Sunday September 19, 2021

Container crunch

August 01, 2021

LAHORE: The value-added textile sector is awash with orders but shortage of shipping containers, acute cotton shortage and rising cost of doing business is not letting them take export to new heights.

Interaction with textile players revealed the shortage of containers is causing delays in shipments. Container shortage is worldwide and foreign buyers understanding this are extending the delivery dates on the request of the suppliers. The cancellation orders are not a worry but the capital stuck in the unshipped consignments is a major worry for them.

Since all apparel units, particularly knitwear ones are operating at full capacity, some exporters have consignments worth over Rs500 million waiting for shipment owing to shortage of containers. The amount would be released by the buyers once these consignments reach them. This has created a financial crunch for the Pakistani exporters. Resolving this problem is beyond the scope of Pakistani government.

The cotton situation has also gone worse at a time when the demand for our textiles is growing. Cotton cultivation area has been encroached by sugarcane and more recently by rice and maize. The inability of the state to arrange quality seed discouraged cotton farmers that often lose the entire crop to pests.

The marketing of spurious pesticides has compounded farmers’ problems. Cotton prices have gone up sharply.

Currently the fresh crop from Sindh is available at Ra1,3000 per maund in Sindh and Rs13,500 per maund in Punjab.

The established spinners (mostly operating composite units) are importing cotton where again the shipments are delayed because of container crunch. The cost of raw materials is going up for the small and medium exporters that are unable to import cotton or polyester.

Those exporters operating composite units (spinning, weaving and processing) import duty and sales tax free cotton and polyester in bonded warehouses that have replaced DTRE. They can import and consume the inputs for export of goods.

The major advantage they enjoy is there is no regulatory duty, or antidumping duty or sales tax on these inputs. They can import polyester fiber that is otherwise subjected to regular duty and sales tax plus the antidumping duty.

The local suppliers dominated by a major player continue to increase the price of domestic polyester on a weekly basis (probably in line with increase in cotton rates).

This has put small exporters not having bonded warehouses at disadvantage.

With the prices of fibers both cotton and polyester increasing the spinners are constrained to increase the rate of yarn. Those operating composite mills (mainly in Karachi and a few in Punjab) consume most of the yarn themselves and are in the driving seat because of the advantage of bonded warehouse facility and own consumption.

The other spinners are finding it hard to sell their yarn at a higher price.

The apparel exporters and home textile producers do realise the increase in yarn rates is because of high cotton rates but their problem is that they booked export orders three months earlier and are bound to supply goods to their buyers at the agreed price.

If they buy the yarn at current rates they would be selling their goods in loss.

Some of them are prepared to forgo their margins and pay the spinners a little higher price. It is a difficult time for both spinners and value-added exporters. Normalcy would return when the current export commitments expire in September.

Still Pakistani textiles are in a comfortable position. Its main rivals, i.e., India and Bangladesh, have uncontrolled Covid-19 prevalence. Pakistan is the least affected country in the region. The Western buyers also want to reduce imports from China. Pakistan is the only alternative for major buyers because it has a robust textile infrastructure.

We have required manpower and machines as well. In addition all our apparel units are socially compliant. We in fact were rapidly moving up in textiles when 9/11 happened.

It made Pakistan a pariah state for the Western buyers. Now we are resurging as the global buyers realise that Pakistani exporters not only excel in quality but are reliable suppliers as well.

Instead of subsidies, the industry needs a prudent government. It was because of incompetence that we delayed LNG procurement and had to buy it at $15 instead of $13. The increase in petroleum product rates is beyond government control but it has increased the cost of Karachi bound containers from Lahore significantly.