Cambodia's garment and textile sector is facing a sharp cost hike, with transport expenses rising by approximately 20% due to surging international oil prices fueled by tensions with Iran. This increase is not an isolated event but another example of how geopolitical risks are transmitting through the textile supply chain.
Background
Cambodia is a major garment and textile processing base in Southeast Asia, heavily reliant on imported raw materials and export of finished goods. Transportation constitutes a significant portion of its cost structure. According to industry representatives, rising fuel prices are the direct driver of the transport cost jump. The Iran situation has caused volatility in the international crude oil market, impacting Cambodia's inland logistics, which depends on diesel, and its maritime shipping links.
This cost increase comes against a backdrop of subdued global textile demand. Inventory adjustments in major Western consumer markets are not yet complete, and order recovery is slower than anticipated. Cambodian textile enterprises are caught in a pincer movement of insufficient orders and rising costs.
Industry Impact
A 20% rise in transport costs significantly compresses profit margins for garment manufacturers, which typically operate on margins of only 5% to 10%. Some small and medium-sized enterprises may face the dilemma of taking orders at a loss or suspending operations to wait for better conditions.
From a supply chain perspective, Cambodia's situation serves as a warning. Other textile hubs in Southeast Asia—including Vietnam, Bangladesh, and Indonesia—also depend on imported fuel and foreign trade logistics. If oil prices remain high, the entire region could face similar cost pass-through. This may lead buyers to reassess the cost-effectiveness of Southeast Asian orders, potentially shifting some business back to China, where the supply chain is more integrated and logistics costs are relatively more stable.
Furthermore, Cambodia's textile industry faces other structural challenges: rising labor costs year on year, unstable power supply, and the potential partial revocation of EU's EBA tariff preferences. The transport cost increase, combined with these factors, may accelerate the relocation of some foreign-invested capacity to other low-cost countries.