Vietnam to slow global supply chains despite lockdown lifted

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After nearly three months of lockdown, Vietnamese towns and villages, offices and factories are slowly coming back to life after social distancing restrictions were relaxed in early October.

However, labor shortage issues continue to plague the country’s manufacturing and export industry which caters to global customers including sportswear retailers Nike and Adidas and smartphone manufacturers. Apple and Samsung Electronics.

Factory workers, many of whom had returned to their villages after southern Vietnam’s industrial centers remained closed for nearly a quarter, are now struggling to return to cities due to vaccination protocols and test.

ASEAN vaccination rate – Source: Panthéon Macroéconomie

Businesses “hope” for a recovery

Bloomberg reported that only 20% to 30% of workers returned to the shoemaker Pou Chen’s factory in Ho Chi Minh City.

“Plant closures in Vietnam, coupled with the country’s integration into global supply chains (particularly in retail and clothing, and electronics), have caused severe disruption in production for multinational enterprises (MNCs), “said Chua Han Teng, economist at DBS.

“These companies are somewhat hoping for a resumption of operations in the coming months, as part of the reopening efforts. They aim to increase manufacturing capacity until the holiday season and seek to restore activity to normal afterwards. However, recovery from plant closures would take time and part of the production has been temporarily diverted to other alternative locations, in order to meet higher seasonal demand, ”Chua added.

Vietnam manufactures 49% of Nike sneakers

Footwear exports fell 40% in August from the previous month, according to official trade data, while textiles and clothing exports fell about 15% during the same period. Data for September is expected to be released later this week.

Local media Zing News reported that nearly 70 percent of Vietnamese textile, garment and footwear companies have been fined by their customers for late delivery.

Nike last month lowered its sales forecast for fiscal 2022 and said it expected inventory delays during the holiday shopping season, with half of Nike’s footwear production based in Canada. Vietnam. According to S&P Global, Vietnam accounted for 49% of U.S. maritime imports related to Nike and its products in the second quarter of 2021.

Not just a labor shortage

S&P Global added that 82% of Nike’s shipments to Vietnam in the past 12 months ended June 30 were shoes, which contributed about 66% of the company’s total revenue for the fiscal year ended May 31, 2021. .

The situation is unlikely to be resolved soon as port congestion, container shortages and rising shipping rates add to the labor shortage problems for Vietnamese exporters.

“Logistics are facing a lot of issues right now. Containers going to the United States and Europe do not return to Asia. Because all of those boxes are stuck there, the container charge that was previously $ 2,000 per box is now $ 16,000 or $ 18,000 per box, ”Research Manager Suan Teck Kin told Capital.com. at UOB Global Economics & Markets Research.

Long delivery times for iPhone 13

“So all of these supply issues are impacting producers. They can receive the order but cannot deliver it, ”Suan said.

Major retailers, including iPhone maker Apple, are worried about whether the disruption in Vietnam will affect its year-end sales. Nikkei Asia Review reported that buyers of Apple’s new iPhone 13 may face longer-than-expected delivery times due to manufacturing delays in Vietnam.

Sources told Nikkei of a lack of supply in inventory of camera modules for Apple’s latest flagship model. “We can do nothing but monitor the situation in Vietnam every day and wait for them to increase production,” sources told Nikkei.

Vietnamese GDPVietnam’s GDP – Source: Macrobond, UOB Global Economics & Market Research

Decline in GDP in the third quarter

“So for Vietnam, I suspect the test will be how quickly they can get back to normal,” UOB’s Suan said.

As the world got used to the ‘new normal’ of the pandemic era, Vietnam’s severe economic contraction in the third quarter of 2021 showed how unpredictable and devastating the effects of Covid-19 can be on the economy of ‘a country.

“Contrary to our expectations of a positive reading, the magnitude of the contraction in Vietnam’s overall GDP in 3Q21 (gross domestic product) is surprising, highlighting the damage caused by the highly contagious Delta variant of the COVID- virus. 19 in the world, ”UOB Global Economics & Markets Research said in a note.

The third quarter saw Vietnam’s worst quarterly economic contraction on record, as gross domestic product growth fell -6.17%. The economic contraction was so unexpected that it forced the country’s one-party government to raise the white flag and abandon its zero Covid strategy.

Retreat from the zero-Covid approach

“Importantly, the grim impression of Q3 GDP masks a real turning point in the economy this month, triggered by the government’s decision to abandon its no-compromise ‘Zero Covid’ approach,” said Miguel Chanco, senior economist for Asia at Pantheon Macroeconomics.

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