Home > News > World
Wednesday January 8, 2014 MYT 11:20:02 AM
Wednesday January 8, 2014 MYT 11:21:04 AM
by nandita bose AND ruma paul
DHAKA (Reuters) - On the outskirts of Dhaka, Babylon Garments has shortened work shifts to eight hours from the usual 10 and plans to shutter production lines as months of election-related violence disrupts transport and prompts global retailers to curb orders.
The company, which supplies shirts, trousers and other apparel for global retailers including Wal-Mart Inc, is one of the biggest players in Bangladesh's $22 billion (13.4 billion pounds) garment industry that has seen orders cut nearly in half in the last three months - the worst drop in two decades, according to the Bangladesh Garment Manufacturers & Exporters Association
"December is usually a season when we are packed with orders to a point where we can't take any more but look at this year - it's a completely different story," said Muhammad Saiful Hoque, assistant general manager of Babylon Garments, as workers sewed checked shirts for British-based Tesco Plc.
Industry officials say the unrest in the run-up to Sunday's disputed election has been worse for business than the April collapse of Rana Plaza, an illegally built factory in which more than 1,100 workers were killed in a disaster that prompted calls for safer working conditions and more accountability on the part of the global retailers that buy Bangladesh's clothing exports.
The disruption to Bangladesh's garment industry, the world's second biggest after China, as well as a shutdown by striking garment workers in Cambodia, another big supplier, means global retailers face a supply squeeze.
Garment orders are typically placed at least three months in advance.
"The impact won't be immediately felt but the delay in shipping finished orders will hurt the global retail market around June," said Shahidullah Azim, vice president of the BGMEA, which says up to $1 billion in orders are at risk in the coming weeks if the situation does not improve.
A Wal-Mart spokesman said the country sources from more than 70 countries, which allows it to plan for any potential supply chain interruptions. He said he was not aware of any issues related to developments in Bangladesh and Cambodia.
Michael J. Silverstein, a senior partner with the Boston Consulting Group based in Chicago, said Bangladesh is a critical supplier of clothing for world markets and too large to replace.
"The majority of the customers believe Bangladesh will not go dark, for example stop shipping," he said. "They do believe there will be delays and a need for alternative supplies."
Bangladesh's garment industry accounts for 80 percent of the country's exports and is so important to the economy that it has typically been spared from the political unrest that periodically racks the South Asian nation, even though many textile tycoons are politically active.
Several factory owners are members of parliament, representing either the ruling Awami League or the opposition Bangladesh Nationalist Party (BNP), which boycotted the poll in protest at Prime Minister Sheikh Hasina's refusal to hand power to a neutral caretaker government to oversee the vote.
More than 100 people were killed in clashes ahead of the election, with the unrest accompanied by roadblocks that have pushed up transport costs by 10 to 20 percent, according to the BGMEA - a worry for an industry that operates on wafer-thin margins and needs to keep costs low to be competititve.
The unrest had shown no signs of abating since Sunday's poll, with seven people killed in further violence on Monday and one reported death on Tuesday, during a 48-hour strike called by the opposition after the poll.
AKH Group, a large supplier that produces for H&M Hennes & Mauritz AB, Marks & Spencer Plc and Fast Retailing's Uniqlo, said it was becoming nearly impossible to meet delivery commitments.
"Trucks are stuck on the roads for days and there is very little you can do about it other than somehow pay through the roof to get them going," AKH Group's Deputy Managing Director Abul Kashem said.
Some shipments are costing the company as much as 1 million taka ($13,000), compared with the 20,000-30,000 taka it usually takes to send the same truckloads, as transport costs have surged due to roadblocks across the country, Kashem said.
Buyers have cut orders by 25 percent on average and H&M, one of AKH's biggest clients, has cut its orders by 30 percent, he said. H&M, however, said it had not cut orders with AKH by 30 percent, and so far has not been affected by the unrest.
The reason for the discrepancy was not immediately clear, although supply chains in Bangladesh are often complex, involving a series of buyers and middlemen.
Analysts at Morningstar said in a note that H&M had protected itself well from potential disruptions by using a large number of manufacturers and ordering in small batches.
A Marks & Spencer said the British high street stalwart was closely watching the situation in Bangladesh and Cambodia, but had not reduced orders and at this stage did not anticipate any effect on supplies. A Uniqlo spokesman said the company had not reduced production or orders from Bangladesh.
Neighbouring India has taken most of the orders that have been lost, while the rest have gone to Pakistan and China, according to data from the BGMEA.
"Rana Plaza dealt a heavy blow to the reputation of this country but that still didn't impact the confidence of buyers and inflow of orders the way the recent crisis has," said Babylon's Hoque.
Babylon's production of shirts fell to 750,000 pieces in December from 850,000 in the same period last year, and was expected to fall below 700,000 by February due to the lack of demand, he said.
Of the 12 large retailers Babylon supplies, seven or eight were placing orders in reduced quantities, while the rest have completely stopped, he said.
If deliveries are late, the supplier must pay compensation, said Rubana Huq, managing director of Mohammadi Group, which supplies Wal-Mart, H&M, Inditex's Zara and others.
"I have just paid 12,000 euros to a client. Our goods were three weeks late. I couldn't afford not to," she said.
Inditex declined comment on the situation in Bangladesh.
With as much as half of capacity idle at big factories, small manufacturers who make up a third of the industry and largely rely on subcontracted orders from bigger suppliers are especially vulnerable.
Turja Apparel, a small garment factory in Dhaka, has no orders after January 20 and owner Kazi Babul was not hopeful he would get new ones until the political situation stabilises.
He said he may shutter his factory for now.
"Small factory owners have suffered heavily after the Rana Plaza collapse as no one wants to give us orders, and now the political situation has taken away the little that we were getting."
(Additional reporting by Serajul Quadir in Dhaka, Phil Wahba in New York, Sophie Knight in Tokyo, James Davey in London and Emma Thomasson in Berlin Editing by Tony Munroe and Alex Richardson)
Austrian Red Cross expects 800 to 1,500 refugees from Hungary in next few hours
Merkel says Germany can cope with refugees without raising taxes
After Iran deal, EU bids to restart Israel-Palestinian talks
Migrants leave Budapest railway station on buses bound for Austria
Saudi Arabia satisfied with Obama's assurances on Iran deal
TalentCorp turns Malaysia’s brain drain to brain gain
Google can now make restaurant recommendations
Djokovic and Cilic through to U.S. Open fourth round
Mattress brand launches range with anti-static technology
Copyright © 1995-2015 Star Media Group Berhad (ROC 10894D)(Formerly known as Star Publications (Malaysia) Berhad)