Sri Lanka expects apparel orders to recover; Coronavius hit on exports US$500mn in 2Q

By Mahadiya Hamza |

ECONOMYNEXT – Sri Lanka is expecting to lose 500 million US dollars of apparel exports from March to June 2020, as an outbreak of Coronavirus (COVID19) has hit input producing countries in East Asia and buyers in Europe and the US, an industry official said.

But there are hopes that softer demand from buyers would be temporary, while Chinese production is also re-starting and supplies expected to begin arriving from late March.

“Sri Lanka has exported roughly 1.725 billion US dollars in March to June 2019, 30 percent of that is the hit,” said Tuley Cooray, Secretary General of the Sri Lanka Joint Apparel Association Forum, representing producers.

Sri Lanka imports 858 million US dollars’ worth of fabric per year from China to feed the 5 billion dollar apparel export industry. Sri Lanka’s total exports are 11 billion US dollars.

China started production last week amid labor shortages after production was halted before the Chinese New Year.

“The new arrivals of supply would possibly be taking place only in the latter part of March,” Cooray said.

“What that really mean is that about 1 to 2 months of production is now lost.”

Buying weakness short-term?

The novel Coronavirus now hasspread in Italy and several European countries over the last week, as China itself saw the number of new cases fall.

Europe and the US are top buyers of Sri Lanka’s apparel and Italy is Sri Lanka’s third largest apparel export market.

“At this moment we do not know but we see a trend of losing certain orders but it’s probably going to be short-term,” he said.

“Buyers having realized the situation are going to push for orders, and that is our assumption”.

However, the industry is concerned about people not willing to be mobile which could directly hit the market but in short term.

Industry officials say said that the hit on apparels may depend on specific sectors rather than on the industry as a whole.

Some factories may have to close for a longer period around April New Year holidays.

But Cooray says companies will continue to pay the wages despite the one to two month production loss.

“We will have a serious problem during that 1 to 2 months period; we would continue to pay for the staff,” said Cooray. “This is the period in which our workforce gets a lot of money in the form of bonuses and overtime.”

“Companies will continue to pay bonuses and that’s the message we got yesterday.”

Logistics

The TAC index, a global air cargo data provider has been quoted saying airfreight rates on services between China and Singapore, and from China to Korea to have dramatically spiked over the last few weeks, hence predicting a surge in prices in the coming weeks.

It is cheaper to carry cargo by ship, but air freighting is faster.

“We really do not know what the options are available except that we are thinking in terms of exploring the possibility of air freight if the demand is going to rise on top of the continuation of the orders by the buyers,” Cooray said.

“From the supply chain we have to get more fabric. The air freight rates out of China and Hong Kong have already gone up and it will continue to increase.”

Prices from Singapore to China reached just over 4.50 US dollars per kilo gram last week, while in the opposite direction they stood at around 16 Chinese Yuan per kilo gram compared to previous year’s rates, reported AirCargo News, a global air freight news portal.

From China to South Korea rates are above 10.5 Chinese Yuan per kilo gram compared with 8 Chinese Yuan per kilo gram last year.

South Korea to China peaked in week five at above 2,600 South Korean Won per kilo gram, before easing off in the following weeks. Prices on these routes began to take off in week six and week seven of the year.

Meanwhile, prices from China to Europe and China to the US have only recently started to show signs of improvement.

Clearing goods fast would help the industry get back on track.

“The clearance points should be very smooth because we are always thinking in terms of fit to market, we want to ensure the goods are delivered Just-In-Time,” he said.

“Likewise, we want our input also Just-In-Time.” (Colombo/Mar07/2020)