On an average, the prices of raw materials such as fabrics, yarns, cotton and packaging materials, edged up by 5 to 10 per cent in the last few months, according to industry people.
“Every week, the prices of materials are rising,” maintained SM Khaled, Managing Director of Snowtex Group even as another garment maker on his part underlined, “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.”
Industry insiders underlined buyers’ nominated suppliers have also been asking for higher prices with each new lot while regular suppliers in China are frequently changing their prices.
Challenges seem to be coming and in waves for the Bangladesh garment makers, of late. After a rather forgettable 2020, which was marked by all sorts of issues that one could conceive of — export debacle, order cancellations, factory closures, etc., — increase in freight charges emerged as a major pain point for the industry and now the rising cost of raw materials is making lives more difficult for the garment manufacturers.
It may be mentioned here that the sudden and sharp increase in freight charges lately due to the adverse effects of COVID-19 on the global shipping sector, which witnessed all major mainline operators increasing freight rates citing acute shortage of empty containers following a surge in demand for imports, have pushed cost for importers and exporters for the garment makers, who are forced to deal with the supply chain disruptions.
“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,” said Nasir Uddin Chowdhury, Chairman of the standing committee on port and shipping of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), adding the hike in freight rates would impact the country’s garment exports.
The impact on the export costs will be felt in the next season when buyers will have to adjust the additional freight charges with the prices of their next order, underlined BGMEA First Vice-President MA Salam, who criticised the rising trend of freight charges and went on to add that it’s not only the shipping industry but every business and sector that have had to deal with the fallouts of the Coronavirus pandemic.
So, even as the BGMEA has asked its members to inform the trade body about realisation of additional charges by freight forwarders and shipping lines on import and export consignments so that it may take effective measures with the support of the NBR and port authorities to put a stop to the imposition of any unauthorised charges, in what is seen as an effort to deal with the situation effectively, garment makers are now made to combat with yet another burning issue- that of rising raw material prices
Adding to the issue is the fact that Chinese New Year holidays is just round the corner (in February), and garment manufacturers are ordering raw materials in advance to avoid last minute hassles and also to side-step the eventuality of having to halt production in want of raw materials later on.
“The prices of apparel raw materials went up at a time when the exporters are facing several challenges such as price cuts by the global buyers, fewer work orders than capacity and work orders cancellations,” lamented Fazlee Shamim Ehsan, Owner of Fatullah Apparels.
Right now, the manufacturers are under pressure from buyers to accept orders at lower prices.
“In this context, the prices of raw materials going up has left us with one too many survival challenges,” he added even as Monsoor Ahmed, Secretary of the Bangladesh Textile Mills Association (BTMA) on his part added that in the last three months, the price of cotton went up by 8-10 cent per pound, which impacted the prices of yarn.
A rise in international cotton prices has had a ripple effect on local yarn, affecting garment shipments, especially of knitwear. According to reports, the widely consumed 30-carded yarn is now selling for US $ 3.60 to US $ 3.75 per kilogramme whereas it was US $ 2.60 to US $ 2.80 two months ago, according to knitwear manufacturers and suppliers even as between July last year and January this year, international cotton prices went up by nearly 28.60 per cent.
In July, New York futures market was trading every pound of it in the range of 63 cents to 63.30 cents. However, recently it was ranging between 79 cents and 80.25 cents per pound.
Reportedly, cotton prices have gone up in international markets mainly for increased imports by China, the largest consumer worldwide, because of a recovery trending among businesses there. Moreover, China and Pakistan, despite themselves being major producers, have increased their import targets because of high prices prevailing in China and lower production in Pakistan.
This year, China has targeted to import an additional 5 lakh bales to take the total to 1,000 lakh bales to tame its local market while Pakistan aims to import an additional 4 lakh bales, according to data from a United States Department of Agriculture (USDA) report.
According to Md Fazlul Hoque, Managing Director of Plummy Fashions Limited, yarn prices have increased by more than 40 per cent in a span of only two months.
So, as all international benchmark prices of cotton have increased over the past month with the largest increase in prices in China, this has not augured well for Bangladesh, which exports mainly five items namely T-shirts, sweaters, trousers, jackets and shirts, which together constitute more than 70 per cent of the orders.
The basic raw materials of these five items are cotton and Bangladesh does not produce any cotton that could be used in apparel manufacturing, said a garment exporter, adding thus an increase in the cotton price will contribute to rise in the production cost.
Thus, going by the present turn of events, if there is no change in the current scenario, garment exporters have no options but to bear the increased cost of raw materials, till things go back to normal again.