The outbreak of COVID-19 around the world has brought vast disruptions to many supply chains, not least to the textile, garment and accessory industry.
The garment industry in Bangladesh employs around 4m people with textile and apparel products making up around 90% or $40bn worth of its exports in 2019. For many people working in this industry, poverty is an ever-present concern, the work is low paid and not secure. The advent of a global pandemic could spell disaster for millions. Several news outlets have published articles on how the Bangladeshi government is to handle this situation. Its been reported the Prime Minister, Sheikh Hasina, is to offer $590m in low-interest loans for owners of export-oriented factories to pay workers. Although pay is a costly problem, a new issue has arisen this week with the cancellation of billions of dollars’ worth of clothing orders from companies in the US and Europe. The New Arab reported that the Bangladesh Garment Manufacturers and Exporters Association has witnessed orders worth $3.2bn being cancelled by global brands. This comes as ASDA announced it has cancelled a quarter of all its orders with clothing suppliers. The company told the BBC that it will pay 60% of the order value to Bangladeshi manufacturers but only 30% to others. New Look notified its suppliers to expect late payments whilst Primark has also cancelled orders. On the other hand, Inditex, owners of H&M and Zara, have said they will pay for all their existing orders in-full.
The cancellation of orders is only adding to the impact of COVID-19 on the industry as even before this export volumes had been declining from major producing markets on a global basis. Pakistan’s textile exports had dipped by 4.5% year-on-year in March 2020 as Karachi Port, which handles 76% of Pakistan’s total cargo, noticed a significant decline in volumes since March 15. Vietnam’s industry has a bleak outlook as it has predicted the number of textile orders are to fall by around 70% in the next two months. Exports in the country have already fallen by 8.9% year-on-year in Q1-20.
The effect of COVID-19 on trade has in turn been felt in the freight forwarding market, Ti’s GSCi Dashboard has been capturing data that demonstrates this in a number of charts. For example, the sea freight rates from China/East Asia to Europe have fallen from $2,045 on January 31, to $1,410 on April 17, equating to a drop of 31.1% in three months, according to Freightos. As for air freight, the US saw the Outbound Freight Rates Index spike by 59% during February 2020 according to the US Bureau of Labour Statistics.
There are several conclusions to be drawn from this situation. Firstly, it is interesting to see how global companies are treating their suppliers. For decades they have, arguably, been exploiting the cheap labour and low regulations in developing nations. When a global emergency, such as this breaks out it seems they are more concerned about profits than supporting their manufacturers. Secondly, the fall in exports of textiles, garments and accessories has had profound impacts on the exports of the manufacturing nations who rely so heavily on the industry. It will be interesting to see what happens in the future, regarding social security systems, dependencies and diversification. And finally, the effect on the already weak freight forwarding market. The spike in air freight reflects the fact there was and remains a high demand for healthcare and pharmaceutical products normally shipped by sea. Whereas the decrease in sea freight rates is linked to a fall in supply from Asia, as it experienced shut down before the West. The rates are still declining as demand in the West wanes due to the American and European lockdowns. This event has already and will continue to have a huge impact on the providers and the market as a whole over the next year.
Source: Transport Intelligence, April 21, 2020
Author: Holly Stewart
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