Bomb ticking in Bangladesh

Delivery delays and rising prices after unrest and the fall of the government. On 8 August, three days after prime minister Sheikh Hasina fled ignominiously to India, the airfreight analysts at World ACD established that air cargo volumes to Europe were recovering again, whilst simultaneously finding that they nevertheless still lay significantly below the figures registered in the corresponding weeks of the previous year. The worst is yet to come, according to other experts.

The outbreak of violence in Bangladesh, resulting in hundreds of deaths and the subsequent collapse of the government, will have long-term consequences for both importers and consumers – namely in the shape of higher prices for clothing.

 

The man who has ventured this prediction is Steffen Günner, the managing director of purchasing with the service provider Bay City. He purchases around 30 million items a year for 20 European brands, retail chains and discount stores in the world’s eighth-largest country by population.

 

His opinion contradicts that of some other representatives of associations, who recently expressed caution about the impact of the riots. The purchasing expert agrees that “consumers won’t notice anything in the coming weeks, that’s true.” But, he warned, “fashion prices will rise by mid-2025 at the latest.”

 

Günner believes that retailers and discount shops in Germany will pass rising purchase and transport costs on. Although almost all factories in Bangladesh have reopened after a two-week forced shutdown – due to government-mandated curfews and ‘holidays’ in early August – supply bottlenecks and delays are already occurring.

 

Many fabrics that Bangladesh imports for further processing, particularly from China, are currently stuck for up to three weeks in customs at ports and airports.

 

This state of affairs is confirmed by Ralf Düster, the managing director of Setlog, whose SCM software, Osca, Bay City uses to manage supply chains – as do around 150 further brands from the clothing, electronics, foodstuffs, consumer goods and hardware industries.

 

“We’re currently seeing and hearing about delays of two to three weeks in the estimated arrival time of goods from the industry,” Düster reported. Last week, he analysed data from 20 companies. Collectively, these fashion brands source more than approximately 25% of their goods from Bangladesh alone.

 

Customs, infrastructure bottlenecks

 

According to Günner, the issues with customs clearance stem from the fact that vacancies haven’t yet been filled by the transitional government. But customs is just one of the problems; the other is the damaged infrastructure.

 

Numerous roads and buildings were damaged during violent clashes between government loyalists, opposition activists and students. As a result, even bus services that commuters rely on to get to work no longer function properly. “Currently, only about 75% of the workforce shows up for work in textile factories,” Günner reported.

 

This situation puts factory owners and managers under pressure. They’re unable to meet production schedules and fulfil the delivery quantities that are often agreed upon months in advance. This, in turn, creates a vicious cycle of partially paid or unpaid bills from importers, and unpaid wages since the protests began in mid-July.

 

Spiralling into a cash-flow crisis

 

There’s another reason for managers’ sleepless nights too. A few months ago, following textile workers’ strikes, a government-appointed commission pushed through a minimum wage increase of 56.25%, to EUR 104, starting in December. “These wage increases have not yet been factored in, along with the rise in energy costs and inflation,” Günner explained.

 

 

 

“Bangladesh has made great strides on its climate goals and has moved ahead of many other Asian countries”

 

 

 

He believes that many factories won’t be able to recover from their cash flow crisis. If wages and salaries aren’t paid, however, then employees will go on strike again. “Some of these strikes aren’t just peaceful. Sometimes, workers even damage their own workplaces,” Günner added.

 

He expects that purchase prices, such as the less than EUR 1 that is sometimes paid for a child’s t-shirt, will no longer be sustainable for retail chains and discount stores in this country.

 

Sustainability at stake

 

However, many retail chains – especially those that offer sustainable products – are hesitant to pass on supplier price increases to consumers in the import markets. According to Günner, they think twice about raising prices, because low-cost suppliers who don’t prioritise sustainability could then take away their market share.

 

Both Günner and Düster worry that Bangladesh could, despite its impressively large production capacity, lose its position as the ‘sewing factory of Europe’ and as the second-most important exporter for fashion suppliers in Germany if the situation doesn’t improve.

 

“This would also represent a significant setback for climate goals. Bangladesh, which has made great strides since the Rana Plaza disaster, has advanced considerably in this area and is much further ahead than many other Asian countries, some of which are still in the early stages of certification. The Rana Plaza disaster saw more than 1,100 people killed and another around 2,500 injured when a textiles factory collapsed due to structural failure.

 

“Bangladesh additionally offers an excellent price-performance ratio for sustainable fashion,” Düster elaborated. The sustainability initiative in the nation of around 170 million people is a beacon of hope for the textile industry. “Importers who want to offer sustainable products are carefully considering whether they should abandon Bangladesh as a production country,” Düster closed.

  

 

 

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The textile industry in Bangladesh

In 2023 Bangladesh was the second-most important exporter of clothing for the fashion industry in Germany, after China. It exported goods worth EUR 7.1 billion, with a market share of 20% (12% in 2012). 85% of the South Asian country’s exports are accounted for by the fashion industry, which boasts around 4,000 factories in the country, with more than 4 million employees, mainly women.