Industries on survival mission as costs soar

In recent years, Meghna Group, with exposures in denim to packaging and bicycles to cars, has made a strategic investment of around Tk15 crore in energy-efficient generators. This move aimed to tackle soaring energy expenses and it seems to be paying dividends. The group is now reaping the benefits enjoying a remarkable 60% increase in energy efficiency compared to their previous generator models.

Meghna Group is not alone in its endeavour to curb costs amid the current challenging economic conditions. Other prominent players in the industry, including DBL Group, Envoy Textiles, and Pacific Jeans, have also adopted similar strategies. By leveraging efficient machinery and cutting-edge technologies, including robotics, these companies are economising on energy, water, and manpower while maintaining or even boosting production levels.

To maintain competitiveness in the market, some of these firms have explored options such as securing low-cost loans from international sources.

This is how industries are finding ways to maintain minimum profit margin and stay afloat coping with high-priced dollars, hikes in energy tariffs, rising interest rates and wage pressure amid roaring inflation — all raising the cost of their businesses.

The Business Standard talked with over 20 exporters, mostly from textile and apparel sectors, who narrated how they were grappling with shrinking profit margins and dwindling capital due to the mounting business costs they were encountering.

Crises are common to manufacturers both for local and export markets. But the stress is bigger for export sectors as they cannot pass on the additional expenses to global buyers unlike industries serving the domestic market.

Apparel exporters say they are compromising profit for a long time, some even absorbing losses just to be in the market for now.

Coping with innovation

One of the coping tactics is to become innovative. Businesses are running factories at half capacity and procuring energy-efficient equipment to partly offset higher gas and electricity bills. Some are looking for foreign loans as their interest rates are lower compared to those offered by local banks.

Large business groups are supporting losses of one unit with profits from others. Smaller ones are finding it harder to survive.

Some manufacturers have resorted to cutting weight for packaged items to adjust to cost hikes as they feared hiking price of goods would mean losing customers in these days of high inflation.

As inflation remains stubbornly high, wage pressure has come as an additional cost concern for the manufacturing sector.

High energy tariffs costing industries heavily

Industry owners said gas prices have surged by up to a staggering 179% since early 2023. Additionally, electricity charges were increased twice, with an 8.5% rise in February this year, followed by a hike of 5% in March 2023 as part of a routine adjustment.

Expensive energy affects all industries, but smaller ones take the biggest blow. Aman Garment, a small factory with an annual export value of about Tk40 crore, used to spend between Tk35 lakh to Tk40 lakh on electricity and gas bills. Now, it has to allocate approximately Tk60 lakh for these utilities even as its product prices are not keeping pace with the production costs.

Speaking with The Business Standard, Md Jasim Uddin, managing director of Aman Garment, expressed his concern over a 40% increase in their electricity bills compared to a year ago.

Echoing him, another fellow businessman, Md Khosru Chowdhury, narrated why his company, Nipa Group, had to book orders at 11% lower price than the previous year just to run his factory at full capacity until June.

He hopes for a favourable season in coming months when he will be able to recoup some of the losses.

TAD Group Managing Director Ashikur Rahman Tuhin said they have to wait until next August-September to raise the prices as orders are slowly increasing.

He said currently they are receiving order bookings for next summer which may continue till June, but in the meantime a price adjustment will be very difficult.

"We are trying to make up for additional costs through increased efficiency but at this moment it is quite difficult as business costs are skyrocketing."

Hard times making businesses innovative

Businesses are trying alternatives to cope with expenditures and cut costs.

One of the apparel and tiles industry pioneers Kutubuddin Ahmed, chairman of Envoy Textile Ltd, said they spent an additional Tk29.47 core over the last 6 months on gas bills which was 143% higher than a year ago. Other financial expenses, which included higher interest rate and higher price of dollar for raw material imports, increased by 42.29% to Tk14.23 crore.

Envoy Textile top officials said that they operated their factory at about 65% capacity during the first half of the current fiscal year which also increased their operational cost.

On the other hand, they have issued some bonds to reduce their fixed finance cost through repaying bank loans.

According to the central bank, the current interest rate is about 14%, while it was 9% in June last year.

Large industries are investing more in energy-efficient technology to reduce operational cost. Shasha Denims Ltd is one of them.

Speaking with TBS, its Managing Director Shams Mahmud said due to the price hike their gas bills remain 120% higher than they were a year ago although they invested in energy-efficient generators. "If we would not invest in energy-efficient generators, our gas bills would have been much higher after the 179% price hike."

Higher price, lesser content

Local consumer product manufacturers are grappling with rising costs by implementing strategies such as increasing product prices and reducing the weight of goods. Despite these adjustments, their profit margins are shrinking, and business growth is declining in some cases. Moreover, consumers are spending less in this time of high inflation.

Leading consumer goods maker Pran Group caters to both local and export markets.

Talking with TBS, its Managing Director Eleash Mridha highlighted the challenges faced by the industry. He said raw material prices have been on the rise, utility prices have nearly doubled in the past year, which is about 5% of their operating cost, and bank interest rates are also increasing. Consequently, businesses are facing significant challenges, he added.

Mridha mentioned their efforts to provide some relief to consumers by reducing operational costs, additional expenses, and profit margins. However, despite these efforts, they are compelled to increase product prices. He also said they noted a decline in consumption, particularly in beverages, due to high inflation.

Furthermore, Mridha pointed out that their profit margin has decreased by approximately 30% over the year, indicating the magnitude of the challenges faced by FMCG (fast-moving consumer goods) manufacturers.

To mitigate the high costs of local finance, they are increasingly turning to foreign loans due to their lower interest rates compared to those offered domestically, he added.

Costs rising, export prices falling

According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) apparel exporters have witnessed a decline in prices of their three major items over the last seven months, of which, T-shirt prices fell by up to 17%, trousers by 7.50% and sweater by 14%.

Talking with TBS, BGMEA Vice President Rakibul Alam Chowdhury said their sales declined by average 10% to 15% in the EU and the USA due to falling prices.  

Citing an example, he said chino pant prices ranged between $17 and $18 last year, but the buyers are now offering around $10 for the same product.

At the same time buyers are also offering $1 for a basic T-shirt, which was $1.40 a year ago, Rakibul said. Now the buyers are trying to reduce the price of a T-shirt as low as a knitted panty, which currently ranges between 60 and 70 cents."

The BGMEA leader said as a result, factories are trying to book full capacity of orders to maintain their financial flow, but in the long run it increases their bank liabilities.

He said unhealthy competition among the exporters is one of the major reasons for lowering prices by buyers.

Rakibul also mentioned that some factories are not running at full capacity to avoid the risk of additional liabilities and are waiting for a better time. "Running a factory at half capacity is better than at full capacity that may increase liabilities."

 "We have to increase negotiation capacity to bargain unitedly not individually, otherwise buyers will not increase our product prices," said TAD Group's Ashikur Rahman Tuhin, also a director of BGMEA.

He also mentioned that if factories are not able to increase their bargaining capacity they may go out of business, as we have seen some examples in the industry.

Energy crisis in Industrial area

Businesses have expressed their frustration about load shedding of power and unavailability of sufficient gas even after paying higher bills.

Aman Garment owner Md Jasim Uddin said their factory in the Ashulia area is experiencing power outages for at least five out of eight production hours.

He said, "It will be very difficult to adjust the prices by manufacturers alone as their increased utility and wage expenses have pushed them into a tight corner."

BKMEA Executive President Mohammad Hatem said the Narayanganj industrial zone has been facing a gas shortage for the last couple of months. Gas pressure remains at zero PSI (pounds per square inch) during most of the time in a day, he said.

"Although gas pressure becomes available during night, in most of the cases, it remains at 1.5 to 2 PSI, although we require 8 to 9 PSI."

Referring to his family-owned MS Dyeing and Printing Ltd, Hatem said, "We can run only a few factories due to poor gas supply."

He said even after increasing the price, the government is not able to ensure uninterrupted supply of gas.

Hatem said due to the non-availability of gas, production has halved. "As shipment schedules are missed, many buyers push for air shipments while some demand discounts which ultimately result in losses for us."

Seeking anonymity, a textile miller said Narayanganj industrial zone millers faced additional losses due to a recent sudden cessation of gas supply, which affected their capital investment.

Due to the sudden blackout in gas supply, several sophisticated machinery were damaged, which caused them to shut their units for two days, and they had to spend Tk1 crore for their repairing machinery, he said.

The textile miller mentioned that during the last nine months, his group incurred about Tk100 core loss due to gas and electricity price hikes.

No immediate remedy for gas crisis

Meanwhile, government officials say the gas crisis is not going to be resolved any time soon. Due to the dollar crisis, it is not possible to import liquefied natural gas (LNG) to meet the demand, they say.

While there are plans to increase production from domestic gas fields, it will take at least two to two and a half years to get any benefits, say the officials.

As a result, the gas crisis is likely to persist for the next two years in addition to this year, they say. The government will continue to manage the situation by rationing gas supplies, the officials say.

State Minister of Power, Energy and Mineral Resources Nasrul Hamid has recently said, "Ensuring a normal gas supply in the country is the biggest challenge. It will take another two years to normalise the supply. Work is underway to ensure an uninterrupted gas supply in the country by 2026."