The global freight system will take time to get back its rhythm
Starting its journey in 1983, today the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) takes care of an industry that is at the backbone of the country’s economy. With around four thousand registered garment factories as its members, the association represents the woven garments, knitwear, and sweater sub-sectors with equal importance. BGMEA President Faruque Hassan discusses at length with Fibre2Fashion about the various challenges facing the industry and the outlook for 2022.
What are your key takeaways from the textile and apparel industry developments in 2021?
2021 was a challenging year for the Bangladesh readymade garment industry indeed. The massive impact of COVID-19 and shutdown measures to curb infections have plunged the global economy as well as our industry into a severe contraction.
The first takeaway of 2021 is the learning of how to survive in this time of the pandemic since the virus is continuously unfolding challenges one after another. The global supply chain collapsed during the pandemic, and we witnessed so many unpredicted situations like non-payment, discounts, delayed payments, deferred shipments and so on. The weakness in trade terms and the vulnerability caused by a concentrated raw material supplier base, were some of the harsh realities exposed by the pandemic. The impact was particularly severe for small- and medium-sized factories.
The balance between lives and livelihoods was another call of the time which we have very successfully been able to strike with the support of Prime Minister Sheikh Hasina. In the upcoming days, it will be a priority agenda for us to ensure the economic protection and wellbeing of the workers in such a situation.
We have also seen how COVID-19 disrupted the global supply chain, particularly the freight management systems all over the world. The container crisis has led to a historic rise in freight cost, as high as 350 per cent to 500 per cent, causing higher input costs as well as provoking global buyers to near-shoring to minimise costs.
While all these are matters of concern for us, we have learnt during COVID that supply chain management requires more attention than ever. We need to diversify our raw material sourcing and for that strengthening our backward linkages industry is a must.
As we do business based on receivables, there is always a risk of order cancellation, delayed payment, or violation of trading terms of some sort. Therefore, deepening buyer-supplier relationships requires more attention than ever before.
Apart from the challenges, COVID has unveiled new opportunities for us as well. Global online sales have skyrocketed during the pandemic and our footing in the arena of virtual marketplace is an opportunity awaiting us. For that, we have to develop a suitable business model with strategies required to carry out the operation in the virtual marketplace.
As Bangladesh graduates to a developing nation, we need to keep in mind the obvious changes in market access in the coming years. We need to increase our investment, particularly in the backward linkages industry, to comply with double transformation rules of origin. So, we need to think and study carefully to make our investments feasible in the longer run.
We have to keep and continue all of these transformations and momentum that we have achieved in the area of safety and environmental sustainability. We need to be more focused on technological up-gradation, value addition, innovation, etc.
Do you expect any significant movement in textile and apparel supply chains in 2022 due to the geo-political scenario, particularly the US-China tension?
I don’t think so. The US has imposed additional tariff on China in September 2019. Though initially, it had some impact on China’s export to the US but eventually China has absorbed that shock. Currently, their export growth in the US is pretty good. So, we don’t think there will be a significant trade distortion caused by geo-political issues.
However, we need to also observe that how our competitive countries are preparing themselves particularly, Vietnam and India. Vietnam has signed Free Trade Agreement (FTA) with the EU and a Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with 10 countries. It is also negotiating an FTA with the European Free Trade Association (EFTA) countries. India is also negotiating FTA with EU. It will be crucial for us to initiate rigorous commercial diplomacy activities to ensure market access required to pursue our export potential. We need to focus on bilateral and regional cooperation as well as increase our participation in the global forums.
Will we see greater technology adoptions in 2022 to solve transparency and traceability issues in the supply chain?
Pursuing excellence is a continuous endeavour, and technology upgrading is the call of the time for the industry. The fourth industrial revolution is sweeping the global manufacturing and retailing landscape, thanks to IoT, artificial intelligence, AR, virtual prototyping and blockchain. We have now cutting-edge technologies that make the production processes simpler, faster, and resource efficient. Currently, different cutting-edge technologies and auxiliaries like – low liquor ratio dyeing machine, ozone wash, use of organic chemicals, laser printing, waterless dyeing, etc are being used in the factories. Some factories are using technologies like IoT to analyse sewing motion, radio-frequency identification (RFID) for production and inventory tracking system, smart dyeing system, automatic dosing system, smart garment measurement system, finishing roll QC system, mobile apps for QC, etc. Automated screening tools are being used to detect organic and zero hazardous chemicals which reduce the consumption of water and energy. So, all these are no way less important than ensuring transparency and traceability in the supply chain.
We are using many environment-friendly technologies like rainwater harvesting, daylight saving, solar energy, etc which can save our natural resources and reduce the environmental pollution.
The adaptation with these technological changes depends on how easy these are to avail and use/access. We need re-skilling and up-skilling of our human resources to prepare ourselves to reap the benefits of technologies. Transparency and traceability are becoming increasingly important in global trade; the use of technologies will put us ahead. The bigger picture is that technology is the way of pursuing efficiency and the use of it empowers people.
Energy prices are currently a major concern across the world. How do you see them continuing and what business strategies can we expect to cope with them?
Energy price is a concern for us. Since the recent hike in the diesel price has led to an increase in our production costs, how we can cope up with current price scenario is a concern. However, we believe that as the megaprojects like Rooppur Nuclear Power Plant and Matarbari Power Plant will soon be integrated into the grid, it will benefit us through uninterrupted and more quality power, helping us gain efficiency and better quality.
On the demand side, do you expect a significant pick-up beyond pent-up consumption in 2022, without government support?
Not really. The recent growth scenario in our export is rather a temporary phenomenon which will stabilise as life becomes normal. However, looking at the bigger picture, the economic growth projection of 2022 sheds some light of hope. As far as the prediction of International Monetary Fund (IMF) and World Trade Organization (WTO) is concerned, the global economy and global merchandise trade are projected to grow by 4.9 per cent and 4.7 per cent respectively in 2022. So obviously we can hope for the best in the coming year. But if we observe the current situation, the retail sales in Europe have not yet returned to the normal level. The latest data shows that retail sales in the EU is 15 per cent lower than the previous year, which is depressing. This also means that EU will see a craving if the infection does not jeopardise lives further.
Does 2022 seem to be as uncertain as 2021? Which factors would you rank as of topmost concern?
We still don’t know how long it will take for the world to completely get over from the pandemic, whether COVID-19 can be totally contained at all, if not how long would it take for the world to get habituated with the new norms. In reality, the recovery from COVID-19 is faltering as the virus continues to change its DNA sequence. Due to the emergence of a new variant Omicron, the infection has been growing at an alarming rate in different countries. Many European countries have already imposed lockdown in response to the fourth wave of infections. For now, 2022 seems to be uncertain as well. If newer variants of COVID keep hitting the world repeatedly and disrupt the normal life of people, it will be difficult for us to turn around. Our concerns are:
• How long would the fluctuation in demand and supply persist and how the manufacturing industry can cope up with this fluctuation?
• We are still struggling in terms of cost and price. We have seen immediately after the pandemic how the price went down. Although currently prices are slightly better than that, they are still not at par with recent cost increases due to fuel, yarn, and dyes/chemicals price hike.
By when do you expect the challenges of shipping industry to ease?
It’s difficult for us to predict but it may not happen even in the year 2022. The global freight system has apparently lost its rhythm which will take time to get back.
Following the recent COP26 meeting and given the textile industry’s influential role in climate change, what major developments do you expect in 2022?
Climate is a much-talked issue nowadays and the fashion industry has a significant role to play in this regard. COP26 concluded with major commitments in reduction of emission and eventually to go for net-zero by 2050. Since the fashion industry contributes 10 per cent of the global emission, it needs to make more efforts to become environmentally sustainable. Though Bangladesh’s per capita carbon emission is one of the lowest in the world, Prime Minister Sheikh Hasina shared the vision of her government to source 40 per cent of the energy from renewable sources by 2041.
Considering the gravity of global warming, we are determined and committed to carry forward the environmental sustainability that we have achieved so far. At COP26, we have reaffirmed our commitment to climate action. Earlier we have already signed the United Nations Framework Convention on Climate Change (UNFCCC)’s Fashion Industry Charter for Climate Action which calls for reducing greenhouse gas emissions by 30 per cent in the garment sector by 2030. We have also pledged to the Green Button Initiative which is a global seal of excellence in sustainability by the Government of Germany.
It is true that for climate mitigation the industry needs a lot of support, especially finance and price premium. So, we hope that buyers will come forward to collaborate with their suppliers and respective trade bodies for building climate resilient supply chain.
Do you expect any changes in the textile and apparel business model in the New Year?
In the post-COVID world, putting face masks on and maintaining social distance is not the only way to cope up with; redefining our business model is absolutely necessary. To perform well in the changed situation, our priorities in the coming days will be to transform our business model from labour-intensive manufacturing to innovation, high-value addition, and modern manufacturing processes. The ultimate path is to graduate from Original Equipment Manufacturer (OEM) to Original Brand Manufacturer (OBM) as we focus more on design development, innovation, and end-to-end digital manufacturing.
We envision the sector to be more diversified in terms of products, fibre, and markets. In the era of 4IR (fourth industrial revolution), many modern technologies are coming. To make these technologies useful, we need to focus on the technology adaptation and skills development of the workers and mid-level employees. We need to move to the high-end market. We need capacity building in the area of fashion designing, innovation, and value addition. We need more use of high-end technologies which will enable us to reduce cost, better use of natural resources, and give us faster lead time.
Not only in the area of designing high-end fashion, but we also have to emphasise on having fabrics from local sources. In this respect, we have to build the capacity of the backward linkages industry and try to manufacture fabrics locally. There is greater scope in MMF or non-cotton categories than cotton to go for the high-end segment. We would also encourage foreign investments in both backward and forward linkages in the industry.
To make our supply chain lean and green, we need to ensure technological upgradation across the production chain, otherwise it will be difficult for us to optimise cost and be competitive in the global market. So, we will have to approach newer avenues of cost optimisation and being efficient including industrial engineering and lean manufacturing, production planning, and supply chain management. These are some of the immediate areas where we need more technical hands.
Since human resource is the main strength of our industry, ensuring their safety and well-being will be our main priority. We will continue our efforts in these areas in future.
Above all, we need to change the perception about the industry as much as we need to continue committed efforts to keep the positive transformation in the industry going. In our next growth phase, branding Bangladesh will be the key.
Related to this, will we see brands increasingly start focusing on sourcing with sustainability/ethics as a factor?
Definitely, brands are always making themselves obligated to be more sustainable and carbon-free. So, brands are collaborating with us on environmental issues these days. As far as sustainable manufacturing and ethical sourcing are concerned, brands will play a more vital role in the coming days. However, we also believe that brands will also come forward in ethical sourcing when it comes to justified and ethical pricing following the trading terms.
How pressing could be the labour issues for the textile and apparel industry in 2022?
Currently, the overall labour issue is quite stable. During the pandemic, we handled safety of the workers with utmost importance. Since workers are the lifeblood of our industry, it is always our priority to ensure their wellbeing. Even though we faced so many crises during the COVID-19 pandemic, we ensured that the wages are duly paid. We are thankful to the Government of Bangladesh for the unprecedented support throughout the pandemic to help the industry stay on course.
While we have taken all the initiatives to protect the health and safety of our workers, individual factories are undertaking good practices for the wellbeing of workers, their families and even for the community. Factories are now following practices beyond laws, for e.g., taking care of health and nutrition of the workers, particularly female and pregnant workers.
The Labour Act amended in 2018 requires the formation of Safety Committee and elected Participation Committee mandatory in every factory. As we believe that capacity building is an important part to develop the culture of safety, particularly by engaging the workers, we have entered in collaborative arrangement with a number of development partners and the government to train workers and mid-management officials on occupational safety and health, social dialogue, and industrial relations.
We are collaborating with the government, International Labour Organization (ILO) and development partners in all these initiatives and engaging with NGOs like Bangladesh Rehabilitation Assistance Committee (BRAC) on workers’ improved health and nutrition, workplace cooperation and gender issues. So, we believe that we will continue to have a more harmonious relationship with workers in the coming days.
