Split orders and shorter lead time increase exporters' overhead costs

Apparel and textile makers are facing shorter lead times and split order pressure due to changing buying patterns by most buyers. This change in buying behaviour also pushes them to maintain higher inventory, which increases the exporter's overhead costs, according to industry insiders.

They also say textile makers are facing challenges in opening new letters of credit (LCs) to import raw materials due to the dollar shortage. This could lead to a shortage of raw materials in the coming days.

Apparel exporters are also facing higher prices for yarns in the local market, which are 60-80 cents higher than the imported ones.

On 4 September, the Bangladesh Bank issued a circular barring the transfer of export proceeds to other banks. This is aimed at bringing discipline to foreign exchange transactions.

Exporters, however, have expressed concerns that this will further increase their overhead costs, which are already rising due to the recent hike in utility prices.

Shahidullah Chowdhury, executive director of Noman Group, told The Business Standard that global buyers have changed their buying patterns after the pandemic. They are now placing smaller orders with shorter lead times, which is forcing apparel exporters to maintain higher inventories.

This, in turn, is increasing their costs and making them less competitive, he added.

Monsoor Ahmed, CEO of the Bangladesh Textile Mills Association (BTMA), said buyers used to forecast their needs for an entire season at a time, but now they are only forecasting for a few weeks or months at a time. This is making it difficult for exporters to plan their production and manage their inventory.

He also said that buyers are now splitting their orders into smaller batches. This is making it even more difficult for exporters to meet their demands.

The lead time for repeat orders has decreased from 60-120 days to 20-30 days, thanks to the local spinning and textile industry. This has allowed Bangladeshi apparel exporters to meet the shorter lead times demanded by buyers.

However, Monsoor Ahmed expressed concern that the textile makers may not be able to meet the increased demand for orders if the order flow increases. This is because most of them are facing challenges in opening new letters of credit (LCs) due to the dollar crisis.

He also said that the recent hike in gas and electricity prices has increased the overhead costs of textile makers. This will further make it difficult for them to meet the increased demand for orders.

Orders and yarn prices increasing

In the last few months, apparel and textile makers claimed that most of them were running their units at 60% to 80 % capacity due to a lack of orders and gas crisis.

However, apparel exporter's said that orders are coming to Bangladesh but local spinners are cashing that through increasing yarn prices.

Shovon Islam, managing director of Sparrow Group, said in the coming months, Bangladesh may enjoy a batch of fresh orders from global buyers due to two main reasons – most of the brands have cleared their inventory and inflations in Western countries.

He said, "Vietnam and China are facing a slight downward trend in apparel manufacturing and a portion of their orders is coming to Bangladesh."

BGMEA president Faruque Hassan said some new orders are coming to Bangladesh but local spinners have already hiked the yarn prices.

"Per kg 30 single count yarn price was $3.20 in early July but it jumped to $3.85 in the end of August," he added.

He also said the price of such yarn is about 60-80 cents lower in India and Pakistan.

Exporters concern over BB circular

After the new circular issued by the central bank exporters can now retain the export proceeds for up to 30 days in the receiver bank to pay back-to-back loans, export development funds and import liabilities.

However, if an exporter fails to convert the proceeds within the time limit, the receiver bank will open an account under the exporter's name to keep the money in local currency, according to the circular.

Exporters say the new circular has put them in a difficult position because they will be forced to cash their export proceeds and buy dollars to pay other bank payments. This will increase their overhead costs.

Noman Group executive director Md Shahidullah Chowdhury said the new circular will increase the cost of currency conversion by Tk10-Tk12 per dollar. This will make it more difficult for exporters to compete with exporters from other countries.

Referring to the Bangladesh Textile Mills Association (BTMA) leaders, its CEO Monsoor Ahmed said the new circular issued by the central bank will make it difficult for exporters to transfer their funds from bank to bank to settle their liabilities. This, he said, will lead to overdue payments and huge losses for exporters.

He also alleged that the circular will benefit banks at the expense of exporters. He questioned why the central bank did not consult with all stakeholders before issuing the circular.