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Vietnam's Delta virus continues to deteriorate, and the lockdown results in the closure of a large OEM factories for EU & US. The production capacity of some Chinese-funded enterprises returned to China. The international supply chain will be readjusted..

30 Aug 2021

By Arthur PhotoBobMcEvoy, LinkPixabay

As major producer of clothing and footwear, Vietnam is having strict anti-pandemic measures by lock down whole country leading a large number of factories in Vietnam forced to be closed down. This has created great risks to the supply chains of many large multinational companies in Europe and the United States. At present, some international-brands have indicated that they are considering price increases. Because of the Ministry of Health of Vietnam announced 12,096 new confirmed cases of COVID-19 on the 25th. So far, Vietnam has published more than 10,000 new infections in a single day for 7 consecutive days. The pandemic in Vietnam is severe, with more than 370,000 people infected in the past four months.

Between importers in European and American with high vaccination rates and the manufacturing in Southeast Asian countries with extremely low vaccination rates, it has reflected the huge impact of a serious gap between consuming demand and production supply, and inflationary pressure has been created. Before the holiday shopping season, many companies have faced a series of challenges by achieving lower cost and timely delivery. They are included the outbreak of the pandemic at the port, shortage of containers and rising raw material prices. Vietnam is the second largest supplier of footwear and clothing to the United States after China. 30% of imported shoes in the US market are produced in Vietnam. Many international-brand companies are trying to find alternative suppliers from China and other places, by paying expensive air freight, seeking to quickly ship products to the Western market to make up for the consequence of production delays. Beside Vietnam at the third largest producer of footwear products after China and India, in recent years, Vietnam’s clothing exports have also ranked among the top five in the world. For some brands, Vietnam is particularly important in the clothing and shoe supply chain. Adidas said earlier this month that most of its suppliers in Vietnam have been shorted in supply capacity since mid-July this year. It is expected that in the second half of the year, it will lose $600 million in sales. The company also pointed out that this kind of production interruption must not be able to fully meet the strong demand in Europe and the United States. Retail price increase is an “must” option. The inflation has coming back silently but it will hit everyone heart soon.  

Back to 2018, affected by geopolitical risks and trade frictions, some large brand companies have already transferred production capacity from China to Vietnam and other countries before the covid-19. However, according to the Wall Street Journal, in order to reduce the risk of supply chain disruption by covid-19, the US footwear provider Wolverine Group has transferred part of its production capacity back to China this year. The company said that the current supply situation in Vietnam is unstable. In addition, 28% of Adidas products come from Vietnam. In 2020, almost half of Nike shoes will be provided by contract factories in Vietnam. However, since July at least three Nike supplier factories in Vietnam have stopped production. Such supply chain down have brought direct and significant losses to major brands. Compared with most of countries, China has strictly control of the epidemic expanding, and most factories have been running their production lines. The overwhelming lock down in Southeast Asia, especially Vietnam, the urgent purchase orders of clothes and shoes have returning back China which is the biggest beneficiary.

An asset management company in Vietnam optimistically pointed out that the vaccine should come in in the next few months so that more people can be vaccinated. If all goes well, production may return to normal before the end of this year or the beginning of next year. However, from the current penetration rate of vaccine delivery and the exhaustion of medical resources, although the most stringent lockdown is used to control the spread of the delta virus, it may be too optimistically predict that the supply chain resumed in 2021. 

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