Apparel kicks off COVID-19 impact evaluation process

 The apparel industry is bracing for the impact of COVID-19 

• Begins stakeholder consultations before presenting set of proposals to Govt. 

• Initial estimates indicate $ 500 m fallout from raw material shortage alone 

• Current shortage 1 to 1.5 tonnes each week

• Officials say industry readying to organise freight supplies themselves 

• Hopeful demand will increase if Chinese production diverted to other countries  

By Shailendree Wickrama Adittiya

The apparel industry will kick off a consultation process this week to evaluate the impact of COVID-19 on supply chains and export markets with initial losses expected to be about $ 500 million in raw materials alone, and will present a set of proposals to the Government to tackle the fallout from the global epidemic.  

The $ 5 billion industry, which is also Sri Lanka’s second largest foreign exchange earner, is particularly vulnerable to the fallout from COVID-19, which has hit its main source destination China, as well as key markets such as Italy. 

The availability and cost of freight as well as the continuation of production are among the apparel industry’s biggest concerns amidst the COVID-19 outbreak.

 Sri Lanka’s apparel industry relies on China as its main supplier of raw materials and the shutting down of factories in China has had a huge impact on Sri Lanka. Stakeholders of the apparel industry met last Thursday to discuss the impact of the COVID-19 outbreak, especially in terms of the raw material supply from China.

Discussions with the JAAFSL extended membership as well as domestic market organisations, like the Sri Lanka Apparel Brands Association, are currently underway with the industry expecting to submit a number of proposals to the Government in the coming days.

Apparel industry officials told the Daily FT that Chinese factories have restarted production after the Chinese New Year but production is yet to reach full capacity.   

“When supplies come from China, which will likely normalise within a month or so, the demand for fabric will be more and there will definitely be a lot of consignments coming in,” said Joint Apparel Association Forum Sri Lanka (JAAFSL) Secretary M.P.T. Cooray.

This will result in an increase in demand for freight and the industry is currently unaware if the reduced freight facilities will be available in time for when supply from China is back at the usual levels. “At the moment, there is a shortage of 1 to 1.5 tonnes a week and there is a reduction which could result in the increase of rates and cost of operations is going to be very high,” Cooray said.

Thus availability and cost are two main concerns in this regard and Cooray said the industry was looking at organising freight supplies by themselves if demand continues.

In addition to this, one of the short-term difficulties the industry may face due to the COVID-19 outbreak is the continuation of production and the possibility of shutting down factories for one to one-and-a-half months.

Working on this time frame, the industry has estimated the loss to the industry to be of $ 500 million worth of goods. This is based on 2019 figures, where exports came to $ 1.75 billion in the first four months, Cooray said.

The festival season, with the Sinhala and Tamil New Year in April, is also the most important season to the industry, he said, adding that workers rely on their basic salary, overtime, and various bonuses for a higher pay during this time.

While the entirety of the salary and bonus will be paid, Cooray said: “But there will be no overtime to pay so there will be a problem on that count.”

Of additional concern was also the demand for apparel products, especially considering that Italy, Sri Lanka’s third biggest export country in Europe, reported 366 deaths yesterday due to COVID-19 and is Europe’s worst-hit country.

Currently, the industry is not seeing a reduction in orders and is confident the rate of orders will continue without reduction. However, a major concern is the seasonal aspect of the products and Cooray said: “We are the fashion industry, so once we miss the season, we will not be able to sell the same products. We really do not know whether the buyers are going to cut or reduce our orders, but so far, we have not got that feeling.”

The apparel industry is, however, positive about increased demand in the next four months in the event there is no reduction in orders from buyers and is expecting the globalisation of input supply as well as the diversion of Chinese production to other countries to boost local apparel manufacturing.

Demand is expected to increase due to the likelihood of Chinese production being diverted into other countries. While there are concerns of meeting the demand within the legal limit of 60 hours of work a week and the possibility of extending this, the shifting of orders is a positive the industry is focusing on, in addition to the globalisation of input supply.

As Cooray explained, currently, it is the final consumer product that is globalised. Countries like Sri Lanka, Bangladesh, Cambodia, Vietnam, and Ethiopia manufacture the final consumer product. For fabric supply, Sri Lanka depends mostly on China, the country’s biggest supplier.

However, the industry is seeing a change in this system and Cooray said this was a good opportunity for Sri Lanka to engage in input supply. He said that two Chinese companies have already shown interest in the opportunities in Sri Lanka but that many factors, including infrastructure, are needed to support this.

“We are strongly promoting the establishment of a textile park in Eravur which is in the agenda and has already been accepted by the Government,” he said, adding that they are currently in the process of implementing the project.

While concrete dates cannot be given regarding the textile park, environmental studies are currently being conducted to assess the viability of the project. “Once the studies are completed, we can go for the next plan of action where we will be requesting the allocation of land,” Cooray said, explaining that they are looking at starting operations by mid-2022.

“If the environmental studies show it cannot be done, then we have to look for alternatives,” he added.