As mass garment strikes enter a second week, fast-approaching buyer deadlines have manufacturers fretting about transport costs and mounting bills.
At least two of Cambodia’s hundreds of garment manufacturers, which ceased operations last week after workers walked off the job demanding a 100 per cent wage increase, will consider paying more than three times their usual transport costs to meet due dates and avoid late penalties.
Nam-Shik Kang, the managing director of Injae Garment Co in Phnom Penh, said manufacturers are expecting to have to fork out thousands of extra dollars to send their shipments by air freight instead of by ship to meet the looming deadlines and avoid penalties. This scenario, however, is still contingent on workers returning to finish off orders for shipment, an unlikely prospect in the short term.
“All manufacturers are facing the same issues. We are looking at spending the extra money on air freight in the coming weeks to meet the demands of the buyers,” he said.
The employer of 3,500 garment workers said the transportation cost is only the tip of the iceberg regarding the residual effects the strikes will have on the economy.
While the total cost of the 2013 strikes remain unknown, in September 2010 an estimated 160,000 garment workers demonstrated for three days, causing at least $15 million in lost profits, according to a report published by the Cambodian Centre for Human Rights later that year.
By those standards, this strike, motivated by the government’s decision to raise wages to $95 instead of the asked-for $160, will likely be costlier.
“I am very upset as I have been forced to close my factory. Up to 3,500 workers not working, missing buyer deadlines, lost production and increased transportation costs such as the air freight. Who is going to compensate the industry on these massive losses? Who?” an exasperated Kang said.
Despite sporadic road blocks on major transport routes in and out of Phnom Penh, Cambodia’s largest port in Sihanoukville is still receiving and shipping the same amount of goods.
Va Sonath, deputy chief of the port, said there is currently no concern, but he’ll be monitoring the situation in the coming weeks.
Shipping levels have remained steady throughout December. Last week, 4,445 containers passed through, compared to 4,523 the week before, Sonath said.
“The figure tells us there is no impact on garment exporting yet. [But] If there is a pause in production, surely the number of garment exports will decrease. I believe the government will find a solution to the issue soon.”
Sonath added that profits will certainly suffer as a result of inflated air-freight prices.
“Air shipping is only a temporary solution if they want to deliver their product fast. Air shipping costs like 10 times more compared to the cost at the port. They [garment factory owners] will not be able to make any profits sending products by air,” he said.
The deputy chief of administration at the Phnom Penh Autonomous Port, Kin Sen, said there were also normal shipping trends over the weekend.
“Whether or not the garment shipping will be decreased in the next two or three week, we do not know,” she said.
Nhim Bunrith, operator of Phnom Penh-based Apsara Garment Co, said he expects to pay three or four times the price of a standard shipping container for air freight charges if he has any chance of meeting his Japanese clients’ due date.
“Deadline penalties are a real consequence manufacturers are facing … depending on the size of the container, it costs between $1,000 and $2,000 for a 20-foot shipping container – the smallest size. Air freight meanwhile, costs the company triple that figure or more.”
The factory owner, who exports on average 30,000 garment units a month, said while transportation poses a significant threat to the future of his 350-worker operation, there are also day-to-day bills such as electricity and administration costs.
He said he’s considering other, more extreme, options.
“In fact, we are looking ourselves to other countries, including Vietnam, Indonesia and Myanmar – only if the situation continues to worsen. Our company has already discussed plans to leave Cambodia and I would not be surprised to see buyers looking elsewhere too.”
Bunrith’s less-than-optimistic sentiments about the current garment sector climate, which up until December this year was responsible for $5.7 billion of Cambodia’s total exports – the largest of all – were mirrored by the International Labour Organisation, which issued a statement yesterday calling for factories to reopen hastily.
“As [the garment industry is] Cambodia’s largest industrial sector, accounting for some … 400,000 jobs, the risks arising out of the current situation are significant for a sector which continues to operate in an intensely competitive international environment,” the statement said.
The ILO added that unrest highlighted the need for Cambodia to adopt a “more modern and robust” minimum wage system with annual reviews.
Ken Loo, secretary general of the Garment Manufacturers Association in Cambodia, said the industry group was unable to provide manufacturers with advice on alternate means of transporting goods or meeting their deadlines given the comprehensive roadblocks in place, but that GMAC had sent a letter informing the international buyer community of the industry’s status.
“Have we received any responses from the buyer community? No, it’s not our relationship to uphold and it is a matter for the manufacturers and their clients,” Loo said.
Tivea Koam, spokesman for the ILO offshoot Better Factories Cambodia, said buyers are undoubtedly concerned about labour unrest and its impact on production lines and supply chains.
“[But] the buyer community is too diverse to make general statements. Some large international buyers have made strong commitments to Cambodia and understand the complexity of the work environment,” he said. “Other buyers may decide to shift orders if the situation is not resolved in the near future.”
Hiroshi Suzuki, CEO and chief economist at the Business Research Institute for Cambodia, said while the garment sector will not be immediately affected by the strikes, the first and “major” impact would be felt by striking workers who go without pay.
“It is not so easy to estimate the damage in an amount of money,” he said. “The garment sector has enjoyed a good performance up to November with a 22 per cent increase on 2012, so the impact to Cambodian economy for 2013 would be very limited.”
H&M and Nike, two prominent global brands who source from Cambodia, did not immediately return requests for comment.