War in Gulf: Shoe soles to apparels, input costs surge, labour shortage hurting now

Ess Aar Universal (P) Ltd in Noida’s vast industrial hub, located to the south east of Delhi, has been manufacturing footwear for decades and has been a supplier to the Indian Navy and companies like Zara, Bata and Fizzy Goblet.

But over the last 10 days itself, Sudhir Rustagi, the promoter director of the company, told The Indian Express that the war in West Asia has forced him to operate the factory at half its capacity, and reduce the working hours to just 8.5 hours from 24 hour.

“For us, the cost of sole production has jumped by 15 per cent since the war began, largely due to increasing input costs. The cost of polyurethane (PU) rubber used in soles, for instance, has gone up by 50 per cent, and the availability of mono-ethylene glycol (MEG) used to increase the hardness of the sole is disrupted as it was imported from Kuwait. In the last 30 days since the war began, the company turnover has dropped by 25 per cent,” he said.

Footwear production across the country is feeling the pinch of the petrochemical supply crunch in the backdrop of the West Asia crisis. Petrochemicals are chemical products derived from crude oil and natural gas, serving as essential building blocks for plastics, fertilisers, detergents, synthetic fibres, and rubber.

India is the second-largest producer of footwear in the world, behind only China and provides employment to roughly 4.42 million people, as per the Ministry of Micro, Small and Medium Enterprises.

Mecca Rafeeque Ahmed, Chairperson of Chennai-based Farida Group, said rising input costs, particularly for soles, are putting significant pressure on footwear makers. “The cost of soles, which make up nearly 40% of a finished shoe, has risen by up to 30% due to petrochemical shortages. This has pushed up our overall input costs by at least 10%,” he said. “However, we are unable to pass on this increase to customers, as they are unwilling to absorb higher prices,” he said.

Not too far from the footwear unit is a textile manufacturing facility that primarily supplies garments to major European fashion brands. The ‘Line no. 5’ of the output division lies empty as the facility is facing labour shortages. Anil Peshawari, Managing Director, Meenu Creation, said 10-12 per cent of the workers have returned to their hometowns due to cooking gas shortage.

Peshawri said that the input cost has gone up by 10-40 per cent on items ranging from fabric to plastic, and this is complicating negotiations with buyers. “We are afraid that if the gas supply stops, the factory will stop,” he said, adding that at the moment, there have not been any curtailments in gas supply.

The biggest impact of the war has been on the prices and availability of poly-ethylene terephthalate (PET), Confederation of Indian Textile Industry (CITI) Secretary General Chandrima Chatterjee said. “PET is used in polyester fibre that goes into the production of roughly 40% of India’s apparel production, as 60% is still cotton-based. We have sought a duty exemption on cotton imports,” Chatterjee said. Industry sources said PET prices have surged by 20-30%, and the availability of the key input is a challenge across the industry due to blockade of the Strait of Hormuz.

The textile industry is not only facing challenges on the input side but also on the export front. The Apparel Export Promotion Council, in a letter to the Commerce and Industry Ministry, said about 11% of India’s apparel exports go to war-affected areas. Out of India’s total ready-made garment (RMG) annual export of $15.97 billion, $1.8 billion goes to war-affected countries such as the UAE, Saudi Arabia, and Israel.

According to apparel exporters, the $12,000 emergency conflict surcharge for container shipments has increased the price of items such as two-piece suits by Rs 43, raincoat by Rs 37, shirts by Rs 12, and trousers by Rs 18. Due to the war, apparel consumption may decline, and brand confidence could take a hit and reporter orders will also get impacted, AEPC said in its letter.

‘Gas rationing for industrial users’

The Iran war has already sent an energy shock to countries globally. While fuel prices haven’t seen an increase at the pumps, gas shortages have begun impacting restaurants, hawkers and labourers. The industrial units are also worried about a future disruption. Most manufacturing facilities in Noida, for instance, since last month have begun rationing gas usage due to warnings.

Beyond the industrial supply, cooking gas shortages have hurt labourers the most. “Our workers have said that they need an extra Rs 400 to cope with the gas supply shortages. We have 100% employees on roll,” Rustagi said.

In March itself, Indraprastha Gas Limited, a major natural gas supplier in the area, told Noida manufacturers who were its customers, to restrict usage since supplies from overseas sources and upstream suppliers had been significantly curtailed. “In view of the above, you are hereby advised to restrict your Piped Natural Gas offtake to Take Or Pay (ToP) levels, i.e., 80 per cent of your daily contracted quantity, with immediate effect and until further notice,” it said in a notification, and also recommended them to make adequate alternate fuel arrangements as a contingency. The government has said supplies to industrial and commercial consumers are being regulated at around 80%.

To take care of cooking gas demand, the government has ordered refiners to maximise LPG production and directed them to divert propane, butane, and other streams from petrochemical manufacturing to LPG production.

‘Gulf supplier declared force majeure’

Labour-intensive sectors are also facing severe risk, and several manufacturers have informed the commerce and industry ministry of possible layoffs in meetings called by the ministry last week. This is primarily because the footwear industry largely depends on imports of petrochemical-based products for manufacturing components used by export-oriented footwear factories, with a significant portion sourced from West Asia.

“Prices of key raw materials have surged by 20% to 80%, while rubber prices are expected to rise further by 50% to 60%, significantly increasing production costs,” Ajay Gaur, Deputy Director, Indian Footwear Component Manufacturers Association (IFCOMA), which has about 500 manufacturers as members, told The Indian Express.

Around 32 footwear components including soles, laces and fabric, are used to make a shoe. They are designed to provide structure, protection, comfort, and traction. Industry sources said prices of some key petrochemicals like synthetic rubber, PU, EVA, important for the manufacturing of soles and fabric, have almost doubled due to the shortage.

Farida Group, which also manufactures footwear for global brands, operates under binding six-month contracts. “Since we already have committed orders, we cannot scale down production either. We have no option but to absorb the higher input costs,” Ahmed said.

Gopal Gupta, President of the Agra Footwear Manufacturers & Exporters Chamber (AFMEC), said rising petrochemical prices are driving up production costs for footwear manufacturers. He manufactures footwear for various premium brands like H&M, Geox, Zara, Mango etc.

“The cost of key inputs such as soles, heels, PU lining materials, packing materials & adhesives — used to bond soles with upper materials — has pushed up overall input costs by around 10%. For exporters, this burden is further compounded by a 4-5 per cent increase in logistics expenses. Overall, the input cost has risen by nearly 15%,” Gupta said.

‘Export orders have declined to around 60%’

Industry sources said that the transit time for exports to key markets such as Europe and the US has increased from around 23 days to nearly 35-40 days. Since ships are avoiding the Suez Canal and rerouting via the Cape of Good Hope, an industry estimate pegs transit delay of up to 14 days and fuel cost increases of 20%. Similarly, freight cost has also spiked up to 750%–900% on some routes between India and West Asia.

Peshawari of Meenu Creation said the shipping crisis has forced them to use air freight, which has significantly increased the cost per garment. “While air freight has almost doubled, the cost of using sea freight has gone up from Rs 7 per garment using sea route to Rs 170 per garment using air freight. On top of that, we continue to face container shortages,” he said.