It’s a double delight for garment exporters as both cotton prices and sea freight have had a steep fall in the last few months and at pre-Covid levels. However, exporters are unable to take advantage of the two due to poor order flow from clients abroad.
Price of cotton per candy (356 kg) has dropped by nearly 40 per cent to around ₹65,000 from a peak of nearly ₹1 lakh last year. Similarly, freight rates have dropped by half in the last one year.
For example, freight rate from Tuticorin port to New York dropped steeply to $2,150 for a FEU (forty foot equivalent unit) as against $9,800 per FEU a year back. Freight from Mumbai declined to $779 per FEU versus $1,660 a year back. The trend has been like this for most of the major garment markets in Europe and in the US, said an industry source.
Biggest challnges
Raw material, freight and energy were the three biggest challenges for the garment industry last year. Now, the reverse trend will lead to revival of sentiments, which is very important in the fashion space and enable brands to place more orders in the medium term, said Prabhu Dhamodharan, Convenor, Indian Taxpreneurs Federation.
Also read: With FTA benefits, garment exports to Australia may see a 30% jump in 2023
Freight rates witnessed a steep fall and touched below pre-Covid level rates in the beginning of June. It will help retailers to fight inflation. Particularly big products like towels and bed sheets will get major benefits and the price of all goods will decline. Lower prices at store level ultimately leads to better consumption in the upcoming cycle. Manufacturers also will benefit because of revival of demand due to increase in volumes with lower landed cost, he said.
These factors will be the beginning of the next cycle towards normalisation, added Dhamodharan.
P Sundararajan, CMD of the Avinashi, Coimbatore-based SP Apparels recently told analysts that the prices of cotton have started slightly declining to the normal fee from the inflated one. “In the last 2 to 3 months, the prices of cotton have come down roughly to ₹5,000 per candy, which is a good thing for us. This will help the long spinners to come out of the losses, which is again good news for us,” he added.
“The cotton prices have now stabilised, and I do not foresee more fluctuations in cotton prices. I am confident that our spinning unit will overcome the challenges and will contribute to the margins from the current quarter onwards,” he told analysts while discussing the company’s fourth quarter financial performance.
Will the two declining trends help the garment industry? A source in Tiruppur says as the demand contraction is still continuing , thanks to the slow down economy in the EU, UK and US , the declining prices are not useful to most of the garment manufacturers.
Also read: AEPC promoting sustainable manufacturing practices in garment clusters to boost exports
Apparel demand
An official of a leading garment manufacturer in Bangalore says the situation is more complicated. Garment exporters benefit when demand is in favour. Post Covid, apparel demand increased in 2021-22. Despite higher cotton prices and logistics cost, the apparel manufacturing industry benefited as these costs were passed to customers. Subsequently, when demand fell due to inflation and high interest rates, the industry suffered despite lower commodity prices.
Spinners are more impacted by raw material prices as they are converters. Apparel manufacturers are dependent on demand from principal markets, he said.
A month ago, businessline reported that global fashion brands have begun placing orders for the year-end sale in global markets, albeit slightly delayed. Industry insiders attribute the building momentum to the “anti-China” feeling in the Western markets and the consequent shift in their buying to India. However, the sentiment seems to be changing every month.