Welcome to CrossDock,

In our last issue, we discussed how the US-China trade war sparked a near-shoring boom in Mexico, illustrating how closely geopolitics and supply chains are intertwined. This issue, we're taking a deep dive into something that's sending ripples across the global garment supply chain – political tensions in Bangladesh. We’ll unpack how this turmoil disrupts the global apparel supply chain and the brands that rely on it. Let’s dive in.

Chaos in Chittagong

How does the political turmoil in Bangladesh affect the global apparel supply chain?  

Chaos often brings opportunity, they say, but in the case of Bangladesh, it has unleashed a wave of disruption. The recent political turmoil, culminating in Prime Minister Sheikh Hasina's resignation, has potentially impacted the global garment supply chain, disrupting the operations of top apparel brands.

To truly comprehend the magnitude of this impact, we must first understand how integral Bangladesh is to the global garment industry. So, let's start there.

Bangladesh and the global RMG sector

Bangladesh is a key player in the apparel industry. In 2023, it exported nearly $44 billion worth of garments, commanding a 7.9% share of the global market. The country’s RMG sector is now a vital player in the apparel supply chain of major economic superpowers.

The EU, in particular, relies heavily on Bangladeshi garments, with about 60% of Bangladesh’s RMG exports heading to European markets. In 2022, these exports were valued at an impressive $21 billion. Countries like Germany, the UK, Spain, and France are among Europe's biggest importers of Bangladeshi garments, underscoring the country’s vital role in the region’s fashion industry.

Not far behind the EU is the United States, which stands as the second-largest market for Bangladesh’s RMG exports, accounting for roughly 20% of the total. In 2022, Bangladesh shipped over $9 billion worth of apparel to the US, making it the second-largest supplier only behind China. In fact, Bangladesh’s presence in the US market has been growing, particularly as American brands look to diversify their sourcing due to ongoing trade tensions with China. This shift has placed Bangladeshi garments in an even more crucial position within the US apparel industry.

To put things in perspective, on average, around 1,500 to 2,000 containers filled with RMG products leave the port of Chattogram (Chittagong) every day, headed towards various international markets. Annually, this translates to roughly 700,000 to 800,000 containers dedicated to RMG exports. These shipments carry a variety of apparel, from basic t-shirts and jeans to more complex garments, catering to different segments of the global market.

RMG exports from Bangladesh to non-traditional markets (other than US and EU), Image credit: RMG Bangladesh

Source of fashion

Bangladesh's RMG sector is the biggest sourcing destination for some of the world’s largest and most influential fashion brands. Companies like H&M, Zara (under the Inditex group), and VF Corp deeply rely on Bangladesh for their apparel production.

For example, H&M, one of the leading fashion retailers, sources a substantial portion of its garments from Bangladesh. The company partners with around 1,000 factories across the country, making it one of the largest buyers in the Bangladeshi RMG sector. Zara, another heavyweight in the fashion industry under Inditex, also heavily depends on Bangladeshi suppliers, particularly for its fast fashion products.

Zara collaborates with 150 suppliers and operates 273 sewing factories in Bangladesh, employing nearly a million workers. The efficiency and speed of production in Bangladesh are crucial to Zara’s business model, which revolves around rapidly bringing the latest fashion trends from the runway to retail stores across the globe.

Similarly, VF Corp, the parent company of brands such as Vans, Supreme, and The North Face, relies on Bangladesh for about 15% of its global apparel production. This significant share of their production is managed across multiple factories within the country.

In 2023, Bangladesh exported approximately $47 billion worth of apparel globally, with a large portion of these exports going to brands like H&M, Zara, and VF Corp. These companies depend on daily shipments from Bangladesh to keep their retail stores stocked with the latest products. The smooth and timely flow of goods from Bangladesh is critical for these brands to meet global demand and maintain their competitive edge in the fast-paced fashion market.

Over the years, the RMG sector has indeed become the backbone of Bangladesh’s economy, contributing a substantial 84% to the country’s total exports and around 10.35% to its GDP. This industry's rapid growth has created millions of jobs and played a crucial role in reducing poverty and driving economic development across the country.

Data source: BGMEA

However, Bangladesh was not always the manufacturing powerhouse it is today. Just a few decades ago, its economy was primarily agrarian, with a large portion of the population living below the poverty line. So, how did this transformation happen? What went well for Bangladesh?

Farms to factories

When rising labor costs and stricter environmental regulations in traditional manufacturing hubs like China began squeezing global companies, they sought more cost-effective alternatives. Thanks to their young, low-cost workforces, countries like Vietnam and Bangladesh quickly emerged as viable options. Bangladesh, in particular, stood out due to its vast pool of competitive labor, attracting significant investment in the RMG sector.

What began as a modest industry in the 1980s, contributing just 3.89% to the nation’s exports, has now become the key contributor to Bangladesh’s economy, accounting for 84% of its exports and reaching $47.38 billion in 2023.

Bangladesh’s rise in the RMG sector wasn't just about having a large workforce; it was about cultivating a skilled one. The government, along with various NGOs, invested in vocational training programs that equipped young people, especially in rural areas, with essential skills in sewing, leatherwork, and electronics. This strategic focus on skill development transformed Bangladesh into a preferred destination for low-cost manufacturing, delivering quality goods with a well-trained workforce.

Image credit: RMG Bangladesh

Women played a pivotal role in this success, making up a staggering 90% of the 4.2 million RMG workers by 2019. The sector’s low entry barriers and the absence of requirements for academic qualifications or previous experience made it accessible to women, particularly from rural areas. As social attitudes shifted, more women joined the workforce, gaining financial independence and challenging societal norms. The garment industry became a symbol of empowerment, influencing broader societal changes, including improvements in school enrollment and decisions regarding marriage and childbearing.

Additionally, the Bangladeshi government’s strategic policies were crucial in harnessing the country's potential. By focusing on Export-Oriented Industrialization (EOI) and establishing Special Economic Zones (SEZs), the government attracted foreign investment and positioned Bangladesh as a key player in global trade. With their business-friendly environments and incentives like lower taxes and duty-free machinery imports, these SEZs attracted global manufacturers. By FY2017, these zones had $4.3 billion in investment, contributed $59.4 billion to export earnings, and employed nearly half a million workers, cementing Bangladesh’s place on the global stage.

Trade agreements

Blessings come in many forms. For Bangladesh, it came as international trade agreements — the Multi-Fiber Arrangement (MFA) and the Generalized System of Preferences (GSP).

The MFA, which governed the global trade in textiles and garments from 1974 until 2004, played a major role in Bangladesh’s early growth in the ready-made garment sector. Under the MFA, developed nations imposed quotas on garment imports from major developing countries like China and India. This quota system was a blessing in disguise for Bangladesh. With the larger players restrained, international buyers began looking for alternative suppliers. With its low labor costs and emerging manufacturing capabilities, Bangladesh became the perfect choice.

According to a study by the Institute of Apparel Research & Technology, during the MFA period (from 1981 to 2004), Bangladesh's average export value was about $4.54 billion, with 1.43 million workers in 2,812 factories.

Similarly, the GSP program allowed Bangladesh to export goods to the European Union and the United States without any tariffs since it was classified as a “vulnerable developing country.”  Leveraging the GSP program, according to the Export Promotion Bureau, Bangladesh exported $5.02 billion worth of clothing to the UK in the fiscal year of 2022-23 and exported $4.50 billion in 2021-22. The access to these key markets, coupled with the removal of tariffs, made Bangladesh an even more attractive destination for foreign investment, as companies could produce goods in Bangladesh at a lower cost and still sell them competitively abroad.

Big deal

From the early days of its industrialization, Bangladesh recognized the need for foreign capital and expertise to develop its manufacturing base. Several international partnerships and support have fueled Bangladesh's economic engine.

M. Noorul Quader (Extreme left), pioneer of the RMG sector in Bangladesh with employees
Image credit: Desh Garments

One of the most significant examples is the investment from South Korean company Daewoo in the early 1980s. Daewoo partnered with Desh Garments, a Bangladeshi company providing technical expertise, training, and technology. This collaboration marked the beginning of Bangladesh’s large-scale garment manufacturing industry. The workers trained under Daewoo established their own businesses, sparking the growth of numerous garment factories nationwide. By 1988, there were 664 garment producers in Bangladesh.

Similarly, international organizations like the World Bank, International Monetary Fund (IMF), and Asian Development Bank (ADB) provided essential financial support and technical assistance. These organizations funded large-scale infrastructure projects, like the World Bank’s funding for the Padma Bridge—one of the largest infrastructure projects in Bangladesh’s history—which significantly improved connectivity within the country and enhanced trade logistics.

Sweet spot

Bangladesh was in the right place at the right time! Situated in South Asia, Bangladesh is nestled between the world’s most dynamic regions — Southeast Asia and the Indian subcontinent. Due to its geographical proximity to key markets in Asia and the Middle East, Bangladesh became the ideal destination for companies looking to move goods swiftly and efficiently with lower transportation costs and faster delivery times. At the heart of Bangladesh’s garment export industry lies Chittagong, its principal port city and the powerhouse driving its trade success

Chittagong port

Chittagong port, one of the oldest natural ports in the world and the busiest port in the Bay of Bengal, boasts a history that stretches back to the 2nd Century B.C. Renowned writers and explorers like Ibn Battuta and Marco Polo mentioned the Chittagong port in their respective travelogues. The 7th-century Chinese traveler Xuanzang famously described Chittagong as a "sleeping beauty emerging out of the misty water," capturing the essence of a vibrant, bustling port teeming with activity.

Ships moored off Chittagong by Thomas Prinsep

Chittagong's historical significance is deeply tied to its role as a key location in the ancient maritime Silk Road, a crucial network of trade routes linking China with the rest of the world. Goods from the Indian subcontinent, Southeast Asia, and beyond passed through this port, making it a melting pot of traders, goods, culture, and ideas.

The modern Chittagong port was formally organized in 1887 under the Port Commissioners Act during the British Indian Empire. By 1889-90, it handled exports totaling 125,000 tons. In 1928, the British government officially declared Chittagong as a "Major Port" of British India, solidifying its status as a key hub for trade.

Chittagong's role shifted significantly during the major political transitions that shaped South Asia in the 20th century. After the partition of British India in 1947, Chittagong became part of East Pakistan. Despite challenges due to the central government's focus on West Pakistan, the port remained a vital economic center. The Liberation War of 1971 led to the birth of Bangladesh, and Chittagong transitioned into a crucial asset for the newly independent nation. The Bangladeshi government prioritized the redevelopment and modernization of the port, laying the groundwork for the rapid economic growth that followed in the subsequent decades.

By the end of the 1990s, Chittagong Port was handling approximately 15.1 million tons of cargo. As the 2000s progressed, the port continued to expand, with its container handling capacity rising significantly. A World Bank report stated that by 2006, Chittagong Port had handled around 800,000 TEUs (twenty-foot equivalent units) of containers annually.

Today, Chittagong Port handles approximately 92% of Bangladesh’s maritime trade. In 2023, the port managed around 3.25 million TEUs, reflecting its crucial role in the nation's economy. The port significantly contributes to Bangladesh’s GDP, mainly through the RMG sector. The RMG industry, which relies heavily on Chittagong Port, accounted for $47.38 billion in exports in 2023, representing about 84% of the country’s total exports.

Everything fell in place perfectly for Bangladesh's garment export industry. The RMG sector was thriving, and Bangladesh was on a path to continued economic growth. However, the country's recent political unrest and the subsequent logistical challenges it caused almost halted the export supply chain, leaving Bangladesh on the brink of an economic crisis. The global garment supply chain, heavily dependent on Bangladesh, also felt the repercussions, with delays and disruptions rippling through international markets.

Chaos and congestion

Chittagong Port, which handles over 90% of Bangladesh’s trade, experienced unprecedented chaos and congestion like never before. What used to be a straightforward process of loading and unloading ships in about 48 hours has now increased to a frustrating 96 hours or even more. Ships that once docked almost immediately upon arriving now have to wait up to nine days just to berth. This slowdown is causing a dent in both Bangladesh’s economy and the larger global apparel supply chain.

In July 2024, the port's export container handling dropped by 16.4% from the previous month. Containers are piling up, with nearly 44,000 TEUs crammed into a yard designed for optimal operations at around 30,000 to 32,000 TEUs. It's a recipe for disaster for the global supply chain, which relies heavily on the steady flow of goods from this region.

Furthermore, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) reported that the garment sector, which is the country’s top foreign currency earner, has already incurred losses of approximately $270 million. The disruption prompted many international buyers to either cancel orders or demand costly air shipments instead of using the usual sea routes. Initial estimates suggest that over $4 billion worth of orders may have been lost due to these disruptions.

Data source: BGMEA

Global repercussions

Let’s start with the U.S., where Bangladesh plays a crucial role in filling the store shelves of some big players in the apparel industry. According to data from the Bangladesh Garment Manufacturers and Exporters Association, Bangladesh exports garments worth $9.75 billion to the U.S. annually, making up roughly 9.8% of all clothing imports there.

However, this year has been lackluster. Exports to the U.S. have dropped significantly to 21.77% in the first half of 2024 because of two main crises. Firstly, the gas crisis that gripped Bangladesh earlier this year. According to reports, the gas crisis had an adverse effect on textile production, forcing factories to operate at only 70% capacity. This was followed by the political crisis that wreaked havoc on the supply chain, causing delays in production and shipping, which means U.S. retailers are feeling the pinch with inventory shortages and rising costs.

Data source: BGMEA

Bangladesh's biggest export market is the European Union, accounting for around 45% of the country’s garment exports. In 2023, Bangladesh exported garments worth nearly $22 billion to the EU. This disruption in the supply chain, delays at ports like Chittagong, and factory shutdowns due to strikes are causing serious concerns. If things do not get better, it can forever cause irreparable damage to the relationship with the EU. It is no secret that major brands like H&M, Zara, and Primark rely heavily on Bangladeshi factories to meet their demand. These supply chains are also under immense threat due to the current political unrest. This has the potential to create stock shortages in international markets, forcing these brands to reassess their sourcing strategies and possibly consider alternatives to Bangladesh.

What’s next

The recent instability and disruption in the global supply chain could inflict significant damage on Bangladesh’s garment export industry. Experts warn that the country might lose up to 10-15% of its garment exports as international companies start to shift their sourcing to more stable regions. Countries like Vietnam, Cambodia, and India are already emerging as attractive alternatives. These destinations already have well-established RMG export industries and are integrated with the global supply chain.

Vietnam, for example, has seen significant investments in its garment sector, and its geographical proximity to China gives it a logistical advantage. Cambodia and India also offer competitive labor costs and have strengthened their manufacturing capabilities, making them viable options for companies looking to diversify their sourcing strategies.

Only time will tell if Bangladesh can weather this storm and maintain its position as a dominant player in the global apparel market or if the recent instability will cause irreversible damage.