International Trade｜Bangladesh in Turmoil, the new apparel supply chain under complex geopolitical situation.

Stability is the preprequisite of business development .

The complex geographical situation has made Bangladesh's garment industry facing a critical turning point . Despite the current political turmoil, it may also bring new opportunities to the industry's long-term development. The orientation of the new government's policy, the attitude of international buyers and the industry's own capability will jointly determine the future direction of Bangladesh's garment industry. The flexible response and proactive communication will be the key during this period of time full of uncertainty and vigilance.

As the world's second largest textile and apparel exporter, the unrest in Dhaka, the capital of Bangladesh, has taken a dramatic turn. On the one hand, Prime Minister Sheikh Hasina resigned and fled amid nationwide protests, and Nobel Peace Prize winner Muhammad Yunus became the chief adviser to lead the interim government. On the other hand, a key index of Bangladesh's stock market posted its biggest gain since March 2020 on August 6 as investors pinned hopes on the military to form an interim government to smoothly weather the turmoil.

Previously, due to the Russia-Ukraine war and continued high inflation, Bangladesh fell into a serious energy crisis and export costs increased seriously. According to the U.S. Department of Commerce's Office of Textiles and Apparel, Bangladesh's cotton apparel exports to the U.S. fell 9.56 percent in the first five months of 2024. During this period, China and Vietnam gained market share due to faster shipping times, and Cambodia’s garment exports to the United States also increased by 7.75%.

High costs have led to a decline in Bangladesh's garment exports, and it has become a fact that China, Vietnam, and Cambodia quickly filled the gap. Recent changes may make Bangladesh's garment manufacturing industry even worse, but it may also usher in new opportunities amid more severe challenges. And now, after the upheaval, where will Bangladesh go?

Part 1 || Bangladesh supply chain review

Bangladesh's apparel industry started in the late 1970s and early 1980s, when a few local companies began to venture into the production of ready-made garments, mainly for the export market. With the acceleration of globalization, Bangladesh has gradually attracted a large number of international buyers and investors with its low labor costs and preferential trade policies.

Entering the 1990s and 2000s, Bangladesh's apparel industry experienced rapid expansion. The government has implemented a series of policies to encourage exports, including duty-free import of raw materials, export tax rebates and other measures, further promoting the development of the industry. At the same time, international brands and retailers are also shifting their production bases to Bangladesh to reduce costs. Bangladesh has gradually become the world's second largest apparel exporter after China. Clothing exports account for 85% of the country's total exports and the industry employs more than 4 million people.

Part 2 || Decelerating Bangladesh supply chain

Amid the volatile situation, Bangladesh's apparel supply chain faces multiple issues including logistics and transportation disruptions, factory closures and production delays, economic and trade impacts, and political and social instability.

After the interim government was announced, protesters ransacked Hasina's residence and set fire to government offices. Manufacturers with ties to Hasina's regime may also become targets of arson and vandalism by protesters, so 3,500 garment factories in Bangladesh Closed on Monday. "We did foresee that some high-profile factories would be targeted, so this was selective arson," said Munir Mashooqullah, founder of apparel supply chain company M5 Group.

Massive closures of factories have disrupted production, and production delays will cause significant losses to the country just as Christmas orders are supposed to be processed. Asif Dowla, professor of economics at St. Mary's College, said the sharp devaluation of Bangladesh's currency Taka, has increased the cost of imported fabrics. Production in Bangladesh has hit a speed bump.

The unrest in Bangladesh not only hinders production, but also restricts the import and export of goods. It is understood that due to the situation in Bangladesh, the container yard at Chittagong Port has been severely overloaded, cargo rail transportation has been interrupted many times, and port delivery operations have almost come to a standstill. Logistics and transportation have been greatly affected, with the average daily number of transport vehicles plummeting from 10,000 to less than 1,000, and more than 60 ships queuing up outside the port waiting for berths. The incident became one of the world's worst port delays, according to container shipping consultancy Linerlytica.

Trade with India was disrupted, cargo handling was suspended, and assessment activities at the Chittagong Customs House were suspended, further leading to cargo being stranded at the port and unable to be released. Ongoing backlogs and delays have resulted in shippers facing additional storage costs and freight rates rising significantly, with container rates to the U.S. and Rotterdam rising by more than 40% and nearly 170% respectively.

Part 3|| How to bottom out and rebound ?

Some Bangladeshi manufacturers see a brighter future and better export performance after the turmoil ends.

Md. Fazlul Hoque, managing director of Plummy Fashions and former president of Bangladesh Knitwear Manufacturers and Exporters Association, hopes international brands and retailers will maintain confidence in them. A Bangladeshi supply chain expert also said that Hasina's forced resignation was the "best development that could be expected." Bangladesh's economy has struggled with mismanagement during Hasina's tenure and global buyers "have been concerned and thought it was a ticking time bomb". the expert said. "This unrest will provide Bangladesh with an opportunity to bounce back, with new leaders who can help build democracy and the economy. We will wait for the new government to be finalized. "

For now, Western brands and retailers appear to be adopting a wait-and-see mode. A spokesman for H&M Group, Bangladesh's largest clothing buyer, said its team was monitoring the situation, adding that it had no further comment at this time. Other large buyers including Adidas, GAP, Zara owner Inditex and Walmart did not comment or respond.

Mostafiz Uddin, managing director of Denim Expert Ltd., said his customers understand the production delays caused during the five-day curfew imposed by Hasina's government last month to quell escalating protests. . "Our buyers, who are also our long-term partners, have been very considerate and supported us during this difficult time. With their help, we will expedite the resolution of all delays," he said. Uddin believes the formation of a democratic government will Bring "new life" to Bangladesh. "

Neil Saunders, managing director of GlobalData Retail, said clothing buyers needed "stability and certainty when doing business with Bangladesh and that has been missing for some time". Any interim government will need to respond quickly to the economic downturn. He said: "Prime Minister Hasina's departure has created something of a void in Bangladesh. Stability and order must be restored quickly if the country hopes to maintain the confidence of the garment industry and foreign companies that rely on the country's production. If violence continues, buyers may not choose Bangladesh because of the risks.”

Md. Rafiqul Islam Rana, Assistant Professor of Retailing at the University of South Carolina, also said: “After the COVID-19 epidemic, foreign buyers attach great importance to the stability of the supply chain, and the current uncertain political climate in Bangladesh may have a significant negative impact. The European Union As one of the largest markets for Bangladeshi garments, it has recently postponed negotiations on trade, economic and development relations between the two sides to wait and see the current situation,” said Md. Rafiqul Islam Rana, who now needs new political and industry leaders in Bangladesh with international buyers. Engage in meaningful dialogue with investors to reassure them that Bangladesh remains a reliable option for apparel production and that supply chains are relatively undisturbed.

In addition to this government power, industry action is also essential. Christie Miedema, event coordinator of the Clean Clothes Campaign, the largest alliance of unions and labor organizations in the garment industry, said: "At the same time, brands and retailers cannot just be passive observers. For all those in the Bangladesh garment industry, It is vital to ensure the interests and safety of workers during this crisis and put people's welfare before the pursuit of production profits. This means ensuring that workers are paid during forced shutdowns," he said. "Allow factories to extend work periods , and to ensure workers are not forced to work excessively long hours.”

The EU called on Bangladesh to achieve an "orderly and peaceful transition" and form a democratically elected government that "fully respects human rights".

Fazlul of Plummy Fashions is optimistic about Bangladesh’s prospects. He hopes international buyers will accept the temporary hurdle. Next, Bangladesh's supply chain will gradually return to stability. Uddin also told Sourcing Journal, "Stability is one of the prerequisites for business, and now that stability will be restored, I believe business will return to normalcy. Now is the time to start looking to the future."

A stable and peaceful business environment is the foundation for every economic development and for every people to live and work. Whether it is the Russia-Ukraine conflict, tense civil strife, or geopolitical uncertainty, the business development , people's daily life would be affected . Everyone of us should support Peace and cherish the peace of today .