With rapid mass vaccination efforts since early 2021, governments of most countries ended or relaxed previously imposed restrictions on travel and trade, and gradually began to allow in-person shopping.
Naturally, the orders for the Ready Made Garment factories in Bangladesh came pouring in. In anticipation of higher profits, the country's RMG owners committed their factories to the task of meeting the overwhelming high levels of demand from the buyers.
So, this is good news, right? Perhaps so, but only if we can deliver the goods and if the 'buyer' countries receive the orders on time.
Unfortunately, while orders are getting stacked up, there is a shortage of RMG workers. At the same time, most subcontractors have gone out of business during the pandemic. So, RMG factories have to work extra shifts to fulfil buyers' demands.
To make matters worse, numerous logistical and political barriers, not to mention the spike in Covid-19 infection rates because of Omicron, have made RMG owners pessimistic regarding the delivery of their products on time and probable cancellations. Increased lead time or other supply chain calamities attributable to spikes in the number of cases can also halt the promising recovery and hurt the RMG industry.
RMG owners are afraid that if the Covid-19 situation deteriorates any further, they will not only be stuck with readymade products in inventory but the uncertainty will also hamper future production.
The Business Standard spoke to Shovon Islam, the Managing Director of Sparrow group, for insights into the recent complications faced by the industry.
The Business Standard: Apart from the Omicron variant, there are other hiccups like intermittent and irregular bulk orders, shortage of workers, shortage of subcontractors, inventory management etc. facing RMG factory owners. Can you elaborate on the current obstacles in the industry caused by the large volume of new orders?
Shovon Islam: The orders are 20-25 percent higher than usual. This increased rate is a pretty big boost for RMG exports. All the factories, including the second-tier ones, are stacked with orders. Moreover, many factories facing financial loss during the pandemic had shut down.
So, given the number of factories in production, the overall industry capacity has come down. Thus, compared to our production capacity, the orders are high, exceeding our current production capacity.
Secondly, there is a severe shortage of RMG workers due to Covid-19. Many workers left the workplace and did not return. Many people are switching jobs as well.
According to the BGMEA database, before Covid-19, there were roughly 4.4 million workers and now it has come down to 3.3 million. But we currently need at least 3.8 million workers to sustain the current demand of the market. This shortage is causing production inefficiencies, which eventually result in the delay of shipments.
Thirdly, buyers have not been given any extensions to the factories as their stores sit empty. Additionally, the buyers placed the orders at the very last moment due to the pandemic. We usually produce more during this time since it is the biggest season in the United States, and we ship the orders by March.
But there are container shortages, worker shortages and huge increases in freight. To get the delivery on time, buyers are forcing us to airship the garments which cost us a fortune.
On top of that, the factories (almost 800) situated on the Gazipur, Dhaka-Mymensingh highway, Konabari belt are witnessing low gas pressure. Our BGMEA president has recently sent a formal application to the PetroBangla chairman to address the abnormal gas pressure issue, which is also contributing to production delays.
Fourthly, the shortage of raw materials and yarn is causing production problems. Shipments of India and China are taking longer. We have already tried to talk to the Indian authorities to resolve the issue and to move the containers faster from the Benapole borders.
But due to delayed shipments, we are getting bad scores of shipments on time (SOT) records and the bad SOT score harms the reputation of Bangladesh as a brand.
Last but not least, are the unnecessary obstacles and restrictions we face from the NBR and custom operatives which just makes the overall situation worse.
TBS: So do you think the buyers from different countries are receiving their given orders on time and if not, does the problem lie on our side?
Shovon Islam: To my knowledge, the US is our top buyer and during this season, the US is receiving deliveries on time. Except for Italy and Spain, the other European countries are also receiving the RMG products on time. This is because there is already a huge shortage of products, so buyers are scrambling to receive shipments.
India, China and Vietnam all have been unable to supply and since our products are already ready, it makes Bangladesh a prime destination.
The cases where buyers are not receiving shipment for the RMG products that they have placed orders for, are rare. The crisis at hand is we are not able to ship the RMG orders on time to the buyers due to the problems I mentioned. Specifically, the hassles we have to go through at the borders are increasing, which, in effect, increases lead time tremendously.
TBS: Do you think it is a wise decision for buyers to order a large number of goods given the difficult situation all over the world? Is there a possibility of cancellations?
Shovon Islam: The buyers do not order more than their storage capacity. They usually order in chunks, not in bulk. They have appropriate strategies regarding their inventory and have ordered more than usual only because there is a shortage.
Due to Omicron, there is a possibility of cancellation and we can only pray that we do not reach that point where we get stuck with our ready-to-deliver inventories. As for now, our concern is to overcome the shortages we have and deliver our products on time. As in most cases, buyers are not giving any extensions, and no extensions mean either cancellation or air shipment and in both cases, we suffer financially.
TBS: What should your strategy be as an industrialist to tackle the new orders, given the difficulties regarding delivery? Should we ask for higher prices for our goods given the uncertainty associated with the Omicron spread?
Shovon Islam: The prices are already rising and we are getting better prices than during the earlier years of the pandemic as well as a higher volume of orders, nonetheless, we are unable to demand much higher prices as we work in a partnership with our buyers.
Our buyers are also paying extra sea and air freight prices; and as the prices of the raw materials have gone up - which ultimately made the price of garment products to rise higher too - a very small fraction of that increase is coming to garments manufacturer like us.
The BGMEA will explore the matter of low prices and we will try to imply a minimum CM (cost of making) value method to increase our profit margins or at least not lose money.
Certain small buyers may cancel or delay orders due to the spread of the Omicron variant and ask for discounts. However, that situation has not arrived yet.
To tackle the new orders we should increase the efficiencies and reduce the waste of man-hours and materials.
This reduces rechecking due to inefficiencies and unskilled operators. We should also manage the orders better with better planning, possibly with the use of automated software tools. The use of digitisation and automation should be increased to enhance our efficiencies.
We are also working with international freight forwarders, international airlines and other channels to see if more flights and ships can be diverted to Bangladesh and researching opportunities to ease the process of delivery. We are trying every way possible to reduce our lead time.
TBS: What should be the government's role in this situation?
Shovon Islam: For the long term we need more ports, especially in terms of trading with India. India is a huge source of raw materials for us.
Hence, instead of relying only on the Benapole port, we are asking for additional flights and land ports to open up. This will streamline the production process and decrease the lead time for delivering orders.
We also need more seaports and a proper gas supply. These are beyond our control hence we need assistance from the authorities to tackle the challenges we are facing.
The hassle we are facing in customs should be minimised as well because we are working hard to fulfil the demands of our buyers while keeping in mind that crossing the deadline might result in cancellation.
As the Covid-19 situation is assumed to worsen in the next few months, we expect our government to assist us adequately so that we can deliver the goods on time.