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Garment exporters have been feeling the pinch of an unusual rise in the cost of production fuelled by hikes in yarn prices and freight charges in the wake of a recovery in export during this time of Covid-19.
Entrepreneurs said the cost per unit soared by as much as 30 per cent from that a year ago as Bangladesh was fully dependent on imported goods for making readymade garments (RMG).
Cotton prices have climbed to 93 cents per pound in international futures markets. Prices varied between 70 cents and 74 cents per pound even in January and March.
Higher cotton prices pushed up yarn prices in local markets. With yarn prices affecting profitability of the garment sector, garment exporters and spinners are engaged in a war of words.
Finally last week, the widely consumed 30 carded cotton-made yarn was fixed at $4.20 per kilogramme (kg) in consultation with garment manufacturers and spinners.
It was decided that spinners would increase yarn prices if cotton prices crossed $1 per pound in international markets and go for a reduction if it went below 85 cents.
Rates of $4.20 and $4.35 per kg were the highest to be reached by local yarn prices from previous rates between $3.50 and $3.60 per kg a year earlier.
“The per unit cost of production increased between 20 and 30 per cent depending on the product for different reasons,” said Kutubuddin Ahmed, chairman of Envoy Group, a leading garment exporter.
“We have a lot of work orders from international retailers and brands. We are overbooked…up to October this year. The garment sector in Bangladesh is rebounding strongly,” he said.
Industry insiders said they received more than 25 per cent higher work orders for the next season between September and November from that of last season between April and June.
As a result, the sector witnessed a sudden rise in demand for yarn and other raw materials and thus the surge in freight charges and yarn prices.
The cost of production increased mainly over the last one-and-a-half years when freight charges started escalating abnormally in international markets due to a shortage of containers and sudden rise in demand for commodities worldwide with the restoration of normalcy in the global supply chain.
The freight charge increased anywhere from 100 per cent to even by 400 per cent in some cases for the sudden rise in demand for raw materials in the global supply chain.
Importers said the freight charge increased by more than 400 per cent between Chattogram and ports in China as the import volume of raw materials from China increased significantly with the restoration of supply of garment items.
Bangladesh imports more than $15 billion worth of industrial raw materials, particularly for garment and textile industries, from China in a year.
Secondly, since September last year, the prices of cotton started increasing in international markets with the rise in demand for cotton fibre-made garment items amid lingering lockdowns which forced customers to stay at home for longer periods.
However, the demand for manmade fibres is usually much higher than that made of cotton fibres. Of all garment items made, 78 per cent is derived from manmade fibres while the remaining from cotton.
In Bangladesh, the picture is reverse, with 75 per cent of exported garments made from cotton fibres and 25 per cent from manmade fibres.
Fazlul Hoque, managing director of Narayanganj-based Plummy Fashions, also said the cost per unit of production at his factory had increased nearly 30 per cent in August this year compared with that in August last year.
He also said mainly yarn prices and freight charges have been affecting the cost of production in the garment sector.
“However, the international retailers and brands unfortunately do not want to adjust the additional cost of production by increasing the price per unit of garment items. As a result we have to continue business at lower prices with our buyers,” Hoque said.
Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), also said the industry has been suffering from surging costs of production with the revival of business from the fallouts of Covid-19.
Although the cost of production increased by 30 per cent, price per unit of garment items exported from Bangladesh has declined by 3.7 per cent over the past one year due to lower demand in the time of Covid-19.
So, in many cases the exporters have been doing business either in hopes of making a profit in the future or reducing other costs of production in different ways, he said.
Most suppliers have been surviving through exporting higher volumes of goods, not through better values, he added.
(TDS)
