RMG exporters face warehouse shortages as new orders pour in

Apparel makers in Bangladesh are facing a crisis due to a shortage of bonded warehouses as buyers are deferring shipments and leaving clothes and fabrics worth nearly $1 billion stuck in stock.

The crisis has come at a time when readymade garment makers, after a drastic fall in the last three months, have started receiving a good number of work orders again.

Industry insiders said that manufacturers could not shift the goods to other places or godowns from the bonded warehouses due to the strict bond licence rules and lack of space shortage.

They are also facing problems in keeping new fabrics and goods in their warehouses since the old products have already taken up most of the space.

Under the circumstances, exporters have sought special permission from the government to stock goods in other spaces from these warehouses on a case-to-case basis — a facility they enjoyed amid the peak Covid-19 pandemic for around $3 billion worth of goods.

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Faruque Hassan told The Business Post, “It is true that many exporters are in this crisis and their demand is logical.

“But the problem is that customs authority claims many exporters misused the facility during the pandemic and that’s why they are not showing interest in providing it again.”

He added, “I am trying to solve the problem. We’ll urge the customs to consider the demand on a case-to-case basis.”

Export-oriented apparel manufacturers use bonded warehouses, which are certified by the Customs Bond Commissionerate (CBC). Under the bond licence, exporters enjoy a duty-free facility to import raw materials that they use to manufacture products for export.

But as per the licence condition, exporters are not eligible to stock goods or raw materials anywhere outside the bonded warehouses.

Even if the licence holder has a wastage of fabric or raw materials after the shipment procedure is complete, they cannot sell it without CBC’s permission. If anyone violates the rules, they face a penalty imposed by CBC.

According to the Export Promotion Bureau, the country earned $42.61 billion from apparel exports, with 35.47 per cent growth in FY2021-22.

The trend continued till August this year, but in September, the RMG sector witnessed 7.52 per cent negative earnings year-on-year and saw just 3.27 per cent growth in October.

What led to this situation?

According to apparel manufacturers, they received tremendous work orders from buyers since mid-2022. But the ongoing global economic crisis, one of the reasons for which is record inflation, has cut the consumers’ purchasing capacity in many countries.

Because of this, apparel brands have been left with huge stocks of clothes in their warehouses, which led them to ask the manufacturers here to slow down production and defer shipments.

Meanwhile, western buyers shut down operations in Russia and Ukraine because of the ongoing war between the two countries. That also added more goods to the already rising stock of products.

BGMEA claims this development has left nearly $1.5 billion worth of products in stocks at the warehouses of its members. Of the total, $400 million worth of goods belong to the Polish brand LPP.

Talking to The Business Post, Tusuka Group Chairman Arshad Jamal Dipu said his warehouse is almost filled up with stocked goods and fabrics. “I have started receiving new orders but there is not enough space in the warehouse to keep the new products before they are exported.”

“The government had allowed us to stocks goods in places outside bonded warehouses during the peak pandemic when we faced the same crisis. We seek to use the same facility until the present crisis is over,” he added.

Shin Shin Apparels Managing Director (MD) Mohammad Sohel Sadat said, “I have almost $2 million worth of products in stock and I don’t know when we’ll be able to ship them. The lack of space in my warehouse has put us in a severe crisis.”

Urmi Group MD Asif Ashraf said most of the exporters are facing space shortages in warehouses. “We plan to write to the concerned authority to allow us to shift goods from the bonded warehouse. Hopefully, our demand will be met.”