The unpredictable nature of supply chain risk has been illustrated by events in Bangladesh. The latest terrorist attack has unsettled foreign companies operating in, or buying from Bangladesh because of its specific targeting of outsiders. The perception is that any travel to Bangladesh is unsafe with the obvious effect that the country is thought to be becoming a much less attractive source for clothing production for western retailers. It is being reported that both H&M and Uniqlo have suspended all travel to the country although there are no reports of the cancellation of contracts.
What is possibly more serious is the effect that the threat of terrorism is having on Bangladesh’s logistics. Earlier in the year the UK and Australia placed a ban on direct air freight from Bangladesh due to concerns about airport security. This has been followed by Germany who announced a week ago that direct flights would be prohibited. Effectively air freight movements to Germany, the UK and Australia will have to rely on ‘third country screening’, that is trans-shipment through a hub where the cargo can be re-examined. This is despite Hazrat Shahjalal International Airport employing a British security company to overhaul its counter-terrorist operations.
This would not be as serious if the sea freight sector was efficient. Clothing exports rely heavily on container shipping, however Bangladesh’s container port infrastructure has not kept-up with the country’s rapid economic growth and its container terminal is unable to cope with demand. The politics around container port development has become mixed-up with strategic issues in the region, with China offering to build a new terminal to the fury of neighbouring India who are putting pressure on Bangladesh to refuse the offer.
This logistics crisis threatens the garment industry in Bangladesh. The ability of the country to offer large scale clothing production at prices lower than China has led to an economic boom with the economy growing at an average of 6% over the past decade. The political instability and the inability to get large scale infrastructure built in Bangladesh threaten this growth, illustrating the importance of stable logistics systems to countries who aspire to drive their economies forward by positioning themselves on global supply chains.
Source: Transport Inelligence, July 06, 2016
Author: Thomas Cullen