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Escalating freight cost setting out positive outcome to locally-manufactured fabrics

Globally fabric and yarn importers are bearing the brunt of rising freight costs amid a global shipping crisis that may last months.

Such disturbing situations are emphasized by the ever-falling shipping crisis out of China. Ships loaded with containers are stuck in Chinese ports.

Goods waiting for containers are stuck on factory loading docks. And shipping costs for those goods that are getting out have increased vastly, abolishing the value-chain proposition that is supposed to underline China’s benefit as a low-cost manufacturing country.

Figure 1: Local big RMG factories are turning to local fabric manufacturers for fabric and yarn due to rising freight costs.

Which is ultimately creating a silver lining for the second-largest apparel manufacturing country i.e., Bangladesh.

Bangladesh backward linkage industry experts are saying that big readymade garment (RMG) factories are turning to local fabric manufacturers for fabric and yarn.

One of the prominent leaders of Bangladesh apparel industry, Faruque Hassan Managing Director of Giant Group said, “China is the main source for the apparel sector’s raw materials but the supply chain has been disrupted due to pandemic and to ensure timely shipments, manufacturers are procuring from the domestic market.”

Khorshed Alam, Owner of Little Star Spinning Mill said, “There are some apparel manufacturers, mostly the large player, who never purchased fabrics from local sources and they are repeatedly asking us for fabrics.”

While highlighting that the motive for the same is the higher prices of fabrics in the importing countries, Alam further added that upsurge in freight costs and the inaccessibility of containers made importing fabrics tougher.

Shahiduallah Azim, Managing Director, Classic Fashion Concept told that obtaining fabrics from the local market is more fitting and hassle-free.

Shahiduallah explained that “This put a reign on the cost of business and lead time. That is why we are buying more from the local manufacturers than in the past.”

In terms of domestically sourced raw materials, especially fabrics; Bangladesh is still some distance from China in achieving self-sufficiency.

According to  Bangladesh Textile Mills Association (BTMA), currently, local fabric manufacturers can produce around 35 percent of the demand for woven fabrics from garment exporters and 90 percent for knitwear.

Figure 2: Due to rising freight cost and unavailability of containers RMG makers are turning to locally-manufactured fabrics.

The reliance on foreign destinations, mainly China — Bangladesh imports some 60 percent of its woven fabrics from China (according to an assessment report of the Bangladesh Trade and Tariff Commission-BTTC) and 15-20 percent of raw materials and 80-85 percent of dyeing chemicals and accessories of the knitwear sector come from China while some 40 percent of raw materials for garment accessories and the packaging manufacturing industry also arises from China every year — for raw materials did not augur well for Bangladesh during the COVID-19 pandemic.

According to reports, even as the pandemic had started to inflict chaos in China in the early days before spreading worldwide, causing a supply chain interruption, which impacted the Bangladeshi RMG makers.

It is a different story though that Bangladesh had to suffer more after the pandemic taking the entire world in its grip that resulted in shutdowns, order cancellations, export debacles, etc.

Dr. Rubana Huq, President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) said, “In general, we are possibly going to take a hit for three to four months.”

Mohammed Hatem, Senior Vice-President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) underlined that “I am forced to airship fabrics and raw materials to meet deadlines.”

Adding that due to the short supply, prices of raw materials grew by 30 to 40 percent.

Although the COVID-19 pandemic enforced some tough times, it has also given Bangladesh’s textile manufacturers the necessary push — demand for domestically-manufactured fabrics observed around 20 percent rise — given hope for a much-attained dream of self-sufficiency, in terms of fabric manufacturing, is possibly not so far away.

As discussed in the beginning, amid the rise in freight charge, inaccessibility of containers, delays in getting imported raw materials and the augmented prices of imported fabrics, all of which aided turn things around for Bangladesh’s primary textile sector.

As per Bangladesh textile and apparel industry insiders, usually, the prices of raw materials like fabrics, yarns, cotton and packaging materials, increased by 5 to 10 percent in the last few months.

SM Khaled, Managing Director of Snowtex Group said, “Every week, raw materials prices are rising.”

“Unfortunately, we have seen in the past years that though the production costs have increased manifold for different reasons, many buyers did not increase the prices. So, ultimately the manufacturers have to bear the brunt, which should not be the case,” Khaled said.

Besides, the unexpected and steep surge in freight charges lately due to the opposing effects of COVID-19 on the global shipping sector, which saw all main mainline operators increasing freight rates blaming severe scarcity of empty containers following a surge in demand for imports, have also pushed the price up for the clothing makers, who were already being forced to deal with the supply chain disruptions.

Nasir Uddin Chowdhury, Chairman of the standing committee on port and shipping of BGMEA said, “As most of our raw materials are imported, the freight charge hike will increase the import cost. The export cost will also be raised for the same reason.”

Adding that the hike in freight rates would affect the country’s RMG exports.

To add to the increase in shipping charges, air cargo charges have reportedly almost doubled in the last few months.

According to reports, apparel exporters have been dealt a fresh blow by a doubling of air shipment rates for cargoes flying out of Dhaka’s Hazrat Shahjalal International Airport (HSIA) as airlines raised the rates after the growing demand for air shipment amid a positive global outlook and reducing of carrying capacity from the HSIA by 60% on the back of postponement of cargo and passenger flights by some international flight operators.

Fabric prices also grew from importing countries with prices going up by at least US$1 a yard, while the freight charge spiraled to US$ 3,000 from US$900 a container, according to the garment makers.

The overall effect of all these has led to increasing in demand for locally-made fabrics with apparel makers urging for further increasing fabric production.

Although the fabric prices went up in Bangladesh, it is lower than elsewhere, said Khorshed Alam.

Mohammad Ali Khokon, President, BTMA said, “Now, we have more orders than capacity,” he further went on to add that manufacturers have sufficient work orders for fabrics and there are no unsold fabrics or stock.

Although the COVID-19 pandemic enforced some tough times, it has also given Bangladesh’s textile manufacturers the necessary push — demand for domestically-manufactured fabrics observed around 20 percent rise — given hope for a much-attained dream of self-sufficiency, in terms of fabric manufacturing, is possibly not so far away.

Khokon added, “The primary textile sector is now in a better state than what it was a few months ago.”

“This is a good sign for us as the strong backward linkage improves value addition as well as the industry’s strength in competing well in the global market,” said Hassan.

Urging the fabrics manufacturers not to set high prices so that exporters do not go to another country for sourcing.

Industry experts and leaders also called upon the garment manufacturers to continue with their patronization of the domestic textile sector for their raw material needs.

Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI) said, “To become the leading garment supplier, Bangladesh needs a robust backward linkage industry for both woven and knitwear fabrics.”

Ahsan added that fabrics manufacturers have to advance quality standards and the RMG exporters have to change their mindset and help the local manufacturers to grow.

While the BTMA President called upon the government to provide policy support so that Bangladesh can become self-reliant in fabrics.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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