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Bangladesh Garment Producers Caught in Russia-Ukraine War

Like the rest of the world, Fahim Iqbal is watching Russia’s assault on Ukraine with bated breath. The number of civilian casualties is estimated to be in the hundreds, and more than 1 million people have fled the country as Vladimir Putin-controlled forces escalate their bombardment on several cities and towns. Moscow’s seizure of Europe’s largest nuclear power plant on Friday could also have devastating implications for broader global security.

But the conflict could also pose complications for Iqbal’s garment-manufacturing business. Patriot Group, where he serves as director, had already incurred a body blow after Sears parent Transformco canceled and then refused to pay for $3.6 million in completed and in-progress goods at the outset of the Covid-19 pandemic. With its creditors at its heels, Patriot Group was forced to shut down one of its two factories and lay off 1,200 workers.

The supplier makes clothing for two retailers in Russia: O’Stin, which has received an annual $1 million in goods for the past two years, and Tvoe, which it recently onboarded. Neither company has canceled orders, Iqbal said, though O’Stin has asked its contractors to hold any outstanding shipments because of the growing number of cargo curbs in response to Western sanctions on Moscow. MSC and Maersk, the world’s biggest container shipping companies by volume, announced Tuesday, for instance, that they were temporarily stopping all cargo bookings to and from Russia except for food, medical supplies, and humanitarian aid.

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O’Stin has also asked to pay Patriot Group the $30,000 it still owes in Chinese rather than U.S. currency, Iqbal said, though he wasn’t sure if it was so much due to the barring of several Russian banks from the SWIFT financial messaging system as it was due to the plummeting value of the ruble against the dollar. On Friday, the ruble fell 106.50 against the dollar in Moscow trade after earlier sinking to a record low of 118.35.

Another new client, LPP, a Polish retailer that has several stores in Russia, has asked Patriot Group to temporarily hold off on beginning production.

“One thing that’s interesting is they told us to order new retail price tags for the orders,” he said. “So they’re probably going to increase their prices because of the currency exchange rate.”

Patriot Group has already purchased between $200,000 and $300,000 in fabrics for orders for LPP and Tvoe, but it hasn’t “cut into them” yet, which means it can still sell them to other customers in a worst-case scenario. (O’Stin, LPP and Tvoe did not immediately respond to requests for comment.)

The Bangladesh Garments Manufacturers and Exporters Association (BGMEA) has asked its members to proceed with caution when fulfilling orders from Russia, which it referred to as a “potential and emerging” market for apparel exports, because of sanctions such as those relating to SWIFT. The South Asian country, the world’s second-largest exporter of clothing after China, delivered $593 million of goods to Russia in the 2020-2021 fiscal year, a small but not insignificant fraction of the tens of billions of dollars’ worth it typically dispatches worldwide.

“BGMEA is closely observing the situation and we have advised our members to send us information with regard to buyers they are working with for exports to Russia, overdue payments and details of the concerned banks,” Faruque Hassan, the organization’s president, said in a statement to Sourcing Journal. “We also advised our members and exporters to be in touch with their buyers and lien banks and take necessary decisions based on discussions with them.”

The BGMEA, Hassan said, has also raised the matter with all relevant government agencies, including the ministries of commerce and foreign affairs. “The government has already called for a meeting regarding the issue to understand the severity of the matter and take necessary measures,” he said. “BGMEA hopes all from their respective positions will remain watchful of the situation.”

For Mostafiz Uddin, managing director of denim manufacturer Denim Expert, which does not have any Russian clients, said many things are still up in the air because the full extent of sanctions is still uncertain and the situation is “changing day by day.”

“The questions I would be curious about would be whether fashion retailers will still be selling into Russia, either directly via stores in Russia or via e-commerce,” Uddin told Sourcing Journal. “Obviously, if retailers come under pressure to completely exit the Russian market, this could impact their suppliers in the likes of Bangladesh.”

A growing number of brands and retailers has indeed come under that pressure. In the past week, Asos, Boohoo, Ganni, H&M, Puma, Nike and others have decided to hit pause on operations in Russia and Ukraine, citing supply chain disruptions, worker safety or a desire to stand up for peace. Miran Ali, vice president of the BGMEA, told Sourcing Journal that brands that have done so have committed to reallocating these volumes so suppliers don’t feel the pain. “No one is saying anything otherwise,” he said.

An insider familiar with the matter, who asked not to be named because he wasn’t authorized to speak, said that the “robustness” of the Russia-Bangladesh relationship will “provide support” to find an alternative channel to SWIFT.

“At the micro firm level, some companies definitely will be affected and business growth potential will be hampered but in the long run the two governments and their central banks will find out alternate payment channels,” he said. “I would say in the immediate mid to long term solutions will be identified.”

Iqbal said he hopes for a return to peace. While everyone involved appears to be taking a wait-and-see approach, Patriot Group has already promised LPP 30 percent of its capacity. So far, half a million dollars in orders hangs in the balance, even if nothing has yet been made. “We are expecting huge business with them in the future,” he said. “Hopefully things get better. They stop the war. Things get back to normal. That’s what we’re all hoping for.”