Just days after the U.S. hit Bangladesh with a 37-percent tariff, the south Asian country was dealt another supply chain setback by its own neighbor.
On Tuesday, India revoked Bangladesh’s access to a transshipment service that had enabled the country to export goods via its land borders using India’s customs stations en route to Indian ports and airports.
The withdrawal would deal a significant blow to Bangladesh’s air freight industry, which ships a large swath of exports out of airports like Indira Gandhi International Airport in Delhi. Last fall, the heavy congestion out Bangladesh’s own airports resulted in the highest year-over-year air freight rate acceleration across all major markets, according to Xeneta.
With the cessation of transshipment activities, air freight rates out of Bangladesh would undoubtedly escalate further if capacity cannot be increased.
According to Indian government officials, the decision came as the world’s most populous nation is facing its own supply chain bottlenecks for exports. Indian exporters, mainly from the apparel sector, had earlier urged the government to end the service.
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“The transshipment facility extended to Bangladesh had over a period of time resulted in significant congestion at our airports and ports,” said Randhir Jaiswal, spokesperson for India’s external affairs ministry, during a Wednesday press briefing. “Logistical delays and higher costs were hindering our own exports and creating backlogs.”
Apparel Exports Promotion Council chairman Sudhir Sekhri said that roughly 20 to 30 loaded trucks arrive in Delhi every day, which slows down the smooth movement of cargo, and airlines are taking advantage of this.
India first opened the service for Bangladesh in June 2020, which had enabled the latter to developer smoother trade flows when exporting goods to countries like Bhutan, Nepal and Myanmar.
Cargo already inside Indian territory en route to a third country will be allowed to proceed.
Bangladesh, like other apparel manufacturing countries including Vietnam, Myanmar, Cambodia and Sri Lanka, got a reprieve from its hefty tariff number Wednesday when U.S. President Donald Trump put a 90-day pause on the country-specific tariffs.
But despite now only having to endure a 10-percent reciprocal tariff, the rescinding of transshipment capabilities puts a major damper on Bangladesh’s export economy. Bangladesh is surrounded almost entirely by India, with the countries sharing a 2,500-mile border.
The move is expected to disrupt Bangladesh’s ready-made garment (RMG) exports and raise costs for trade with countries including Nepal, Bhutan and Myanmar, exporters said.
The RMG industry is the needle-mover for Bangladesh’s export economy, with apparel being 81 percent of the country’s total exports, according to the Bangladesh Export Promotion Bureau.
And Bangladesh is the second-largest exporter of garments worldwide after China, according to the World Trade Organization, so more supply chain bottlenecks could deliver ripple effects across the apparel industry.
The Bangladesh interim government’s commerce adviser Sheikh Bashir Uddin sought to reassure the country Thursday that it would not face any problems due to the cancellation.
“Discussions were held with business representatives from various sectors; even buyers were present. We will attempt to overcome the crisis through our arrangements,” Bashir Uddin told reporters. “Commercial capacity will be enhanced. Simultaneously, steps are being taken to ensure that there are no shortcomings in connectivity either.”
Bangladesh has endured plenty of chaos over the past year that has resulted in disruptions to both the RMG industry and wider supply chain. Deadly student-led protests over employment quotas in government jobs throughout last summer ultimately spurred on the ouster of Prime Minister Sheikh Hasina and the overhaul of the Bangladeshi government. The chaos over the summer included an 11-day Internet blackout, mass factory closures throughout the country and backlogs both in and out of Chattogram Port.
Prior to being revoked of its transshipment access to India, Bangladesh halted the import of yarns entering the country via its land ports—a decision that upset the country’s apparel exporters who want to better compete with cheaper materials. Roughly 95 percent of Bangladesh’s yarn imports come from India.
Beyond the supply chain, Bangladesh’s relationship with India has been strained since Hasina’s exodus.
Muhammad Yunus, the chief adviser to Bangladesh’s new interim government, stoked the flame on a trip to China in late May when he suggested that his country was the region’s key maritime gateway, not India.
“The eastern part of India…they are a landlocked region of India. They have no way to reach out to the ocean,” Yunus said at a roundtable discussion in Beijing. “So this opens up a huge possibility. This could be an extension of the Chinese economy.”