Bangladeshs garment industry faces surging freight rates, longer lead times and container shortages as spillover effects from fighting in the Red Sea, just months after the sector was roiled by protests over wages and subsequent factory closures.
More than 65% of the South Asian nations multibillion-dollar garment exports are destined for Europe and the U.S. through the fastest and most efficient Red Sea-Suez Canal route.
Two months after Iran-backed Houthi forces from Yemen started attacking container ships in the Red Sea in November, the U.S. and U.K. have retaliated, forcing the worlds biggest shippers to divert from the crucial trade route.
Although global supply chains are affected, Bangladesh is uniquely hit for two reasons. Its garment industry is the core engine of the economy, bringing in $47 billion last year out of around $55 billion in annual export earnings. And its shallow main port means that even without geopolitical disruptions, the country required more time to deliver on orders.
Shipping companies have already added 40% to 50% to container transport charges from Bangladesh to Europe and America. But those prices are set to rise by another 20% to 25% soon, Nikkei Asia has learned by talking to agents from three of the worlds largest shipping liners.
Already operating on thin margins after hiking wages by 56% in January, Bangladeshi garment makers will be dealt another devastating blow by the freight price surges. Some are losing business.
Shovon Islams Sparrow Group makes clothes for top fashion brands like Banana Republic, J.Crew and Marks & Spencer. In the last week, he said he lost orders for 150,000 pieces worth several million dollars from a top U.S. buyer.
"I couldn find a ship that could deliver the products on time. Almost all of the major shipping lines are sailing around the tip of Africa, crossing the Cape of Good Hope. It increases the shipping time by at least 10 days and the cost by nearly 50%," Islam said. The business eventually went to an Indonesian competitor that offered a shorter lead, he said.
"At the negotiation table with the Western buyers, we were always on the back foot just because of our industrys lead time deficiency," Islam said.
Although Bangladesh is the second largest ready-made garment exporter after China, it cannot deliver quickly on account of the fact that its key Chattogram port is not deep enough for large container ships to dock.
As such, Bangladeshi garment exporters usually export their products from Chattogram in feeder vessels that bring small batches of containers to large ships docked at either Colombo, Singapore, Kelang or Tanjum Pelepas ports. This process increases Bangladeshs lead time by around 15 days.
Importing yarns from China and Egypt require the same kind of transfer but in the opposite direction, which means another 10 days before the garment factories can even begin work.
"We are given one of the cheapest rates by the buyers as we require 15-20 days more than other major garment-making nations.
So, in terms of lead time, we always operate on knife edge and the slightest disruption in supply-chain affects us in a huge way," Islam explained. "This Red Sea conflict will probably affect Bangladesh more than the Ukraine-Russia war."
Like Islam, many of the large garment makers are either losing orders or incurring losses now. Rakibul Alam Chowdhury of RDM Group was asked by his European buyer to send goods via airfreight to meet typically higher Western demand for apparel early in the new year.
"Airfreight costs 10-12 times more than the normal shipment. If we make any air shipment, it means we are in red for that order," said Chowdhury, also a vice-president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
Some of the garment exporters are struggling to find containers at Chattogram port. More than 75% of the exporters use 40-foot containers to ship their goods, according to data from Bangladesh Inland Container Depots Association (BICDA). But most depots in the countrys largest port city now face a severe shortage of such containers.
"Because of the Cape of Good Hope route instead of the Suez Canal, the ships with containers are on the sea for at least 25 more days. This delay in the supply chain creates a container crisis," said Ruhul Amin Sikder, BICDA secretary general.
Exporters have the option of shipping via 20-foot containers instead but those increase freight costs by another 30%, which makes garment manufacturers reluctant to use them, Sikder said.
The Red Sea problems come on top of other issues. Data from BGMEA shows that exports to the U.S. -- Bangladeshs largest buyer of garment products -- tumbled 25% to $6.79 billion in the first 11 months of 2023, from $9.04 billion registered over the same period in the previous year.
Siddiqur Rahman, a former president of BGMEA, explained that Bangladesh had been expecting the industry to bring in at least 50 billion last year, and that the bulk of the earnings came in the first half before orders and growth stagnated. —Nikkei Asia
