October 6, 2020: Most part of the work orders worth over US$ 3.0 billion that the local apparel makers had reported either cancelled or held up have been reinstated by their respective global buyers, industry people said.
About 90 per cent of such work orders for the country’s struggling readymade garment (RMG) industry have been restored, but at heavy bargain prices including deferred payment and discounts, according to Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
A total of 1,134 of BGMEA member factories reported that work orders for some 975.20 million pieces of RMG products worth US$ 3.18 billion were either been cancelled or held up until mid-April due to the pandemic.
Of the total, $1.93 billion work orders were cancelled or held by buyers from European Union, followed by $574 million by US, and $ 52 million by Canadian buyers.
Besides, work orders valued at about $ 620 million were cancelled or held by buyers from non-traditional markets, according to the BGMEA.
Mahmud Hasan Khan, managing director of Rising Group, said one of his buyers has held up work orders worth $1.3 million and now the buyer is asking for 50 per cent discount.
“We are now in negotiation as the buyer wants 50 per cent discount and we have offered 17 per cent,” he said.
Mr Khan, however, did not reveal the name of the buyer taking the future business into consideration.
He said he was supposed to receive payment against a single work order in March, which was mutually settled to be paid by October.
“I have been receiving the payment and the last installment will be received by this month,” Mr Khan, a former BGMEA leader, told the FE on Sunday.
When asked, BGMEA president Dr Rubana Huq said “To our information around 90 per cent of the cancelled orders have been reinstated by the buyers, but mostly at discounts and deferred payment terms.”
The disruption in demand and supply has created a situation where factories are booking capacities at any price and payment term, she said, adding there is a fundamental fault line in the industry causing serious financial risk.
“Since we cannot outweigh the possibility of further waves of the viral infection in near term, the market appears to be quite fragile and the uncertainty over payment and trade credit has really emerged as a serious vulnerability factor for the industry at this moment,” she feared.
Industry people said that usually exporters enter into deals with western customers at 90-120 days deferred payment without having any insurance or measure to pull the risk on the receivable amount.
Whereas bankruptcies are being rampant and buyers are simply freeing themselves from payment obligations, the internal regulatory arrangements in Bangladesh do not provide enough protection to its exporters who suffer from buyers’ bankruptcy-led non-payment, which is a fundamental flaw in the local financial management system, the BGMEA boss said.
“Right now we are facing such difficulties with a number of renowned brands and retailers who placed orders and in many cases accepted goods but the payments have not been settled,” Dr Huq said.
Citing example of Debenhams, which filed for bankruptcy, she said the British retailer has recently stated that the rights to the title of the goods belong to them, in spite of their nonpayment to vendors.
They are making excuses on the grounds of company being in administration, she said, adding this cannot be justice.
RMG export earnings year-on-year declined by 20.14 per cent to $2.25 billion in March’20, 85.25 per cent to $374.67 million in April, and 62.06 per cent to $1.23 billion in May, according to official data.
Export earnings have started regaining since June when RMG shipments reached $2.24 billion.
In July, the country fetched a record $3.24 billion from apparel exports and in August last RMG exports recorded positive growth of 2.58 per cent to $2.46 billion year-on-year.
Talking to the FE, a good number of exporters said that the majority of the earnings in July and August was from the cancelled or held-up work order shipments.
Source: The Financial Express
