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Primark exposed as logistics firm flounders

Stock destined for Primark could be left stranded in factories as the value chain’s key logistics partner Ceva Logistics teeters on the brink of bankruptcy.

Ceva, which is thought to be Primark’s primary logistics provider, had its credit rating downgraded by ratings agency Standard & Poor’s (S&P) this month, from B-minus to SD (selective default) after failing to meet scheduled interest payments.

Competitor ratings agency Moody’s has also downgraded its credit rating for Ceva, classifying the business as “default imminent with little prospect for recovery”.

According to risk management firm Company Watch, Ceva has debts totalling $4.3bn (£2.8bn) and earlier this month Ceva announced EBITDA had dropped 21.8% to €251m (£214m), despite sales rising 4.8% to €7.2bn (£6.1bn). S&P said Ceva could file for bankruptcy if it doesn’t receive consent from note-holders for a refinancing plan.

Nick Hood, business risk analyst at financial research firm Company Watch, said the SD rating implied “there is a serious risk the company will fail”.

He added: “All the indicators are that this company is struggling to survive and is suffering a series of major adverse financial events, which may see it filing for bankruptcy.”

If Ceva does collapse into bankruptcy, retailers could be left in the lurch with stock stuck overseas, and Primark would be particularly vulnerable.

“It would be quite devastating to a lot of its retail clients,” said one supply chain insider. “It is a core logistics company across multiple geographies.”

A logistics source told Drapers: “Primark has used Ceva for years and has been very reluctant to talk to anyone else. If Ceva went bust then Primark would be in a pretty difficult position. If there are question marks around Ceva then they have to make sure they have a contingency.”

It is understood that value chain Peacocks also works with Ceva but has contingency plans in place. Another source said some supermarket chains could also be caught up in the fallout.

But Stephen Sidkin, chair of the fashion law group at law firm Fox Williams, said Primark’s exposure could be limited as its short-order approach to product means relatively little stock would be tied up in the supply chain.

However, he added: “There is always a certain amount of product that is held by the logistics company and there will be a question surrounding who owns this product.”

Sidkin added: “It could be very serious if retailers are operating on very short lead times. All it takes is for the sun to shine and they need to have T-shirts on the shopfloor.”

Primark declined to comment, while Ceva did not respond to requests for comment.

The value retailer has this week been caught up in controversy surrounding the collapse of a factory in Bangladesh, which has killed more than 200 people. Primark was among a number of retailers using the premises in Savar, near the country’s capital city Dhaka, which collapsed on Wednesday.

 

Readers' comments (3)

  • Demanding a cheap cheap supply chain from cradle to grave - will eventually put all in its path in this position.

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  • It does not take a partner at PWC to tell you that the only way Primark can keep their prices so low is by buying in the cheapest places in the world and using a logistics company that needs cash from them very quickly in order to keep themselves afloat. Primark will be ok as they are so big and their suppliers need them to keep going [but at what human cost]

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  • Before people point fingers at Primark or any other retailers sourcing from Bangladesh ...one should take a closer look at Bangladesh’s Governments lack of ambition. With over 4000 factories and one of the country’s biggest foreign currency earners and employers...what has the Government done to protect, secure and create an environment for global retailers to be associated with the Country.
    It is not global retailers who add pricing pressure- costings are very logical - majority of all raw materials are the same in any other part of the world. The only advantage is GSP and monthly salary cost- all other factors are virtually the same in any other part of the world.
    In Bangladesh each factory requires a min of 16 certificates each from different government agencies to trade; the level of corruption involved to ‘buy’ these certificates is beyond belief; the level of bureaucracy created by agency staff if the factory owners do not provide ‘financial incentives is beyond understanding. There is not a single political member of the ruling party or the opposition who in some way or other does not have a vested interest in the garment Industry.
    Let’s be clear on what is driving the real pressure on pricing ...one thing for sure it is not the global retailers; the pricing pressure is driven by Greed and Corruption at every stage;
    • Greed: from factory owners (driving the latest high end four wheel drives and living lavish lifestyles) drain the business
    • Corruption: merchandisers in sourcing offices who take anything from 5% to 10% commission form factory owners to placing orders.
    • Corruption: customs departments for incoming raw materials to be released with the minimum amount of bureaucracy hindrances.
    • Corruption: Sourcing office QC’s who charge 1 taka per piece they approve- if their demand is not met the goods go for continuous re-screening.
    • Corruption: factory merchandisers who receive kick backs from polybag to carton suppliers for orders placed.
    • Lack of respect for legislation: how many factories trade in buildings that have been condemned – inspectors paid to look the other way.
    • Factory owners are forced to keep monthly salaries down to compensate for the corruption add ons.
    What has the Bangladesh government done to support the industry?
    • How many apparel parks have been created to support the industry?
    • Why not one government agency to manage the compliance for factory set up?
    • What infrastructure projects are in place to support the industry in the next 10 years?
    • How can a country with Foreign Reserves in excess of $14bn- do nothing to support global retailers who have contributed to Bangladesh’s growth?
    It is about time the Bangladesh Government takes responsibility and cleans up its act and stops accepting greed and corruption as a way of life; pointing fingers at the western retailers who work incredibility hard to support the country is not the solution.
    One point to note- the bank on the ground floor sealed their offices as soon as they were informed of the cracks- staff were sent home...what other than greed and lack of responsibility for his work force did the owner force his workers to enter the building.

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