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NEW PAYMENT TERMS FOR GARMENT EXPORT

NEW PAYMENT TERMS FOR GARMENT EXPORT

Global garment makers Unite For Better Terms from Buyers

Are Indian Exporters/Associations Working on the Same???

The Covid 19 has changed the dynamics of apparel industry forever. While for many years the garment exports business was either working on LC’s and mostly on trust, faith and years of relationship it is no longer the same.

The buyers cancelled orders and delayed payments and no contract, LC or paper could save the plight of apparel exporters around the world.While some, including Primark, H&M, Inditex and Gap, later committed to paying the cancelled orders in full, campaigning coalition PayUp estimates $18 billion out of $40 billion worth of payments are still outstanding globally.

The Penn State Center for Global Workers’ Rights said in a report that U.S. and European Union trade data showed a $16.2 billion drop in apparel imports in April through June 2020.

The existing payment terms of apparel industry has proved to be of no help and manufacturers have faced huge financial losses.

The garment exporters all over the world have faced the worst crisis ever.

Thus, thirteen associations representing garment suppliers in China, Bangladesh, Myanmar, Cambodia, Vietnam, Pakistan, Turkey, Morocco and Indonesia have drafted minimum terms they hope to present to clients, including a maximum 90-day payment term and an end to discounts after orders are placed. 

Garment makers in nine countries spanning Asia, the Middle East and North Africa have come together to demand better contract terms from global clothing retailers.

The suppliers hope their united front will prevent retailers from playing them off against each other in search of more lenient terms after suffering from widespread cancellations and payment delays at the start of the coronavirus pandemic.

Global retailers including Arcadia, Gap, Kohl’s, and Primark cancelled or paused orders with garment-making factories in Bangladesh worth almost $3.7 billion in March and April last year, the results of a local survey of factories seen by Reuters showed.

The draft document, due to be finalised and released in late April, is a joint initiative of the Star Network, funded by Germany’s international development agency GIZ, and the International Apparel Federation.

Though the document will not be legally enforceable, the aim is to foster purchasing practices which “do not cross the boundary of misuse of buying power to the obvious and avoidable detriment of the manufacturer.

Global retailers lost $1.2 trillion in sales in 2020, a 3.9% drop, according to research firm Forrester, as global lockdowns decimated demand and shut stores for months on end.

Though some sales were recuperated online, many clothing retailers were forced to impose steep discounts in an attempt to get rid of unsold stock.

While clothing sales are beginning to recover from last year’s record losses, orders are still far smaller than before the pandemic, with shorter lead times and longer payment windows, factory owners, sourcing agents and retailers themselves say.

The draft also includes limitations on the use of the ‘force majeure’ clause which exempts retailers from costs and liability for events outside their control.

A cancellation clause in a purchasing order used by Kohl’s gives it the right to cancel an order in the event of natural disasters, disease outbreaks and government restrictions, among other events beyond its control, without being subject to “any liability, cost or charge whatsoever”.

The European Center for Constitutional and Human Rights and the Workers Rights Consortium questioned retailers’ use of force majeure during the pandemic in the report, saying parties invoking the clause should prove they made all possible attempts to mitigate the effects of the unforeseen event.

According to U.S. and UK law, they must demonstrate that taking delivery of orders would be “commercially impracticable” – which may not be clear-cut for brands with sufficient cash flow and solid e-commerce sales, the report said.

Garment suppliers hope to tip the balance of power in their favour, more fairly distributing risk in the event of another unforeseen disruption to sales.

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