There’s a new kind of supply chain disruption in 2020—and it’s the kind that could leave destitution in its wake.
Monday marked the beginning of a two-week lockdown that has all factories in the country, as well as other business producing or selling non-essentials, closed completely. Only medical, food and pharmaceutical facilities are still in operation, in addition to some gas stations and banks that remain open.
While the World Health Organization (WHO) has Pakistan’s confirmed cases at 991, with 104 new COVID-19 virus infections reported in the past 24 hours, local sources say the number of infected persons is closer to 1,100. And the country is trying to stanch the spread.
“All over Pakistan it’s a complete lockdown in all the provinces everywhere,” Hafiz Mustanser Ahmed, managing director of Lahore-based factory U.S. Apparel & Textiles, told Sourcing Journal Thursday. “The transportation when it comes to taking the employees to the factories or the public transportation, it’s all 100 percent closed. All the factories are closed.”
For now, moving goods back and forth between the ports and Lahore, Pakistan’s second-biggest textile manufacturing hub after Karachi, is still allowed, but there simply aren’t many goods to move, said Ahmed, whose factory produces denim bottoms for Levi’s, Target, H&M, J.Crew, Primark and Costco, to name a few.
As has been the case in Bangladesh, western brands and retailers are cancelling already placed orders to cut costs and avoid a pile-up of inventory that can’t sell in stores that aren’t open to shoppers who aren’t leaving home—though that pales as a problem when pitted against an industry of low-wage workers who may struggle to eat in the interim.
U.S. Apparel & Textiles, which typically produces 100,000 garments a day, is seeing “huge, huge” order cancellations, Ahmed said.
“Other than the work in process, they have cancelled all the orders which we haven’t cut, or they have held all these orders,” he said. “For the work in progress, everybody is saying ‘wait and we will tell you when we want it.’ If there was any product ready for dispatch, by 90 percent of customers it is on hold.”
Things are similar from Guido Schlossman’s perspective.
“Most clients have either cancelled or put orders on hold,” said the president and CEO of Synergies Worldwide, a global supply chain management firm with key offices in Bangladesh, Pakistan and India, as well as in China, Thailand and Vietnam. “That would have huge ramifications and losses, and the fear is that most small factories may shut, whereas the mid and big factories will have huge financial liabilities and losses.”
With COVID-19 increasingly plaguing both the U.S. and Europe, many brands are telling the factory it will be at least another four weeks before they can say anything more on the matter of their orders, and as long as another three months before they may see their retail stores reopen. In some cases, they’re putting placements off even longer.
“Ninety-five percent of clients have either cancelled, put on hold or given new delivery dates ranging from 4-6 weeks delay to about 8-10 months,” Schlossman said. “That is how huge the holding period and losses would be for the factories.”
Owed to those cancellations, factories had less than 5 percent of their regular orders to work on even before the lockdown took effect, according to Schlossman.
“Factories would or have started to shut lines or units, thus laying off workers,” he added. “It’s already started and would increase if things don’t start improving at buyers’ end.”
The government of Pakistan has required that all factories pay their workers full wages for the month of March “at any cost,” according to Ahmed, but whether factories will have the capacity to do so next month remains to be seen.
“The problem is that in March we were able to dispatch only 35 percent of the total capacity…and 65 percent of the product is actually in house [with] no movement,” he said. “Looking at the orders we have from government, we are going to pay all the workers for month of March…for April [after] everything is closed, let’s see what happens.”
Regardless, layoffs are certain.
“It will happen. Nobody can stop this,” Ahmed said. “In this part of the world, where Pakistan is operating, where Bangladesh is operating, the governments are not rich at all so they don’t have that much sufficient funds available with them. They won’t be able to pay for the salaries for them… For the workers who are on the piece rate, it’s going to happen because there are no pieces to produce, and the workers on the daily rate, it’s going to happen, and the workers who are on the salaries, it’s going to happen there as well.”
In the coming days, the government is expected to announce details of support package for workers, which could include food rations and subsidies for utilities. Factories, however, may not see funds to help facilitate their operations, though Schlossman said some duty refunds are being paid back to factories to partially ease the financial impact.
For now, retailers who are still willing to accept goods they had ordered, the government in Pakistan is making concessions to certain factories to deliver them.
“If you have a product that is almost ready for dispatch and if my customer is accepting the product, [the government] is allowing us to partially operate the factory to deliver those goods,” Ahmed said, noting, however, that the allowance is granted by application and under strict rules for the temporary operating period. Workers cannot stand too close to one another, buses shuttling them from home to work can only transport a limited number of passengers, the factory must have thermometers on hand to take workers’ temperatures, and immediately on dispatching the goods, the closure goes back into effect.
It may be too early yet to tell how far-reaching the impacts will be for Pakistan’s garment sector, but the setback won’t be small.
“It’s a pity as February 2020 garment exports increased by over 20 percent, an all-time record. March to June it would have a huge impact and one can expect very little export—I would think slashed by at least 60 percent to 70 percent,” Schlossman said. “If things move as planned June onwards, then we could partially start recovering. However, generally, the opinion is that because of all this going on, the apparel export in 2020 could overall drop by 30 percent to 40 percent compared to 2019. That is a huge loss.”
The next 10 days, he added, will be critical for Pakistan as COVID-19’s spread over the period could significantly change conditions in the country—including determining how quickly factories and businesses can resume operations.
“Right now, there is absolutely no visibility [into] when this is going to finish or when [business] is going to start again,” Ahmed said. “When you end up into a hard time and when you see some light at the end of the tunnel, that’s when you start getting your energy back, but right now what is happening, it’s all dark.”