Discount, deferred payment, auction or cancellation!
Options are being dished out by the buyers and importers of Bangladeshi garments to its makers. As Europe stutters to reopen after the coronavirus pandemic, global apparel businesses are making up their loss with money of manufacturers.
Except for a few lucky ones, most of the garment-makers are facing a three-way squeeze from their buyers on the prices of goods shipped months before coronavirus broke loose in Europe and the US, finds The Daily Star talking with over two-dozen manufacturers.
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Troubles for factories are coming from three directions: goods that were already in stores of buyers but not paid for, goods that are still lying at ports of export destinations and work of goods that are in progress at factories in Bangladesh.
Goods worth over $3 billion, which were shipped between January and February, are mostly lying at European and US ports, and items valued another $2 billion or so could make it to stores, according to exporters. The export volume is similar to that in the corresponding months of 2019, but, unlike last year, hardly any payment is released by the buyers as yet.
Communications from buyers are almost identical: business was ravaged by coronavirus, no sale as stores were closed down for months, and exporters, as partners in the trade, must compensate for the heavy loss.
For goods that are already in stores, buyers are pressing garment-makers to take payments six months later or wait till the end of year for an amount that's to be determined on sale.
For goods that are lying at ports, communications from abroad are quite blunt: up to 50% discount on agreed prices, take containers back home or else goods are to end up in auction.
And prices of goods that are to be shipped in the next 3-4 months would be slashed by up to 30 percent.
For example, about 35 factories shipped $27m goods for prominent UK retailer Debenhams in the last two months. According to a report of Apparelinsider.com, the retailer is now refusing to pay for the goods ($20m) that are already in its stores and offering only 10pc off $7m price for the shipment lying at ports.
Orders worth $3.15 billion (of 1,153 factories) have already been cancelled, said Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). "It will directly impact the lives of 2.2 million workers, not to mention their families."
Shipped in January and early February, nearly $18million goods of the Winners Creations Ltd are still lying at ports of North America. "All I've been doing is to ask buyers repeatedly to accept the goods and clear payments," said Winners' managing director, Durjoy Rahman.
Mostafiz Uddin, managing director of Chattogram-based the Denim Expert Limited, told The Daily Star that his buyers have already sent letter to consider payment being deferred by 180 days. "It's neither acceptable nor sustainable."
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Truly, it's absolutely unfair the way apparel business is being run over decades. Here buyers and importers set the rules of the game, in which liabilities are solely on shoulders of garment-makers.
With a clause of deferred payment in letter of credit (L/C) -- the formal loan agreement for a purchase -- they are literally fleecing the Bangladesh garment sector and raking in fortunes without investing a single penny for production of goods. With such L/Cs, these global traders let goods be made with money of makers, get those shipped out and release payments to manufacturers after months of delay.
This means they buy their products on credit and pay manufacturers only after selling those. And in case of poor sale, buyers invariably would ask for discounts and manufacturers oblige. Discount keeps the business going, after all.
In line with the legacy, buyers are now laying down the rules of business on their own. The scale of damage that coronavirus has caused to the global $758 billion apparel market a year is yet to be ascertained. But, if not the $5 billion export proceeds are released by the buyers anytime soon, most of garment-makers in Bangladesh would find themselves on verge of bankruptcy, fear exporters.
About 80 percent of 5,000 factories in Bangladesh supply the cheap clothes to the world market, and buyers offer the same price they used to give 20 years back for many items including T-shirts. Factories in this bracket are barely-surviving and set to be hit hard with this corona-squeeze. Buyers kept on hold $1 lakh payment of Century Design & Fashions Ltd. And its managing director, Azharul Haque, does not know to how to pay the bills.
The next three months is the peak time for sweater industries. Owner of Crown Fashions and Crown Exclusives, Rezaul Ahsan, has invested almost 60pc of the $15 million order on procurement of raw materials and accessories. And the whole investment of country's leading sweater exporter is now at stake. "I'm living on my nerves, constantly," he said.
"We're open!" Possibly, a desperate message exporters want to send out to their buyers.
"Garment manufacturers are in fear of their apparel-rivals in Vietnam that has recovered fast from the pandemic and is open for business," observed development economist, Prof. Rashed Al Mahmud Titumir. "They don't want to lose out to Vietnam whatever work orders they are left with."
The government has announced a $589 million soft loan for the largest forex-earning sector. But this bailout package alone is not enough for the beleaguered sector. Monthly salary of about 3.6 million workers in this industry stands at $423 million, BGMEA president pointed out.
Rashed, a teacher at Dhaka University and chairman of the development think-tank Unnayan Onneshan, thinks this sector requires a sustainable bailout formula to survive in the post-pandemic world. All the stakeholders- the manufacturers, buyers, governments, labour unions and organisations like Accord-Alliance- should sit together and find out a long-term formula like the way they did after Rana Plaza tragedy in 2013 to scale up compliance standard in factories.
A huge social and economic disaster is waiting to happen if it's not done, he warned.
The sector is in dire straits for sure, but it has a very negative image as well, for which it's more often than not misunderstood and deprived of the public and private support it needs. As public perception goes, garment-makers are worker-unfriendly, low-paying, and lying-for-profit greed merchants.
The image is not fully a figment of imagination. But, truly, the sector has come a long way, going through some serious reforms since 2013. And, now is the time when these industries require serious help, more strategical than financial.
With a long-term bailout formula, garment sector would recover to remain as the county's robust growth-driver. And, with a short-term unplanned assistance, it's destined to become an industry on saline for good.
Would garments sector get medicine for recovery? Onus is on the government.
(Senior business reporter Refayet Ullah Mirdha contributed to this report with additional information)