69 member companies of BGMEA have faced worth USD 93 million of order cancellation till Wednesday(18 March). Also, worth USD 7.38 million work orders have been suspended
Some of the clothing retailers and brands have started delivering letters to the local manufacturers asking them for cancellation and slashing of work orders as the clothing stores are shut down in Italy and Spain due to the Coronavirus.
The buyers said until Monday they waited for the signals from their headquarters about the cancellation and slashing down of the work orders as many stores have been shut down in the US and Europe, especially in Italy and Spain.
“Finally, I served letters to our local business on canceling some upcoming work orders on Monday, 16-03-2020. I waited for some days and when the situation has been turning severe my headquarters instructed me to slash work orders to some extent,” said a Country Manager of a European retail giant asking not to be named.
However, he did not mention the amount of which he has planned to slash or cancel the work orders. The amount of cancellation and slashing of work orders is depending on the severity of the spread of Coronavirus in the main European and US markets.
If the situation prolongs, the amount of cancellation of work orders may be more and if the situation improves soon the amount will be very low, he said.
A good number of clothing retail stores in Italy and Spain, two major markets of clothing brands have been shut down. As a result, the presence of customers in the shopping malls is very low and sales is also low.
However, the manager said his company asked the local manufacturers to continue the making of the goods of which have already been cut for making the apparel.
The main pressure on work orders will be noticed from next month as many of the factories, especially the small and medium ones will have a fewer number of work orders, but at the same time, they will have to pay their workers.
“My buyer has already served a notice to me in this regard. I am worried about the future of my business.”
“However, if the situation improves my company will place even more work orders in Bangladeshi garment factories,” he also said.
Another Country Manager of a European retailer also said his company is also planning to cancel the work orders in Bangladesh due to the Coronavirus.
“Many of the stores have been shut down in Europe for the thin presence of customers. If the sale is low then there is no need for further production because of a shortage of storage facility,” the Manager also said.
A garment manufacturer said some 40 percent work orders have been slashed down in his factory because of Corona. “My buyer has already served a notice to me in this regard. I am worried about the future of my business,” said a leading garment exporter on Tuesday.
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has already sent a letter to Bangladesh Bank seeking financial assistance to face the fallouts of Coronavirus in the garment sector.
The BGMEA last month sought special financial assistance from the central bank to steer clear of any negative impact of the Coronavirus on the garment supply chain.
The supply chain of fabrics and other raw materials has been affected badly due to the outbreak as Bangladeshi apparel makers source 46% of their raw materials from China, the BGMEA said in a letter to the Bangladesh Bank.
In fiscal 2018-19, imports from China amounted to $13.63 billion, $5.02 billion of which were textiles.
“Given the dependence of the garment sector on China for its raw materials and the fact that the epidemic may linger, it could prove fatal for the industry as the supply chain will be paralyzed,” the letter read.
Overall imports from China plummeted 21% in January from a year earlier, and plunged further to 37% in the first week of February, according to data from the National Board of Revenue and the BGMEA.
Against this backdrop, the BGMEA called for support in the form of disaster assistance fund, credit guarantee scheme and amendment to the back-to-back letter of credit (LCs) rules.
The disaster assistance fund may be extended to factories/exporters to support unforeseen costs such as air freight, sourcing of raw materials and accessories from alternate and more expensive options to complete the orders and cost of financing for the extended period, the BGMEA said.
While exporters will negotiate with buyers, banks should be willing to extend the credit term by 30-60 days due to the late arrival of raw materials and increased costs for the extended period.
“Given the scenario that there could be potential delays to recover from this crisis, the central bank may consider a special credit guarantee scheme to encourage commercial banks so that they can continue to support the industry.”
Since goods from Chinese suppliers would be delayed, Bangladesh Bank may issue policy directives to the scheduled banks to amend the respective clauses in the back-to-back LCs to make the payments to suppliers conditional and justified, according to the BGMEA letter.
The association also asked its member factories to raise awareness among workers about the virus and opened a ’BGMEA Coronavirus control room’ at its head office.
Meanwhile, a survey by Hong Kong-based QIMA said after the Coronavirus, Bangladesh will benefit from the fallout of the Coronavirus as most of the globally renowned companies are planning to shift work orders from China to other Asian countries, including Bangladesh.
The QIMA, a leading provider of supply chain compliance solutions and which partners with brands, retailers and importers to secure, manage and optimize their global supply network, surveyed the executives of more than 200 globally renowned companies between February and early March.
Half of the survey respondents are considering shifting supplier sourcing away from China to new countries or regions, including Vietnam India, and Bangladesh, as well as near-shoring and re-shoring options, the survey report said on Tuesday.
Nine out of 10 businesses report being affected by the Covid-19 epidemic, with US-based respondents more likely to be hit than EU-based companies and the regions reliant on Chinese suppliers feeling the most impact.