The Impact of Covid-19 on Workers & Businesses at the Bottom of Global Garment Supply Chains

Recommendations

All parties are feeling the extreme burden caused by Covid-19. However, not all parties are equally situated to find the liquidity needed to cover their expenses. As shops, outlets, and malls are ordered shut, retailers and brands are taking an enormous hit to their bottom line and cash reserves. However, the hit on supplier factories, who generally operate on paper-thin margins and have far less access to capital than their customers, is that much more extreme. And the burden on workers – who very rarely earn enough to accumulate any savings and who still need to put food on the table and possibly cover unforeseen health expenses – is enormous.

1. It is incumbent on the parties with the greatest ability to procure loans and benefit from government bailouts to share those benefits down the supply chains. In this regard, we call upon all buyers to respect the terms of their purchasing contracts and pay suppliers for orders already in production or completed.

2. Suppliers, for their part, must ensure that payments received from these buyers are used to cover all legallymandated wages and benefits, including severance payments to dismissed workers.

3. The government of Bangladesh must continue to mobilize all the resources at its disposal to subsidize suppliers and provide wage support to all workers during the crisis.

4. Going forward, buyers should learn from this crisis to revise purchasing practices to ensure proper social and environmental sustainability. These changes include order stability that allows for proper planning, timely payments of orders, and full respect for workers’ rights. It also includes a costing model that covers all the costs of social compliance: living wages, benefits, severance pay, building safety, etc. One way to cover some of these expenses is an additional charge levied on freight on board (FOB) prices.

5. Given present realities, adequate protection for the vast numbers of garment workers affected by the crisis, in Bangladesh and across the global supply chain, will require the mobilization of international financial resources. The cost of maintaining income for the world’s garment workers represents a small fraction of the trillions in financial stimulus and rescue now being brought to bear on behalf of businesses and workers in wealthy countries.

Apart from the tremendous human tragedy left in its wake, the coronavirus pandemic will have profound economic repercussions for workers everywhere. The effects of the global economy’s collapse will worsen before they ameliorate and will continue to be felt for years to come. The International Labour Organization predicts that 25 million jobs will be lost worldwide as a result of Covid-19.2 Workers in global supply chains are particularly vulnerable to termination and economic destitution.

As governments in wealthier countries order lockdowns to control the pandemic, demand for apparel is plummeting, leading many brands and retailers to halt production. As a result, factories around the world are shuttering, rendering millions of garment workers in Bangladesh and beyond jobless. These are workers who, prior to their termination, were making extremely inadequate wages and for whom saving up for a safety net was never an option.

While anecdotal accounts in the media have already begun to paint a disheartening picture of the effects of Covid-19 on the global garment workforce, this research brief provides strong empirical evidence exposing the breadth and depth of the problem in Bangladesh’ s garment sector.

The next section discusses the methods employed in this study. This is followed by a section outlining the three phases of the Covid-19 crisis for the garment sector in Bangladesh, after which the profound impact of the crisis upon garment workers is examined. The government’ s response to Covid-19 in Bangladesh follows, before concluding with a set of recommendations.

Methods and Data

This report draws on a survey of Bangladesh suppliers conducted online between March 21 and March 25, 2020. There are approximately 2,000 suppliers in Bangladesh and 4,000 factories (many suppliers own multiple factories). Of these, 316 suppliers completed the survey. This puts the sample size within the approximate confines of a 95% confidence level and a 5% confidence interval.

Of the respondents, 15 are owners of small factories (250 or fewer workers), 104 are owners with mediumsized factories (between 251 and 750 workers), and 197 have 751 or more workers. Most of the buyers of these suppliers (67.7%) are European; 15.8% are American, 4.8% are Asian, and the remainder are “other” or a mix of American, European, and Asian firms.

Three Phases of the Crisis

The current crisis facing the garment sector in Bangladesh developed in three phases. First, there was the crisis of ‘raw materials’ procurement. Second, there was the crisis of buyer late payments. Third, there has been the crisis of buyer cancellations of in-process orders. The culmination of these three phases has been devastating on businesses and over 1 million workers. The survey covers these three phases.

Crisis Phase One: Raw Materials

On December 31, 2019, the government of China alerted the World Health Organization (WHO) to a health emergency in Wuhan City in the Hubei province. Just over three weeks later, the government placed Wuhan’s 11 million inhabitants on lockdown. Other cities in the province followed suit soon afterwards. For garment global supply chains, this impacted not only Chinese exports of final products, but it dramatically impacted Chinese raw materials (notably fabric) needed by exporters elsewhere, from Bangladesh and Cambodia to Honduras.

According to our survey findings, 93% of Bangladesh suppliers reported delays in raw material shipments from China. Of these, 53.4% indicated that buyers subsequently penalized them for the resulting delays in their shipments. In addition to the delays in receiving raw material, 38.3% reported that the price of their raw material increased by ‘a lot,’ and 47.7% reported prices increased ‘some’ as a result of the crisis in China. When asked if buyers adjusted their prices in response to a large increase in raw material prices, 91.9% said no. [See Figure 1.]