How a garment maker is fighting Middle East energy crunch

A gas and power crisis has hit production at most Bangladeshi garment makers, ​but at 4A Yarn Dyeing, a supplier to Walmart, Gap and Next, workers stitch hoodies and attach brand logos uninterrupted, at ‌least for now.

Since 2019, 4A has generated its own power, including through solar panels, making it an exception in Bangladesh’s garment industry, the world’s second-biggest exporter after China. The Middle East crisis has worsened energy shortages in the country where much of the electricity is generated using natural gas, furnace oil and diesel.

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A recent survey of 134 ​knitwear factories found that 55 percent had seen buyers cancel or cut orders because of gas and power shortages since late August, ​and 78 percent had partially halted production. The factories also reported shipment delays and discounted orders to buyers.

But that’s not yet the case at 4A, whose factory on Dhaka’s outskirts employs nearly 7,500 workers and meets around 40 percent of its electricity needs through solar, ​the rest mainly through its own gas and diesel generation.

“We never stayed at a single-source energy dependency. We had backups for everything,” said company co-owner ​Abdullah Hil Nakib. “We need some sort of certainty. But the cost of doing business has increased. First there was a shortage of oil, then a shortage of gas.”

Costlier diesel has pushed 4A’s production costs up by 2 percent to 3 percent, adding up to Tk 5 million ($40,950) to its monthly fuel bill, he said.

The pressure on factories intensified on ​Monday after Bangladesh raised fuel prices by up to 17.4 percent, a move the government said was necessary because of soaring global prices and higher shipping ​costs due to the Middle East conflict triggered by US-Israeli attacks on Iran in February.

To reduce future disruptions, 4A plans to install an industrial-scale battery system that ‌would allow operations to continue 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,” said Nakib, whose factory roofs are nearly covered in solar panels.

STEEP FUEL PRICE HIKE TO PILE MORE PRESSURE

Soaring gas import costs are slowing the country’s industrial growth, causing electricity outages and hurting spending on development projects due to higher gas subsidies, Bangladesh’s power minister said last week.

Bangladesh’s ready-made garment sector ​accounts for more than 80 percent of ​export earnings, employs about 4 million workers and contributes around 10 percent to gross domestic product.

Some manufacturers have incurred additional costs by shipping goods by air or offering discounts to meet delivery deadlines after energy-related disruptions.

“Our margins are already very thin, and the fuel ​price hike will squeeze them further,” said garment exporter Shahidullah Azim. “It is becoming increasingly difficult for us to ​absorb higher production and transportation costs while remaining competitive.”

Azim said a Canadian buyer that had been expected to order 25,000 pieces ultimately placed an order for only 8,000, which he attributed to declining buyer confidence amid Bangladesh’s economic and energy challenges.

Companies may be able to pay higher fuel costs, but gas shortages and power cuts are more worrying ​for some, given that those problems are not as intense in competitors like Vietnam ​and India, said Mohiuddin Rubel, additional managing director of Denim Expert Ltd, which supplies to brands including H&M.

“Whether we hold our position against other sourcing countries or lose ground to them ​depends on how well we manage it,” he said.