Rising freight cost eats up profit margin

The apparel exporters of Bangladesh should have hit the business jackpot this year as they are receiving stacks of orders from their overseas buyers since the withdrawal of the lockdown in early August.

But, they are far away from capitalising the dividends as freight charges and prices of raw materials spiraled.

The apparel exporters did, however, use the opportunity to negotiate prices. The opportunity came after many years and gave the exporters their pie- a 10 to 15 percent more price for fresh orders.

“Rising freight costs and raw material prices are eating up our profit margins,” said Shahidullah Azim, vice president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), in an interview with the Business Insider Bangladesh on Tuesday.

He said insufficient number of skilled workers is another problem the industry is facing now.

Azim was sharing his thoughts with the Business Insider Bangladesh about the current apparel trading situation at BGMEA office at Gulshan.

“I cannot tell you the exact amount of order because the respective factory owners don’t share their business secrecy. But, I can tell you it is more than 10 percent and that no factory is sitting idle,” Azim said.

He hopes that orders will increase by another 5 percent next year.

As orders grew, apparel manufacturers applied basic economics rules and started asking for 10 to 15 percent more prices for fresh orders compared to the pre-covid time. But the excessive freight cost is eating up their profit margin, he said.

Rising raw material prices, especially that of cotton and yarn, are putting further pressure on the profit margin, said the BGMEA vice president.

However, excess shipment orders brought some pain, too. The apparel factories now suffer from lack of skilled seamstresses. Many factories are running late to deliver consignments due to shortage of workers.

Unfortunately, the pain compounded as freight costs jumped up by more than 100 percent and raw material prices went up by $1 per kg of yarn.

“This is why we cannot basket the profit,” he said, adding that he fears that the freight charge may go up further.

Currently the market is also facing a shortage of yarn. In this circumstance, |Aizm fears that the buyers may turn to the cotton producing countries like Turkey and Pakistan to save some bucks and production-and-shipment time.

He said he is hopeful that shipment will fetch 10 percent more this fiscal year. Despite producing huge volumes of apparel products, Bangladesh cannot earn more because the clothing is cheap and that manufacturers here do not sew fashion attire.

“As the cotton fabric based product’s demand is decreasing drastically, we have to adopt new technology to make manmade fabric based cozy products,” the BGMEA leader said adding, the association is preparing a road map to catch the high-demand market.

The local investors are interested in manmade expensive products but the field contains new challenges. Many are not that brave to face challenges.

BGMEA had sought a 10 percent incentive for the new consortium of exporters who will use manmade fabrics. But the government did not come forward.

The BGMEA is planning again to ask the government for the spur as they have to take a lot of risk for making new garments.

Without proper policy and enough inducements, the investors will not invest in the highly challenging market.

Currently, Bangladesh is exploring only 25 percent of the total demand for apparel. Here, some 4 to 5 crore people are engaged directly or indirectly. Azim said by executing proper policy and incentive framework, more employment and revenue could be generated.

He emphasised on regular supply of natural gas quality electricity. Without proper gas pressure and quality electricity synthetic fabrics could not be tamed.

Bangladesh’s 60 percent shipment goes to the EU market, 20 percent to the USA and the rest 20 percent to other destinations, he said.