Utilisation Declaration (UD) permissions, which indicate the export order trend, is on a steep decline for local apparel exporters, evident by the fact that the first half of FY23 witnessed only a 2.5 per cent year-on-year growth, compared to 7.27 per cent in FY22.
Industry insiders are blaming the situation on the Russia-Ukraine war that caused a global supply chain disruption and triggered skyrocketing inflation, leaving economies in tatters.
Exporters however are optimistic that the situation will improve in the next three to four months, as they have been getting excellent response from buyers in recent times. They seek uninterrupted supply of gas and electricity at affordable prices to cash in on the opportunity.
According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), their members recorded 1,21,485 Utilisation Declarations (UD) in the first six months of FY23, which was 1,18,515 in the same period of FY22.
BGMEA President Faruque Hassan said, “We had started last year with a tremendous volume of work orders and export growth. But due to the ongoing global economic crisis triggered by the Russia-Ukraine war, export orders have been declining since the second half of last year.
“Though November and December earnings were excellent, we think the exporters will have to face tougher situations in the next two months if the global economic situation will not change.”
Trend of work order inflow
The trend of work order inflow is defined by the number of UD permissions given by a relevant association.
UD is a permission given to an exporter to import raw materials to execute any work order placed by an importer.
According to the BGMEA, exporters received 16,996 UDs in July, 21,534 in August, 20,690 in September, 21,009 in October, 21,482 in November and 19,774 in December last year. This was 14,437 in July, 19,116 in August, 21,810 in September, 20,752 in October, 21,454 in November, 20,946 in December in 2021.
The low trend of UDs is also reflected in the sector’s export earnings in the last six months. Although the sector posted 15.56 per cent year-on-year export growth in the last six months with nearly $23 billion in earnings, apparel export in September posted 7.52 per cent negative earnings last September and 3.27 per cent growth in October.
Export earnings from November and December reached $4.38 billion and $4.67 billion respectively in 2022, which was also the highest ever recorded by Bangladesh in a single month.
Exporters however claimed that the buyers had deferred shipments previously, and the goods later got shipped in November and December last year. This is why export earnings climbed higher during those months.
On the issue, MB Knit Fashion Managing Director Mohammad Hatem said, “Due to the ongoing economic crisis, we are receiving low export orders. Buyers are also reducing quantity after we start production.”
BGMEA Director and Managing Director of Bangladesh Apparel Exchange Mohiuddin Rubel said, “Due to the low export orders, a majority of the factories are running their operations with insufficient work orders compared to their respective capacities. “They are struggling to survive. If the war is prolonged, the ongoing situation will likely worsen.”
Exporters getting good queries
Industry insiders told The Business Post that although they have had a shortage of orders in the last couple of months, buyers have recently been placing a good number of orders, thanks to Christmas sales and an increase in the brands’ demands.
However, due to the high gas, electricity and fuel price, their production cost has increased. But the buyers do not raise the goods price. Even in some cases, buyers are reducing prices.
That’s why they will have to face loss. Snowtex Group Managing Director SM Khaled said that his factory is already booked for next August.
“I faced an order shortage till last December, but from the next Month to August, buyers confirmed surplus orders than my capacity. Now I am working to ensure September-December orders.”
Nipa Group Managing Director Md Khosru Chowdhury said, “I have orders fulfilling our hundred per cent capacity till April. But the price is up to 7 per cent lower on an item basis. To survive, there is no alternative for me but to take orders with such pricing.”
Aleya apparels Managing Director Abdul Aual Hossain said his buyers are also confirmed orders till April, but the price is not fair. Now he is working to receive more orders.
Dulal Brothers Managing Director MA Rahim Feroz, who is also a BGMEA director, said, “The government has increased all power and energy resources prices, and that is why other utilities and transport costs are going up.
“But the buyers are reducing product prices. It will be difficult for us to do business amid this situation. The government should provide policy support – such as incentives and a reduced source tax – to this sector to safeguard the country’s foreign currency earnings and jobs.”
