Covid surge in Vietnam is having a knock-on effect for global supply chains of top brands

[ASEAN NOW News]

The Vietnam Health Ministry confirmed 9,684 new Covid-19 cases Sunday, the highest number recorded on a single day to date.

 

Sunday's tally is the highest daily number ever recorded in Vietnam, followed by 9,225 on July 24.

 

This has resulted in many international manufacturers like Nike and Adidas being forced to close factories as infections rise.

 

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A record surge of Covid-19 infections has forced factories to shut in southern Vietnam, hitting one of the world’s busiest manufacturing centres for clothing and footwear and sending global brands looking for back-up suppliers.

 

The supply chain disruption is a massive blow to a country that had largely tamed local transmissions of the virus in 2020.

 

Vietnam was one of few Asian economies that grew and attracted new foreign investment last year despite the pandemic.

 

Now with record cases across the country, the government is imposing even stricter social distancing rules. This has now included regulations on worker transport and housing, and the deployment of staff on factory floors.

 

Two big footwear suppliers — Taiwan’s Pou Chen, which makes shoes for Adidas and Nike, and South Korea’s Changshin, which also supplies the US company — suspended operations last month.

 

Pou Chen is largest supplier in the country, and management said the plant planned to stay closed until at least August 9.  However, with weekend rates reaching record highs, reopening of many factories across Vietnam is likely to be delayed even further.

 

Supply chain constraints

 

Adidas warned last week that supply chain constraints could cost it as much as €500m in sales by the end of the year.

 

Feng Tay, another Taiwanese sports footwear manufacturer, closed several of its factories last month. The company makes shoes accounting for one-sixth of Nike’s annual sales, according to its website.

 

The Vietnam Textile and Apparel Association recently said that more than 30 cent of the country’s garment and textile factories were closed.

 

 

A report in state-run Vietnam News quoted the chair of the association as saying the vaccination rate among workers in the industry was “still very low”.

 

Vietnam has been hampered by a stuttering vaccine programme after the government was slow to procure jabs.

 

“With all provinces in Vietnam being hit by Covid, the situation is so unprecedentedly uncertain that buyers have to adopt a Plan B or C, including offshoring production to another country,” said Vu Ngoc Khiem of Global Sources, an ecommerce platform that links Asian suppliers with overseas buyers.

 

Vietnam Premium Samsung, one of Vietnam’s biggest employers, has also suffered disruptions to its smartphone manufacturing over recent months after a critical supplier of injection moulding equipment stopped operations.

 

The issue has been resolved but the tech group’s appliance factories near Ho Chi Minh City are running at about half capacity.

 

Operations are expected to “normalise” this month, the company said. Eurasia Group, the consultancy, said in a research note last week that there were concerns the outbreak in Vietnam “could harm production ahead of peak end-year/holiday season demand”.

 

Vietnam has lured new investments and supply contracts from global electronics, apparel and other companies seeking to diversify their operations away from China, Asia’s premier manufacturing centre, at a time of worsening Sino-US trade tensions.

 

Apart from the problems caused by Covid 19, all SE Asian exporters are also having to cope with the massive jump in freight charges too.

 

Now with brands seeking alternative supply chains, the pandemic could have long lasting repercussions for this SE Asian country.