Bangladesh garment factories reel as energy crisis and fuel hike bite

Bangladesh's garment industry is grappling with a gas and power crisis that has disrupted production at most factories, even as a fuel price increase of up to 17.4% this week added fresh pressure on exporters.

A survey of 134 knitwear factories found that 55% had seen buyers cancel or reduce orders because of gas and power shortages since late August, while 78% had partially halted production. Factories also reported shipment delays and discounted orders.

The government said the fuel price rise was necessary due to soaring global prices and higher shipping costs linked to the Middle East conflict.

At 4A Yarn Dyeing, a supplier to Walmart, Gap and Next, production has continued without interruption. The factory, on Dhaka's outskirts, employs nearly 7,500 workers and meets around 40% of its electricity needs through solar panels, with the rest generated mainly from its own gas and diesel.

"We never stayed at a single-source energy dependency. We had backups for everything," said co-owner Abdullah Hil Nakib. "We need some sort of certainty. But the cost of doing business has increased."

Costlier diesel has pushed 4A's production costs up by 2% to 3%, adding up to 5 million taka ($40,950) to its monthly fuel bill. The company plans to install an industrial-scale battery system to keep operations running for several hours if power sources fail.

"We've been able to absorb the extra costs, but not every factory can afford to do that," Nakib said.

The ready-made garment sector accounts for more than 80% of Bangladesh's export earnings, employs about 4 million workers and contributes around 10% to GDP. Soaring gas import costs are slowing industrial growth, causing electricity outages and hurting development spending due to higher gas subsidies, the country's power minister said last week.

Some manufacturers have incurred additional costs by shipping goods by air or offering discounts to meet deadlines. "Our margins are already very thin, and the fuel price hike will squeeze them further," said exporter Shahidullah Azim. He said a Canadian buyer expected to order 25,000 pieces ultimately placed an order for only 8,000, which he attributed to declining buyer confidence.

Mohiuddin Rubel, additional managing director of Denim Expert Ltd, which supplies brands including H&M, said gas shortages and power cuts are more worrying than fuel costs because competitors like Vietnam and India face less intense problems. "Whether we hold our position against other sourcing countries or lose ground to them depends on how well we manage it," he said.