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Coronavirus triggers collapse in garment industry demand, putting jobs in Asia at risk

Bangladeshi female workers work at a garment factory in Savar outskirts of Dhaka on January 14, 2020.

Mehedi Hasan | NurPhoto | Getty Images

The garment industry is witnessing a collapse in demand due to the economic fallout from the coronavirus outbreak, putting jobs across Asia at risk.

“Across the entire industry, shops are closed, brands and retailers actually right now have an oversupply situation with whatever orders they have placed. They fear that they may not be able to sell it, so they are actually canceling orders or delaying shipments of orders,” said Stanley Szeto, executive chairman of Lever Style, a Hong Kong-based garment maker.

“I guess nobody is lacking a shirt to go out,” said Szeto, who is also an honorary chairman at the Textile Council of Hong Kong.

Lever Style’s customers include Hugo Boss and Everlane.

Asia is key for garment manufacturing and many jobs in the region will be at risk, potentially causing social problems in countries like Bangladesh, Cambodia and China that are dependent on the export economy, Szeto told CNBC’s “Squawk Box” on Friday.

“A lot of factories in Asia they’re seeing orders dry up in a few weeks,” he said.

Bangladesh, for example, has seen $2.6 billion worth of orders in its garment sector withdrawn, with fresh cancellations coming up, the country’s commerce minister told CNBC last Friday. The country is the world’s second-largest clothing exporter behind China, according to ratings agency Moody’s.

More than 4,600 garment factories in Bangladesh make shirts, T-shirts, jackets, sweaters, and trousers. The clothes are mostly shipped to Europe, the United States and Canada, to be sold by local retailers in those countries.

“It’s been very, very hard dealing with all the emergencies because we’ve been facing cancellations every day on almost a minute-to-minute basis,” said Rubana Huq, president of the Bangladesh Garment Manufacturers & Exporters Association.

According to the association, ready-made garments comprised 84.21% of Bangladesh’s total exports worth $40.5 billion in its 2018-2019 fiscal year.

Huq expects many more cancellations to come as the industry faces “total uncertainty,” she told CNBC on Monday.

“We submit the export documents and then we get paid. If we don’t get paid, we can’t actually pay our workers, so it’s difficult for us — even getting through with March salaries is difficult,” said Huq.

“My worry is, what is going to happen to so many people — 4.1 million — that are engaged in the garment sector and we are not being able to take care of them properly,” she added. She made a video appeal to international fashion brands earlier last week, urging them to pay for and receive goods already under production.

“We want the workers to be paid, we want them to be safe, and for that we need the brands to react and respond at this point in time — with urgency,” Huq told CNBC on Monday.

The plunge in demand comes as the coronavirus that was first reported in the central Chinese city of Wuhan spread rapidly across the globe, causing a worldwide logistics and supply chain disruption.

Factories in China were shut down for an extended period during the Lunar New Year holiday, interrupting supplies the other parts of the world. Even as more and more factories in China return to work and come online again, the concern has shifted to another issue: demand.

“A month ago, we were talking about supply chain disruption … but right now, everybody has forgotten about the supply chain disruption. Supply chain disruption has given way to a collapse in demand,” said Szeto. “Right now there’s too much production,” he added.

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