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Fuel price surge

Apparel exporters fear 15% cost hike

Arifur Rahaman Tuhin
07 Nov 2021 00:00:00 | Update: 07 Nov 2021 09:23:32
Apparel exporters fear 15% cost hike
Garment employees work in a sewing section of the Fakhruddin Textile Mills Limited in Gazipur, February 7, 2021. — Reuters Photo

Textile and readymade garment exporters expressed concerns that the recent hike in diesel and furnace oil prices may increase their production costs by around 15 per cent.

Industry leaders further said a potential surge in transportation costs and operating costs for captive power plants are currently their major headaches.

Moreover, the transport strike is going to cause a hundred million dollars’ worth of export goods to get stuck per working day. If the strike is not withdrawn soon, exporters will fail to meet shipment deadlines, causing buyers to look for alternative sourcing countries, they added.

Textile and apparel exporters are planning to have a discussion with the government to reduce fuel oil prices, and they are also planning to write a letter to Prime Minister Sheikh Hasina for taking this matter into consideration, insiders told The Business Post.

The government recently increased the diesel price by Tk 15 per litre and furnace oil by Tk 3 per litre, citing the global market price hike as a reason for this move.

A number of industry leaders said most of the dyeing and textile mills operate with captive power systems. Due to the low supply of liquefied natural gas (LNG) in the national grid, they now depend on diesel.

Diesel is also used in most of the boilers in the readymade garments industry due to the low supply of LNG. The majority of covered vans used for transportation by this sector run on diesel too.

Bangladesh Garment Manufacturers and Exporters Association’s (BGMEA) Vice President Shahidullah Azim said, “We are the largest stakeholder in the industries sector. The government did not seek any recommendations from us on the fuel oil price issue.

“Due to new prices, our production cost will increase and there is no way to adjust this cost.”

Reiterating the same, Executive President of Bangladesh Knitwear Manufacturers and Exporters Association Mohammad Hatem said, “The matter is totally unexpected, because the government did not take any recommendation from stakeholders.

“We will suffer a lot for the increase in fuel prices. Currently, the raw material price is very high too and we are trying to adjust it with the buyers. The hike in fuel prices will increase our every cost, and the buyer will not agree to readjust their prices. How will we survive?”

Stakeholders say apparel manufacturers export goods worth more than $100 million every working day, and import another $50 million of raw materials. They will have a new crisis in their hands if the transport strike continues.  

“Besides, if this strike is not withdrawn soon, the ports will suffer a severe congestion in the coming days,” said Md Salim Khan, organising secretary of Dhaka Customs Agents Association.

Khosru Chowdhury, managing director of Nipa group, said, “Due to the supply chain crisis, we cannot meet shipment deadlines on time. And now the transport strike has hit us with a new crisis.

“Our production cost has already increased by around 15 per cent due to the high price of raw materials, and the new fuel price will further increase the cost by a minimum 10 per cent. The rising costs are very difficult to adjust to.”

He continued, “Due to political issues in South-east Asia, buyers are looking into Bangladesh as an alternative sourcing hub. But now they will be looking at another country like India because they reduced fuel prices.”

On the issue, economist and former advisor of the caretaker government Dr AB Mirza Azizul Islam said, “The main problem is in the policy level. When fuel prices declined, the government did not reduce prices.

“Even when these prices were increasing, the government did not make adjustments. The government has now hiked the price by 23 per cent in one go. If they [government] had adjusted the prices accordingly with the global market, this situation would have been easier.”

He recommended the government to increase fuel prices in phases to avoid inconsistency with the global market.

Possible price hike in backwards linkages too

Several textile manufacturers told The Business Post that cotton prices have nearly doubled since last year, and because of this, they increased the yarn prices by around 90 per cent. Due to the recent hike in fuel oil prices, yarn prices will go up yet again.

Bangladesh Textile Mills Association President Mohammad Ali Khokon said, “Due to rise in fuel prices, the transport cost will increase. LNG supply is much lower since the last two months and we have been using diesel as an alternative.

“The yarn prices will now increase by around 10-15 per cent.”

An insider from the accessories industry – which provides one of the main raw materials for the RMG sector – claimed that their production cost will jump by about five per cent due to the fuel oil price hike.

On the matter, Bangladesh Garment Accessories Manufacturers and Exporters Association’s President Abdul Kader Khan said, “We import raw materials and supply accessories to the garment owners.

“Because of the fuel price hike, the transportation costs will increase and we will have to adjust our prices accordingly. Increasing the fuel oil prices by 23 per cent is an abnormal decision. We will write a letter to the government to drop these prices.”

Home textile is one of the major export items, and its annual export volume is more than a billion dollars. Industry insiders said they are now under pressure due to the high yarn prices, and new fuel prices have put them “on the edge of the ditch.”

M Shahadat Hossain Sohel, chairman of Bangladesh Terry Towel and Linen Manufacturers and Exporters Association, said, “The fuel price in the international market is indeed very high, but it is true that when it was low the government did not adjust their prices.

“We are waiting for the Federation of Bangladesh Chambers of Commerce and Industries’ president to return home so that we can take further steps in this regard.”