Coronavirus disrupts the global supply chain with serious implications for the industry

The demand for textile products abroad and domestic sales have halted due to the COVID-19 pandemic. Due to the lockdown, textile mills and garment factories are closed, and it is uncertain when they will re-open. The contract workers have been laid off and the managerial and administrative jobs are on hold at the moment. There are serious concerns for the liquidity and the short and long term survival of an industry dependent upon the global consumer demand. The disruptions in the supply chain and the related issues are unprecedented. There are goods under processing and whether those may be directed to factory seconds. All shipments are on hold and the expiry of letters of credit may result in a renegotiation of prices. It will not be an easy task to restart operations after the lockdown.

The apparel industry is severely hit all over the world. Stores are closed and almost all buyers are cancelling or postponing orders as they have big inventories. They may not place orders in the next few months either. The daily wage worker who forms 80 per cent of the workforce in garment factories is on roads or back in his hometown. India’s major export destinations, the United States and Europe, are the worst affected. It is difficult to say when these countries will return to normal, and even if they do, it is uncertain how unstable the economy will be. The lockdown will result in unemployment, and consumer spending will naturally be affected adversely.

Volumes may come down, but will not disappear. Once life is back to normal, people are expected to shop as a feel-good element after months of lockdown and depression. Some of the machinery manufacturers, except nonwovens and hygiene application-related machines, have also suspended operations. Neither are they in a position to manufacture machines nor are customers in a position to accept delivery.

Even after machinery manufacturing starts, customers will take a couple of months to accept the delivery. According to a recent survey by the International Textile Manufacturers Federation (ITMF), on an average 8% orders have dropped worldwide and the expected turnover this calendar year will be down by nearly 10% over 2019 figures.

Some of the new challenges are safety, lack of supply and demand in addition to the liquidity crunch. A new opportunity seems to be medical textile products. Pakistani companies should start preparing to face such challenges without depending much on government measures, which may offer only limited relief.

The industry may take a much longer time to recover after the lockdown. It may take a minimum of four to six months to see businesses back to normal, as estimates of direct losses are currently difficult to make now, and it is also tough to foresee the issues that will crop up later. Financially strong companies are expected to recover faster. Another lesson to learn is not to depend on a single source for raw material supplies and shift towards localization and variable-cost models. Many global companies would shift buying from China to other countries, including Pakistan.

 

 
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