Non-payment fear: Garment exporters avoiding US orders

In view of the current financial turmoil in the United States, which has led to the closure of a few apparel retail outlets, Indian garment exporters are wary of taking new orders from US buyers fearing non-payment.

Apparel imports by the US have declined by 4.15 per cent between January and August 2008 from $49 billion during the corresponding period of the previous year to $47 billion. The slack in demand is expected to increase and Indian exporters are expecting some of the apparel importing companies there to shut down. With decreasing demand from the US, Indian garment exporters do not want to take any chances and are reducing exposure to that country. Almost one-fourth of the country’s total garment exports goes to the US.

“We are not taking any new orders to play it safe,” said Creative Group Managing Director Vijay Aggarwal, adding, “This Christmas, the demand for apparel is expected to decrease and US buyers may cancel or reduce their orders slated to be sent in February/March next year.”

Industry observers feel that this sentiment is justified, because today even the letter-of-credit does not guarantee the payment. “With dwindling apparel retail business in the US, Indian exporters are bound to feel worried,” said a Delhi-based textile and apparel industry consultant.

While big export houses such as Orient Craft are supposedly insulated from such a fallout, the medium and small ones fear both non-payment as well as further fall in demand. According to Sudhir Dhingra, Managing Director, Orient Craft, the situation differs from exporter to exporter. “All our buyers are reputed and have a big market. We also take the Export Credit Guarantee Corporation (ECGC) coverage that insures our shipments,” he said.

However, Aggarwal says, the ECGC cover doesn’t insure against the buyer filing Chapter 11, or reducing the order. At this time, trusting a buyer on his past record would be like trusting Lehman, which went bankrupt last month, he adds.

There is a fear that buyers may not actually release the payment, which is why exporters are now asking to minimise the ECGC cover, says Rahul Mehta, President, Clothing Manufacturers Association of India.