Red Sea Disruptions Spell Danger for Bangladesh Garment Manufacturers

Glenn Taylor
·4 min read
1

The Houthi attacks on commercial vessels in the conflict-ridden Red Sea have sent freight rates skyrocketing, tacked on as much as two weeks to shipping times and even resulted in a shortage of container capacity out of Asia.

But while the impact on global trade have been substantial, the effects on the source of the goods has largely flown under the radar—particularly in Bangladesh, where the garment manufacturing industry is the centerpiece of the country’s export economy.

More from Sourcing Journal

In 2023, Bangladesh exported $47.4 billion in total apparel, according to the country’s Export Promotion Bureau (EPB), representing 85.3 percent of the $55.6 billion in total goods exported out of the market. The country is the second-largest apparel exporter in the world, after China, per the World Trade Organization (WTO).

With such a massive reliance on apparel manufacturing, the hikes to container prices could pose significant concerns for businesses in the region that are likely to have to raise their prices in kind and risk losing business. Since Nov. 23, the average rate for a 40-foot container traveling from Shanghai, China to Genoa, Italy via ocean has increased a whopping 357.5 percent to $6,282 as of Thursday, according to the Drewry World Container Index (WCI).

The sky-high container prices out of Asia align with tumult regarding controversial minimum wage hikes in Bangladesh, which resulted in protests that already cost as many as 5,000 garment workers their jobs.

One such Bangladeshi garment manufacturer, Sparrow Group, which has produced apparel for Gap, Inc., American Eagle, Kohl’s, Mango, J.Crew and Marks & Spencer, lost orders from a major U.S client due to the added lead times. The lost orders totaled 150,000 pieces worth several million dollars, managing director Shovon Islam told Japanese-based financial publication Nikkei.

“I couldn’t find a ship that could deliver the products on time. Almost all of the major shipping lines are sailing around the tip of Africa, crossing the Cape of Good Hope,” Islam said. “It increases the shipping time by at least 10 days and the cost by nearly 50 percent.”

According to Islam, that business eventually went to an Indonesian competitor that offered a shorter lead time.

In another example, Rakibul Alam Chowdhury, the chairman of activewear and knitwear manufacturer RDM Group, was asked by his European buyer to ship goods via air freight to meet higher demand ahead of the Chinese New Year, when factories across the country close for two weeks in February.

“Air freight costs 10-to-12 times more than the normal shipment. If we make any air shipment, it means we are in red for that order,” Chowdhury, also a vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told Nikkei. “But we don’t have any option as if we can’t deliver on time, we will not get future orders from that buyer.

The sector has had to endure slower lead times as it is, since one of its main seaports in the city of Chattogram wasn’t even equipped to start accommodating large container ships until early 2023. As a result, garment producers often first export goods from Chattogram in feeder vessels, which carry small batches of containers to large ships docked at other Southeast Asian ports, including Colombo, Singapore or Malaysia’s Kelang and Tanjung Pelepas ports.

The Bangladeshi garment industry already was enduring a down year with the U.S. ahead of the Red Sea disruptions, according to the BGMEA. Exports to the States, which is the country’s largest buyer of garment products, plunged 25 percent to $6.79 billion in the first 11 months of 2023, from $9.04 billion registered over the same period in the previous year.

U.S. inflation concerns may be overblown

Despite the global impact of the Red Sea disruptions on freight costs, the increasing expenses may not affect inflation in the U.S. as much as one would generally think, according to Jason Miller, interim chairperson, department of supply chain management at Michigan State University.

For one, imports are still a relatively small portion of personal consumption in the U.S., he pointed out.

Only three of the top 18 categories imported from Asia saw their insurance and freight costs represent at least 5 percent of the goods’ import value, according to 2023 U.S. Census Bureau data shared by Miller. The lower those insurance and freight costs are, the greater the sign that additional prices won’t be tacked on.

“That figure is consistently less than 5 percent, which—when you combine with the San Francisco Federal Reserve reporting back in 2019 that imports represent roughly 11 percent of personal consumption (either directly or indirectly)—implies minimal impact,” Miller told Sourcing Journal.