Buyers raising apparel sourcing prices

Buyers have reasonably increased readymade garment sourcing prices due to the rise in raw material and freight costs.

This increase, exporters say, is enough to avoid further losses but not so when it comes to recovering losses incurred during the Covid-19 pandemic as buyers have not increased manufacturing costs.

Even regular buyers appear to be miserly in setting product prices, they observed.

According to SM Khaled, managing director of Snowtex Apparels, buyers had increased prices but it was not enough considering the increase in production costs.

“Suppose the price of a yard of fabric has increased from $1 to $1.1 which will take production cost to $1.5, but regular buyers are paying us $1.3. On the other hand, seasonal buyers are bound to increase prices because most factories now have orders from regular buyers,” he explained.

Manufacturers say yarn prices have increased by around 40 per cent compared to the pre-Covid-19 level while that of chemicals and other raw materials by around 5 to 10 per cent.

Besides, freight cost is now five to six times higher compared to what is witnessed during normal period.

“A few months ago we said buyers were not adjusting the increase in raw material and freight costs, but the situation has changed now. We have no complaints about price adjustment, and buyers are trying their level best to adjust,” said Bangladesh Garment Manufacturers and Exporters Association president Faruque Hassan.

Industry insiders say the increase in raw material and freight costs has raised apparel manufacturing costs since the middle of November last year, but buyers did not raise product prices at the time.

Back then, some manufacturers were bound to make apparels below break-even prices to survive, but factories now have huge work orders, and buyers have raised sourcing prices.

“As buyers did not raise the MRP, we cannot demand an increase in manufacturing costs from them,” Md Alauddin, executive director (merchandising) of Square Group, told The Business Post.

He said buyers had only adjusted the rise in raw material and freight costs, and his company had sacrificed profit margins.

“Both suppliers and buyers are trying to survive now. The problem is small factories and their importers are under pressure as their prices are too low and it is difficult for them to increase prices,” he added.

Factory owners argue that buyers are currently increasing product costs by 12 to 15 per cent on average, which is enough to adjust increased costs. But to recover the previous losses, another 5 per cent price increase is needed.

Fazlee Shamim Ehsan, chief executive officer of Fatullah Apparels, said his profit margin had declined by two to three per cent on average due to the high prices of raw materials and freight costs.

He said some manufacturers were producing clothes with the minimum profit margin.

“We are suffering because of increased freight costs and cotton prices. I urge all manufacturers not to produce any product below the breakeven price. They should at least ensure a minimum profit margin,” said Ehsan, also the vice-president of Bangladesh Knitwear Manufacturers and Exporters Association.

An official of a buying house that works with European buyers said his clients were increasing prices by 10 to 20 per cent on average.

“But manufacturers will not benefit from this because China has increased prices of fabrics and other materials. So, China will benefit from it,” he said.

Manufacturers asserted that it is time to look for alternative clients if the present ones do not increase manufacturing costs because there are huge work orders at this moment.

“Now we have to seek fair prices. Due to the pandemic, we already have incurred huge losses, and it is time to make profits. But we also need to take care of buyers while seeking better prices so they are not discouraged and do not stop placing orders,” said Md Khosru Chowdhury, managing director of Nipa Group.

Industry leaders have advised manufacturers to demand that buyers increase manufacturing costs gradually to ensure fair prices. They have also urged exporters to avoid overlapping and develop long-term relations with buyers.

Bangladesh Garment Buying House Association president Kazi Iftekhar Hossain said relations between buyers and manufacturers have improved.

He said buyers suspended or cancelled export orders of around $3 billion at the beginning of the pandemic, but they are now cooperative.

“It is a good sign, and we should develop this relationship further,” he added.