The spin of the yarn

LAHORE: The buoyancy in the apparel sector is at stake because of inconsistency in the availability of yarn, which is giving industry entrepreneurs jitters owing to the fact there is no short-term solution in sight.

Readymade garments and knitwear are the two highest valued subsectors of textiles. Almost 70 percent of the apparel exporters are small enterprises. These exporters are always short of cash. The business strategy of garmenting trade is such that the foreign buyers book their orders with the suppliers three months ahead of delivery time. For the delivery of winter apparel they negotiate the prices in June or July. For summer they agree on prices in January or February so that the supplier could deliver the orders before the arrival of summer. The apparel exporters agree on the price with the foreign buyers on the basis of their total input cost. Yarn price is of utmost importance in this regard. Most of them get their fabric custom made as per requirement of the buyer. They procure the yarn and get the fabric weaved or knitted from the weavers or knitters.

Since the exporters sign the price agreement with the buyers about three months before delivery they come under pressure if the price of any major input jumps or the supplies of that input squeeze. Numerous apparel units operating on thin finances succumbed in the past to the abrupt increase in yarn rates because they booked orders based on lower yarn rates but did not cover the yarn for most of the period. Foreign buyers do consider revision of prices if the price increase is global but not if it is limited to a country.

Currently the yarn prices in Pakistan are relatively higher because of the progressive failure of the cotton crop for the last three years. Import of cotton was not systematically planned by the spinners. They were double-minded as they were hoping cotton import from India may be allowed. Finally they imported cotton from far away countries bearing high transportation charges. When the government allowed import of cotton from India (the announcement was withdrawn the next day) the spinners having imported expensive cotton naturally protested.

The yarn rates in Pakistan are higher than the rates of similar yarns in the competing countries. The value-added sector has been caught off guard. They were already operating on thin margins. Higher than global yarn rates would make it difficult for Pakistani apparel exporters to honour their export orders (at prices agreed with buyers three months back). The existing apparel exporters have survived during the worst recessions by increasing their efficiencies, adopting technologies. They had to operate with a handicap of terrorist tag on their country since the start of this century. They had to pay the premium of this tag in the shape of lower than global rates of similar fabrics. Because of lower prices the apparel exporters were operating on very thin margins.

After negotiating the rates of their products with the foreign buyers they are not in a position to bear an increase in yarn rates specifically for Pakistan. They are likely to lose orders and further increase in exports would not be possible.

The size of the apparel industry has shrunk in the last one decade as most of the entrepreneurs failed to improve efficiencies when the margins were high. During most of this period their inefficiencies were covered by rapid decline in rupee value.

However as the crunch time came they crashed due to increasing raw material and energy costs and the current upsurge in rupee value. There were entrepreneurs that improved efficiencies to global best standards, made handsome savings in good times and also took timely decisions on energy conservation to reduce the impact of ever increasing energy costs. These efficient entrepreneurs acquired the machines of the closed units ensuring the actual stitching capacity remains the same.

Apparel units are different from the spinning or weaving operations that work from their offices. The wastages in apparel units are very costly as the raw material (fabric) is very expensive. This is the reason the apparel entrepreneurs ensure their continued presence on the production floor. This way they managed to control wastages and ensured the globally tested controls are not flouted. This has ensured timely delivery of orders.

These entrepreneurs did not get carried away by accepting orders beyond their capability to deliver. These are the ones that could take our apparel exports to the next level. They need hand-holding from the state. Most of them attained their present status through hard work and with little capital. Most of them have never defaulted on their loans and export orders.