest destination country - the US, and third largest destination - Germany, one of the largest trading partners - India, key EU destination - Italy, and North American country Canada, according to EPB data.
Industry insiders, however, said that Bangladesh is currently receiving a good number of orders from the US, the UK and EU markets, as the brands in these countries were able to sell most of their stocks during the holiday season at the end of 2023.
But the prices are not up to the mark yet and buyers are pressuring to maintain lead time as much as possible as the Red Sea crisis is wasting weeks per shipment delivery.
According to the EU, the eurozone’s annual inflation rate was 2.4 per cent in November last year, down from 2.9 per cent in October. But the rate went higher to 3.4 per cent in December as a result of the ongoing Russia-Ukraine war and the ongoing Middle East crisis.
A year earlier, the rate was 10.1 per cent.
On a 12-month basis, the CPI closed 2023 up 3.4 per cent in the US, and by comparison, the annual CPI gain in December 2022 was about 6.4 per cent, according to the country’s Labor Department.
Germany, the second single largest export destination, recorded a 3.7 per cent inflation rate in December last year, while the rate was 8.7 per cent in January 2023.
Sparrow Group, one of the export-oriented luxurious clothes manufacturers in Bangladesh that mainly does business with US and EU buyers, witnessed a good flow of orders in December, and throughout January, brands also knocked on the company’s door with big work orders.
“We are getting many orders from Western buyers. But prices are still tight. However, due to the Red Sea crisis, which has pushed the lead time by at least two weeks, buyers have asked to strictly follow the shipment deadline,” the group’s owner Shovon Islam told The Business Post.
“But we are facing gas and electricity crisis and non-tariff barriers. That’s why it’s difficult for us to maintain the shipment deadline. On top of that, our raw materials suppliers failed to maintain their shipment deadline due to the Red Sea crisis. That caused us losses as my company lost many confirmed orders and buyers went to a competitive country,” he said.
TAD Group Managing Director Ashikur Rahman Tuhin, who recently visited the EU for marketing purposes, said, “This year, winter came late in the EU, and that’s why warm clothes orders will likely be less. But regular orders query is still excellent.”
Snow Tex Managing Director SM Khalid said, “We have already confirmed orders for the next six months, but prices are not satisfactory.”
Meanwhile, Fakir Kamruzzaman Nahid, the managing director of Narayanganj-based RMG factory Fakir Fashion, said that many orders will likely go to competitive countries as the industry in Bangladesh is facing a gas shortage.
“From last month, we have been receiving zero pressure from the gas line, and now I have to spend Tk 30 lakh a day to use diesel and gas to continue production. Still, our production capacity has dropped by 50 per cent and I am suffering big losses,” he said.
“Buyers are pressuring me to meet the lead time due to the Red Sea crisis, but I cannot continue production at 100 per cent,” he added.
“If this continues, many more orders will likely go to other countries. I don’t know how long my company will survive,” Kamruzzaman said.
