LAHORE: The dynamism of the clothing industry is at stake due to the inconsistency in yarn availability, which worries entrepreneurs in the sector as no short-term solutions are in sight.
Ready-to-wear and knitwear are the two most valued textile sub-sectors. Almost 70 percent of clothing exporters are small businesses. These exporters are always strapped for cash. The business strategy of the clothing trade is such that foreign buyers reserve their orders with suppliers three months before the delivery date. For the delivery of winter clothes, they negotiate the prices in June or July. For summer, they agree on prices in January or February so that the supplier can deliver the orders before summer arrives. Clothing exporters agree the price with foreign buyers based on the total cost of their inputs. The price of the yarn is of the utmost importance in this regard. Most of them have their fabric custom made according to the buyer’s requirements. They get the yarn and get the woven or knitted fabric from the weavers or knitters.
Since exporters sign the price agreement with buyers about three months before delivery, they are under pressure if the price of a major input increases or the supply of that input contracts. Many clothing units operating on thin finances have succumbed in the past to the sharp increase in yarn rates because they took orders based on lower yarn rates but failed to cover the yarn during the period. most of the period. Foreign buyers consider a price revision if the price increase is global but not if it is limited to a country.
Currently, yarn prices in Pakistan are relatively higher due to the gradual failure of the cotton harvest over the past three years. The importation of cotton was not systematically planned by the spinners. They were twofold because they hoped that the importation of cotton from India could be allowed. Finally, they imported cotton from distant countries with high transport costs. When the government authorized the importation of cotton from India (the announcement was withdrawn the next day), spinners who imported expensive cotton naturally protested.
Yarn rates in Pakistan are higher than similar yarn rates in competitor countries. The value-added sector was caught off guard. They were already operating on low margins. Yarn rates higher than global yarn rates would make it difficult for Pakistani garment exporters to fulfill their export orders (at prices agreed with buyers three months ago). Existing garment exporters have survived the worst recessions by increasing their efficiency and adopting technology. They have had to operate with a terrorist label handicap on their country since the beginning of this century. They had to pay the premium for this label in the form of tariffs lower than the worldwide tariffs for similar fabrics. Due to falling prices, clothing exporters were operating at very low margins.
After negotiating the tariffs for their products with overseas buyers, they are unable to afford an increase in the tariffs for yarns specifically for Pakistan. They are likely to lose orders and a further increase in exports would not be possible.
The size of the apparel industry has shrunk over the past decade as most entrepreneurs have failed to improve efficiency when margins were high. For most of this period, their inefficiencies were covered by a rapid decline in the value of the rupee.
However, at the time of the crisis, they collapsed due to the rising costs of raw materials and energy and the current surge in the value of the rupee. There were entrepreneurs who improved their efficiency to the best global standards, made big savings in good times and also made timely decisions on energy conservation to reduce the impact of ever increasing energy costs. These efficient contractors acquired the machines from the closed units, ensuring that the actual sewing capacity remains the same.
Garment units are different from the spinning or weaving operations that operate from their offices. Waste in clothing units is very expensive because the raw material (fabric) is very expensive. This is the reason why apparel entrepreneurs ensure their continued presence on the production floor. In this way, they succeeded in controlling the waste and ensured that the globally tested controls were not violated. This ensured prompt delivery of orders.
These entrepreneurs did not get carried away by accepting orders beyond their delivery capacities. They are the ones who could take our clothing exports to the next level. They need the support of the state. Most of them reached their current status through hard work and with little capital. Most of them have never defaulted on their export loans and orders.