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Destructive penalties of air shipment of apparels

Being the second-largest garment exporter worldwide after China, Bangladesh has been serving the customers globally with its competitive edge.

The garment sector has uplifted the economy to a new height over the last four decades.

Although the sector grew a lot and has been contributing to the GDP still Bangladesh’s poor infrastructures have been playing as constraints to further growth of the sector.

apparel air shipment penalty
Figure: Most of the garment factory owners have to export through the air in case of any disruption in the way of export through the seaway.

The poor infrastructures increase the cost of doing business and Bangladesh has been struggling to improve in the ranking of the World Bank’s global ease of doing business index.

This year Bangladesh improves eight notches to reach 168 from 190 countries.

Infrastructures cover a wide range stretching from improved roads and highways, efficient port management, airport facilities, available cheap transportation and quick movements of goods from one place to another.

All these things are still not improved to global standards and finally, the trade and investment scenario are also not improving a lot.

Also, finally the businessmen especially the exporters and importers have to face the challenges of all those inefficient issues.

The businessmen of Bangladesh loss competitiveness in global business for higher costs of doing business and the economy also suffers a lot.

In such cases, the country’s image also suffers a lot as the foreigners are reluctant to do business here and to pour investment here.

The businessmen bear the brunt of inefficient infrastructures. Most of the garment factory owners have to export through the air in case of any disruption in the way of export through the seaway.

However, air shipment is very expensive. If any exporter faces any air shipment, he or she will not be able to make any profit. Rather, he or she will have to pay from his own capital.

Most of the garment manufacturers will have to send the goods by air to meet the deadline set by the international retailers. The manufacturers cannot make any profit if he or she has to go for air shipments.

For instance, the airfare for sending one kg of garments from Dhaka to London is $3, which has to be paid by the exporter.

However, if goods are sent over the sea, the transport cost is completely borne by the importer, meaning exporters have to pay nothing in this regard.

A 20-feet container can hold 10 tonnes of garment cargo and between $1,200 and $1,500 needs to be paid as fare to the shipping companies by the buyer.

However, if the same quantity of garment goods is sent through air shipments, exporters will have to pay $30,000 to the air cargo company, as airfares are not included in the pricing.

It is very difficult to run the business smoothly with a profit of just $7,000 from the shipment of 10 tonnes of garment cargo.

So, finally, the exporters start incurring losses and gradually becoming defaulters.

Mohammad Hatem, Senior Vice-President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) said that the impact of air shipments on factories is massive as the factories lose competitiveness.

“If any small factory faces any air shipment the management of the same factory even may face bankrupt as the banks stop back to back LC opening facility for failure in payment of the loan,” Hatem said.

For instance, when a small factory faces air shipment the owner takes a forced loan from the bank to pay the fare of the airlines. Finally, he cannot make any profit from the consignment of goods and he takes a loan to pay the loan of back to back LC and finally bankrupt.

So, the small and medium factories have to go through a very tough time to stand back once they face air shipment, he said.

The airlines do not reduce the fares from Bangladesh as the demand is higher than the suppliers, Hatem also said.

The airliners, rather, increase the rates on the eve of different occasions when the demand for air shipments goes up.

For example, before Christmas, the demand for air shipments goes up abnormally. During this time the international retailers want quick shipment of goods to the western world.

So, the apparel exporters use the airlines and taking this chance the airliners increase the rates of fares, Hatem also said.

The garment factories have also been facing troubles in the movement of their covered vans inside the country for the strike, for which production at factories are facing troubles.

If the strike continues for long, production in most factories will be halted and finally the shipments as well.

Some reasons for air shipments

Usually, nobody wants air shipment as it is expensive. Still, air shipments take place at Hazrat Shahjalal International Airport (HSIA).

Every day some 800 tonnes of goods are air shipped and of the quantity, 500 tonnes are garment items.

Similarly, almost the same quantity of goods is imported through the air. Different airliners carry those goods.

Samples of garment items are exported and imported through the air, sometimes buyers want air shipments for quick delivery of goods, disruption in communication through roads and highways forces the exporters for air shipments, space constraints at the country’s premier Chittagong port also a force for air shipments.

Moreover, if any manufacturers fail to cater to the work orders timely, he or she sends the goods through the air.

Ultimate consequences of air shipments

While the cost of production has been swelling every year for different reasons, the air shipment is just like putting the last nail on the coffin.

When the companies have been struggling to make even less than five percent or in some cases without any profit, still the air shipments take place.

In such cases the factory management loses the competitive edge and finally the management either terminates staff, owners become bankrupt even in some cases closure of factories.

Recently some 59 factories were closed as they failed to compete. Air shipments were also responsible for the closure of a few.

How we can avoid air shipments

In the world of fast fashion, it is important to move the goods faster so that the importing companies can put the goods in the store timely.

The importing companies are also in fierce competition among their peers. So, they need goods as soon as possible. That means the manufacturers need to send the as soon as possible.

In such cases, the manufacturers must negotiate with buyers strongly about the delivery time of goods, the buyers can pay the airfares, predictability about the time of manufacturing, improving productivity at the factory level, efficient port management and better roads and highways.

Over the last two years some airlines like Etihad, Oman, Flydubai, Bangkok Airlines and some others have pulled out cargo flights from Bangladesh. As a result, the capacity-constrained further although the demand for air shipment increased a lot in Bangladesh.

Kazi Wahidul Alam, an aviation expert

“So, the existing airliners increased the fares and Bangladesh turned into a sellers’ market for them,” Alam said.

On the other hand, other airports like India turned into buyers’ markets as so many airlines run their flights there. In India, the airport users have a lot of choices, but in Bangladesh choices are limited, he said.

Moreover, the charges of handling of goods at the airport in Dhaka are higher than other countries, Alam said adding so the fares also go high here.

Furthermore, the number of dedicated cargo airliners from Bangladesh is very few, he said. In other countries, the number of dedicated cargo airliners is very high. As a result, the exporters can use those at cheaper rates, he said.

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