Mensholong LepchaAfter nearly three months of lockdown Vietnam’s cities and villages, offices and factories are slowly coming back to life after social distancing restrictions were loosened at the start of October.
However, labour shortage issues continue to affect the country’s manufacturing and export industry that caters to global clients including sportswear retailers Nike and Adidas and smartphone manufacturers Apple and Samsung Electronics.
Factory employees, many of whom had gone back to their villages after industrial hubs in southern Vietnam remained shut for nearly an entire quarter, are now struggling to make it back to the cities due vaccination and testing protocols.
ASEAN Vaccination rate - Source: Pantheon MacroeconomicsCompanies "hopeful" of recovery
Bloomberg reported that just 20% to 30% of workers have returned to Taiwan-based shoemaker Pou Chen’s Ho Chi Minh City factory.
“Vietnam’s factory shutdowns, coupled with the country’s integration into global supply chains (notably in retail and apparel, and electronics), have caused severe production disruptions for multinational companies (MNCs),” said Chua Han Teng, economist at DBS.
“These companies are somewhat hopeful for a recovery in operations over the coming months, amid reopening efforts. They are aiming to ramp up manufacturing capacity into the year-end holiday season, and are looking to restore activity to normalcy thereafter. Nevertheless, recovery from factory closures would take time, and some production has been diverted temporarily to other alternative locations, in order to meet higher seasonal demand,” Chua added.
Vietnam makes 49% of Nike's sneakers
Footwear exports dropped 40% in August compared with the previous month, official trade data showed, while textiles and garments export fell about 15% in the same period. Data for September is due to release later this week.
Local media Zing News reported that nearly 70% of Vietnamese textile, garment and footwear enterprises have been fined by their clients for late deliveries.
Last month Nike cut its sales forecast for fiscal 2022 and said it expects stock delays during the holiday shopping season with half of Nike’s footwear production based in Vietnam. According to S&P Global, Vietnam accounted for 49% of US seaborne imports linked to Nike and its products in the second quarter of 2021.
Not just a shortage of labour
S&P Global added that 82% of Nike’s Vietnam shipments in the past 12 months ended 30 June were footwear, which contributed to about 66% of the firm’s total revenues for the financial year ended 31 May 2021.
The situation is unlikely to be resolved swiftly as port congestions, container shortages and rising shipping rates add to labour shortage issues for Vietnamese exporters.
“Logistics is facing a lot of problems right now. The container boxes going to the US and Europe are not coming back to Asia. Because all these boxes are stuck there, the container charges which used to be $2000 per box are now $16,000 or $18,000 per box,” Suan Teck Kin, head of research at UOB Global Economics & Markets Research told Capital.com.
Long delivery times for iPhone 13
“So all these supply problems feed back to the producers. They can receive the order but cannot deliver it,” said Suan.
Major retailers including iPhone maker Apple are anxious whether the disruption in Vietnam will affect its year-end holiday 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 supply gap in inventories of camera modules for Apple’s latest flagship model. “There's nothing we can do but to monitor the situation in Vietnam every day and wait for them to ramp up the output,” sources told Nikkei.
Vietnam GDP - Source: Macrobond, UOB Global Economics & Market ResearchThird-quarter GDP fall
“So for Vietnam, I suspect the test will be how fast they can get back to normal,“ said Suan of UOB.
Just as the world was getting 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 a country’s economy.
“Against our expectation for a positive reading, the extent of the contraction in Vietnam’s 3Q21 headline GDP (gross domestic product) is surprising, which highlights the damages wrought by the highly contagious Delta variant of the COVID-19 virus around the world,” said UOB Global Economics & Markets Research in a note.
The third quarter saw Vietnam’s worst quarterly economic contraction on record as gross domestic product growth slumped -6.17%. The economic contraction was so unexpected that it forced the country’s single-party government to raise a white flag and abandon its zero-Covid strategy.
Retreat from zero-Covid approach
“Crucially, the grim Q3 GDP print masks a real turning point in the economy this month, sparked by the government's decision to ditch its uncompromising 'Zero Covid' approach,” said Miguel Chanco, senior Asia economist at Pantheon Macroeconomics.
