Home ›› 30 Oct 2022 ›› Front
More than $1 billion worth of ready or almost ready apparel products are stored in factory warehouses in Bangladesh as most of the buyers are either deferring shipments or asking to stop production, say exporters.
The situation has arisen at a time when the apparel sector is witnessing an order crisis and export earnings declined in September due to the ongoing global economic crisis.
Exporters say they will face negative export earnings again in October and November as well under the circumstances.
Amid the situation, they have urged the government and the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) to take proper initiatives to help them tackle the crisis.
Talking to The Business Post, BGMEA President Faruque Hassan said, “Many buyers have already halted shipments and we don’t know when the goods will be shipped.
“Most buyers are deferring shipment dates or postponing production but the problem is that exporters are afraid to or hesitating to share the issue. However, BGMEA has asked its members to report how much goods are in stocks.”
BGMEA Director and Savartex Group Managing Director (MD) Faisal Samad said that around 1,000 factories are suffering from shipment deferments and rescheduling of shipping dates.
“If each factory has an average of $1.5 million worth of clothes in stock, the total would reach $1.5 billion. However, I think the actual figure is more than the estimate,” he added.
According to the National Board of Revenue, apparel exports in the first 20 days of this October decreased by 22.73 per cent to $1.7 billion, from $2.2 billion year-on-year.
Although data from the last 10 days is yet to be available and the figure will change a bit when the Export Promotion Bureau (EPB) finalises the monthly probationary export data, exporters fear their earnings at the end of this month will be lower than October 2021.
Export earnings had declined by 7.25 per cent to $3.16 billion in September year-on-year.
Current scenario
IFS Texwear MD Salah Uddin Ahmed Shamim said that his factory has around 35 lakh pieces of clothes in stock, which are worth around $6.6 million.
Rupa Group MD Md Shahidul Islam said his factory has around 2.35 lakh pieces of clothes in stock, which are worth around $1 million.
The MD of another Ashulia-based apparel factory, seeking anonymity, told The Business Post that they have $1 million worth of fabrics and $1.5 million worth of readymade goods in stock.
“Buyers first cut orders by 40 per cent of their purchase order [PO] and now they are not receiving the goods. How will I run my factory?” asked the frustrated man.
The Business Post spoke with at least 10 exporters who have between $1 million to $5 million worth of clothes and fabrics in stock. They are clearing back-to-back Letters of Credit (LCs) and workers’ wages by taking loans.
One of the top Bangladeshi exporters, requesting anonymity, said, “Many reputed buyers, such as H&M, C&A, Inditex and M&S, are deferring shipments but we can’t say anything to the media, or BGMEA, because there is pressure from the buyers. They can even cancel the orders, which will hurt our business relationship in the long term.”
“LPP and Kick have already postponed around $500 million worth of clothes. GAP is starting to follow suit. Many exporters are also suffering because of H&M and other buyers. But we do not have any right or place to share the issues,” he vented.
Snowtex MD SM Khaled said that buyers have been deferring shipment or postponed production of around 10 per cent of orders over the last three months.
He said, “I am annually exporting around $250 million worth of clothes to dozens of buyers and many of them are deferring shipments and asking us to slow production. Even though we have manufactured the products, the shipment date has already passed.”
Talking to The Business Post, TEAM Group MD Abdullah Hil Rakib claimed that buyers have been changing shipment dates over the past two months. “This is why a large number of orders are yet to be ready even though we have already bought the raw materials.”
“While we are suffering from low orders, buyers are deferring shipments and putting us under pressure. Our back-to-back LCs and workers’ salaries are forcing us to take loans,” he said.
BGMEA Director Mohiuddin Rubel said he also knows at least 10 apparel exporters who also have around 10-20 per cent of goods left in stock.
Exporters’ fears
According to industry insiders, after the buyers stopped receiving most of the deliveries following Russia’s invasion of Ukraine, exporters began having trouble with opening back-to-back LCs, forced loans and a liquidity crunch, which made it difficult for them to pay wages to employees.
Alongside exporters, buyers have also put the local suppliers — who supply the raw materials to manufacturers — in jeopardy.
Many exporters said that if this situation continues, they will have to lay off workers, which can lead to unrest. Many factories have already failed to pay wages on time, even though it’s nearly the end of the month.
Under the circumstances, exporters are seeking policy support from the government to navigate the troubled waters.
Rupa Group MD Shahidul said, “The buyers are not taking delivery of the goods citing excuses, but how will I pay my workers? The bank has already issued a forced loan against my back-to-back LC. I don’t know what to do with the ready-to-ship goods.
“The government and BGMEA must put pressure on the buyers and provide facilities to exporters on a case-by-case basis so that our back-to-back LCs do not turn into forced loans. Otherwise, we will be in serious trouble.”
Energy crisis creating more problems
Meanwhile, the ongoing energy crisis has also thrown the already struggling apparel makers into hot water.
Due to the severe load-shedding and gas crisis in the national grid, the manufacturers’ production costs have increased. Some buyers want their goods delivered quickly but the manufacturers are failing to do it.
On the other hand, many buyers are also pressuring them to reduce the cost of production.
BGMEA President Faruque told The Business Post, “We are facing gas and electricity crises at home, which forced us to use diesel-fired generators. It has increased our production costs and that has affected work orders.”
According to EPB data, 83 per cent of Bangladesh’s export earnings come from the readymade garment sector and around 85 per cent of that earnings came from western countries.
The country earned $42.61 billion through apparel export in FY2021-22, marking a 35.47 per cent growth, while $19.4 billion came from woven items and $23.21 from knitwear.
“We are getting most of the raw materials for knitwear items from domestic sources. The local textile millers are also facing a gas supply shortage, which has cut their production by 60 per cent. This is why yarn prices in the local market have gone up too much,” Faruque said.
“The government should ensure uninterrupted gas and power supply to the industry to protect the export-oriented sector,” he added.
