• Fabric supply chains shift towards South East Asia for new supply relations, breaking away from China dependence 
• Sri Lanka’s weft-knit fabric maker Teejay Lanka PLC benefits from new change in global textiles trade flows 
• Teejay invests US $ 26mn in Indian plants, increasing capacity by 20 tonnes a day to a total daily capacity of 55 tonnes
• New developments to soften adverse impacts on local textiles and fabric industry with GSP Plus withdrawal

The trade rebalancing act that took place between the United States and China has already worked in Sri Lanka’s favour, as the fabric supply chains began shifting towards South East Asia, seeking to establish new supply relationships after being too dependent on China for far too long. 

Sri Lanka-based weft-knit fabric maker Teejay Lanka PLC became one of the beneficiaries of this shift in global trade flows in textiles and in particularly the move away from China, as the global retailers sought to enter into new supply chain relationships with the fabric makers in South East Asia in their attempts to diversify and lessen their dependency on China. 

Amid all the unexpected adversities confronted by the company during the forgoing financial year, due to the pandemic, its Chairman Bill Lam said, “The ongoing US-China trade war however worked in favour of Sri Lanka, as orders were moved away from the region to South East 
Asian regions.” 

Former US President Donald Trump embarked on a highly contentious, yet a long overdue trade rebalancing exercise during the past four years with China, which literally became the factory to the world during the last two decades, a journey which accelerated after China receiving the World Trade Organisation membership in 2001. 

As a result, setting up of offshoring manufacturing bases in China faced some speed bumps during the last couple of years with the tariffs being imposed on companies that seek production basses in China and Chinese imports. However, the high level talks held between the two countries resulted in a first phase trade pact in January last year, de-escalating the trade spat, which lasted for three years.         

“Mitigation of reliance on single destinations for fabric has been placed high on the agenda of many retailers who are now looking for diverse locations to fulfil their fabric requirements, which was dominated by China up to now,” Lam added in his annual review of operations to the company’s shareholders.  

Teejay Lanka is better poised to take advantage of this shift, as it has a strong presence in Sri Lanka as well as in India and the company is investing in further capacity expansions. 

In response to this shift the company is investing US $ 26 million in its Indian plants, which will increase its capacity by 20 tonnes a day to a total daily capacity of 55 tonnes while the Sri Lankan plants are also receiving a facelift through the modernisation of technical machinery for dyeing and printing processes. 

This shift in supply chains from China is also expected to blunt any adverse impacts on the local textiles and fabric industry from a possible withdrawal of GSP Plus concessions.

However, the ban on Xinjiang cotton saw a price increase in cotton, affecting the global apparel industry as majority of the material cost is based on cotton prices.

Teejay’s new Indian plant will have flexible knitting machines, which can convert cotton to synthetic fabric, a type of fabric that is expected to have an exponentially high demand and could fetch higher margins. 

While the raw material cost in general is expected to put pressure on margins, the company’s future order book looks strong as its focus on fabric for intimate wear, comfort wear and lounge wear relatively has a less impact from the pandemic-induced economic troubles compared to fabric suppliers to other apparel segments. 

For the full financial year ended on March 31, 2021, Teejay reported revenues of Rs.31.85 billion or US $ 171.58 million, slipping slightly from the previous year, due to the initial disruptions caused by the pandemic but the company remains resolute in reaching US $ 300 million revenue from two years from now.