Why is Ludhiana's apparel industry staring at losses?

Shanghai port was never so crammed. And calm too. Hundreds of behemoth cargo ships have been anchored off-shore for the last two months, as sea ripples slam against their metal walls only to fade away. That is the only sound one could hear there.

But the quiet Shanghai port has been creating a different sort of ripples across most shores of the world. Silence was never so contagious, and disturbing too.

The effect of lockdown in Shanghai -- also known as China’s financial powerhouse -- has spelt doom for scores of industrial cities across the world. The supply chain is in tatters, and so is the fate of factories, their owners and workers.

One such industrial town, over 4,500km from Shanghai shores and pinned close to the India-Pakistan border, is now a pale shadow of what it used to be a few summers ago. The city, which used to produce about 90% of the country’s apparel, has now some of its machinery covered under the same readymade garments, although unfinished.

The accessories -- like buttons, chains etc.-- which went into these apparels used to come from the Shanghai factories. Their journey used to end in the narrow lanes of Ludhiana’s bustling Shahpur Road -- which house most of the factories.

But the seeming sense of normalcy in this crowded market for fabrics and garments belies the deep distress that the city’s textile industry finds itself in. Repeated supply shocks, the latest being the closure of the Shanghai port in China, have all but brought the industry to its knees.

Ludhiana, Punjab’s Rs 20,000-crore textile hub, accounts for more than 90 per cent of India’s apparel production for the domestic market.  

But for the last six years, it has been repeatedly hit by one setback after another. In 2016, demonetisation crippled the city’s hosiery industry, which mostly comprised micro and small businesses. Then, just as it started finding its feet again, the Covid-19 pandemic piled more misery on it.

And the latest supply shock came from the closure of the Shanghai port for the last two months. Shanghai handles a fifth of China’s cargo and the country holds a virtual monopoly on the supply of garment accessories such as buttons, chains, embellishments, and so on. Even though the port opened for business last week, industry insiders say that it will take over a month for the supply chain to return to normal.

Factory owners say that earlier, basic raw materials would take 15-20 days to be shipped and specialised orders would take 60 days. These supply cycles have now extended multi-fold. So, input costs for manufacturers have also gone up.

Vinod Thapar of Knitwear Club, an apparel industry association, told Business Standard that several factory owners have been forced to source their accessories locally. But the local products lack competitiveness, both in terms of quality and cost, he said.

Vinod Thapar, president, Knitwear Club (Ludhiana), says all accessories - almost 95 % - come from China. Accessories are essential in value-addition, but due to lockdown, the garment industry in India faced no supply of accessories. Unavailability of containers from China and the long time of shipping to India are a setback. Also, fabrics of jackets that are popular in India comes from China. Indian fabrics (for jackets) cannot match the products from China in quality and competitive pricing. We want good relations with China so that imports are smooth. There is demand for accessories in India.

Many retailers say that their products would not sell for even half the price without the accessories that are mostly imported from China.

Thapar and others say that though the Shanghai port reopened on June 1, manufacturers in Ludhiana have already curtailed or delayed their production plans, at the risk of not having ready stock by the time the peak season arrives in winter.

Harinder Thapar, a textile manufacturer and retailer, pointed out another problem. The depreciation of the rupee against the dollar. He said that traders will end up paying more for material.

In addition to the cost inflation in basic raw materials, the high price of crude is also severely impacting business, since fabrics like nylon and polyester are petroleum-based products.

Sudarshan Jain, president, Knitwear and Apparel Manufacturers Association of Ludhiana, said that the industry expects the prices of winter apparel to increase by 15-20 per cent this season.

Conclusion: The lockdown in Shanghai has now been lifted. The port is again buzzing with activity and ships are fanning across oceans, heading to far off cities. The relief for Ludhiana’s apparel industry is also on the way.