Bangladesh’s apparel sector is losing export orders and seeing a rise in production costs as Red Sea, one of the busiest shipping routes to Europe, has become more dangerous due to Houthi attacks on Israel-linked vessels and strikes by US and its allies against them.
Due to the crisis, the world’s largest shipping lines, including Maersk, Hapag-Lloyd and Mediterranean Shipping Company (MSC), have suspended their cargo service nearby Suez Canal, and continued to reroute their vessels around the Cape of Good Hope that eventually led to a rise in operation costs and time extension.
According to marinetraffic.com, a live vessel tracker, a limited number of vessels is passing through Red Sea and most of the ships are using African route to avoid any crisis.
The diversion comes with a two-week delay, container shortage and added costs to the delivery of goods, supply chain disruption while Bangladesh’s apparel sector was already at least 20 days behind to meet lead time considering their competitors. The insurance rate for vessels also doubled due to the crisis.
The crisis was not only hitting European towards orders but also impacting other countries. Due to the container shortage and increased lead time, exporters are losing orders across the world.
Sparrow Group Managing Director Shovon Islam said on Saturday that so far he lost six orders due to the crisis, which he booked a month back.
“Today [Saturday] I lose a big volume of orders from a reputed US brand due to lead time. My Indonesian fabrics supplier said that he would not be able to meet the shipment deadline due to container shortage, which was created due to the war. He sought a three-day extension,” he added.
He also said, “Every day is important for buyers as they already lost at least two weeks due to Red Sea crisis. That is why my buyer has cancelled orders and shifted to another competitive country.”
TAD Group Managing Director Md Ashikur Rahman Tuhin says that they will have to suffer for a long time due to the ongoing Red Sea crisis. “Many exporters will resort to costly airfreight and accept cuts in product prices as the consignments may miss the shipping deadline.”
He said, “In this circumstance, we have nothing to do except creating awareness among manufacturers. Exporters should be alert about the shipment deadlines before receiving orders, and the government should ensure gas supply.”
Otherwise, the apparel sector will face a big disruption, said Tuhin, also an international trade expert.
According to the White House, Nearly 15 per cent of global seaborne trade passes through Red Sea—including 8 per cent of global grain trade, 12 per cent of seaborne-traded oil, and 8 per cent of the world’s liquefied natural gas trade.
The route is mostly used to connect Asia and parts of Africa to Europe, but also carries oil shipments from the Gulf to North America.
Bangladesh’s apparel sector is highly dependent on the route as country’s nearly 70 per cent of clothes destination to the European countries. The region is facing severe high inflation since starting of the Russia-Ukraine war, and buyers are placing low orders.
Iran-backed Houthis began attacking commercial vessels passing through the Red Sea in mid-November in what they say is a response to Israel’s attacks in Gaza.
As of January 4, rebels had launched 25 attacks on merchant vessels passing through the southern Red Sea and Gulf of Aden since November 18, according to Vice Admiral Brad Cooper, commander of the US Naval Forces Central Command.
To ensure safety of vessels on the Red Sea route, the US and UK continue attacks on Houthi’s target, but the Iran-backed group, who controlled most of Yemen, launched an anti-ship ballistic missile on Friday.
Global media repost said that the crisis already created container shortage, and price of container shipping from Asia to Europe has already increased by between 175-250 per cent, noting that oil and gas prices have also been particularly volatile.
The benchmark Shanghai Containerized Freight Index was up over 16 per cent week-on-week to 2,206 points on Friday. The index, which measures non-contract "spot" rates for container shipments out of China's ports, has gained 114 per cent since mid-December.
Director General at the Institute of Export and International Trade in UK Marco Forgione told a global media, “Our expectation is that within the next couple of weeks, you will begin to see the impact of this disturbance in the supply chain, either through shortages, price increases, or shrinkflation.
Forgione, also visiting professor of Aston University, said even small delays have the ability to cause a domino effect on production schedules. The global supply chain tends to work on a “just in time” basis, meaning that every element that is required arrives just as it’s ready to join the production line.
“Any delay will affect “every link” in the manufacturing chain, leading to delays,” he added.
Bangladesh’s exporters said that the container shortage already put impact on exports and buyers sought to reduce product prices. On the other hand, due to the high container fare, raw materials’ import cost has already gone up, which will adjust to the overall manufacturing costs.
“Our production costs already rose due to the new wage structure implementation, and we are seeking more prices from the buyers to adjust this. Amid the situation, the Red Sea crisis put us into a new trouble along with our buyers,” Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Vice President Fazlee Shamim Ehsan said.
