By Arthur Chen   Photo by Monstera from Pexels

The world has long been a global village, and every country is a member of the village. Any member who has a disease will infect other members. A sneeze from your neighbor is also related to you. The lock down by delta virus in Southeast Asia is a good example.

Vietnam is the second largest coffee exporter in the world. Because of the spread of the Delta virus, Ho Chi Minh City, Vietnam has implemented a new round of strict lockdown since August 23. Exports from the port of Ho Chi Minh City are restricted too, and some coffee-growing areas in the central highlands of Vietnam have been forced to close, and the global coffee supply chain will be disrupted once again. Previously, Brazil had the phenomenon of La Niño which destroyed coffee trees and caused the cost of coffee beans to rise. On the other hand, the ports was paralyzed because of lockdown in Vietnam, exporting coffee beans is not a possible so as to be expected that cause a new round of blows to the global coffee market. The Vietnam Coffee Cocoa Association urged the government to loosen restrictions on the city closure, because Bloomberg reported that under these restrictions, it is difficult for traders to ship coffee beans to ports and export overseas. In response to the call from the Vietnam Coffee Cocoa Association, Vietnam’s Minister of Transportation Nguyen Van Si said that he will urge officials in southern Vietnam to reduce unnecessary administrative obstacles to ensure that agricultural products can be transported and exported smoothly. Last year, Vietnam successfully controlled the spread of the covid-19 through blockades and strict tracking, enabling its economy to grow at the highest rate in the world in 2020. However, Vietnam has always short of stable supply of vaccines but to face the more contagious Delta virus, the Vietnamese government can only take measures to enforce lockdowns and restrict residents' movement.

The European Union consumes one third of the world's coffee, half of which comes from Brazil and Vietnam. Vietnam provided more than 20% of EU coffee exports in 2019. With the global warming, Brazil and Vietnam are extremely vulnerable to drought. The other two main coffee beans producing countries are Colombia and Kenya. Although they are not susceptible to extreme drought conditions, heat waves and leaf rust disease are also destroying the growth of local coffee beans. Mintec's senior market analyst said. "This year, Brazil’s coffee trees suffered from drought during the flowering season and then frost, so we have already seen lower coffee beans production." Brazil mainly exports high-quality Arabica and some Robusta coffee beans. Vietnam is a large producer of Robusta coffee beans, which are more resistant to boiling and have a bitter taste. They are mainly used to make instant coffee, espresso or as a supplement to some blended coffee. The prices of Arabica and Robusta coffee beans have risen to highs in many years. Consumers are unlikely to notice that the cost of a cup of coffee will increase rapidly, because most coffee suppliers’ contracts are locked in for six months. We have to be prepared for the price of coffee beans going up and the next few months will be very critical. Prices expected to rise further. Like other bulk raw materials, these are also one of the driving forces of inflation.

Next, let’s talk about Malaysia and Thailand. These two countries are also fighting against the Delta virus. Closing the cities is also a necessary. The multinational auto companies that have just gotten a little respite from the global "chip shortage" have been disrupted by the outbreak in these 2 countries. Since June, as the pandemic has continued to worsen and anti-epidemic measures have been upgraded, many factories in Malaysia and Thailand have had to reduce or suspend production, causing the already fragile global automotive supply chain to be destroyed again. It also caused the German automobile industry to face the worst chip supply crisis in 30 years. However, many domestic auto plants have expanded their production cuts due to the shortage of parts supply, leading to a decline in new car sales in July. The crisis faced by German and Japanese cars is now flowing into China. Beginning in August, many Chinese car companies have once again fallen into the predicament of exhaustion of on-board chips. The production cuts led by Japanese and German cars are spreading rapidly in China. If it is said that the production cuts and suspensions of vehicle factories affect the production capacity and sales only to auto companies themselves, then the suspension of operations of “Auto Parts” factories has brought a new impact to the global auto supply chain.

Southeast Asia is an important production base for auto parts and vehicles. Take Malaysia as an example. The country is one of the most important semiconductor packaging and testing bases in the world, accounting for 13% of the global packaging and testing share. It is also one of the world’s 7 largest semiconductor export centers. Most are multinational companies, including NXP, Infineon, STMicroelectronics, Intel, Renesas and other industry giants. The Malaysian semiconductor company's implementation of production cuts or suspensions affected the whole body and immediately affected the global semiconductor supply. Today's automobiles, especially electric vehicles, have a great demand for semiconductors. Semiconductors are the heart of a car. Without it, the car is completely paralyzed. The closure of the city due to the pandemic in Malaysia is just like the endangerment of infected patients who do not have enough oxygen to the automobile industry. Many multinational automobile factories in Thailand, such as Toyota and Honda, provide auto parts and vehicle manufacturing, and their sales markets are mainly in Southeast Asia. After the outbreak in Thailand, Toyota's three factories in Thailand shut down for a week. After Malaysia implemented a city-wide lockdown on June 1, Toyota and Honda's local plants have also ceased production. According to a Taiwanese businessman in Vietnam, the Toyota Camry he ordered waited 8 months before being delivered. This was ordered at the end of last year. If the order is placed in the middle of this year, the delivery time may be at least one year later. This is the current state of automobile sales in Southeast Asia. The reason is that the factories in Malaysia and Thailand stopped production, lacking auto parts and chips.

 The shutdown of factories in Southeast Asia due to the covid will inevitably cause a serious imbalance between supply and demand, which in turn will have a huge blow to the global supply chain. Southeast Asia, especially Malaysia and Thailand, are the front lines of Japanese manufacturing. Japanese car companies have gradually shifted their supply chains to Southeast Asia in recent years. For example, Thailand is Toyota’s third-largest overseas manufacturing base (after China and the United States). Therefore, it is particularly severely affected by the pandemic in Southeast Asia. Entering August, Toyota's two factories in Japan, as well as the two factories in Sorocaba and Porto Filiz, Brazil, have temporarily suspended production due to a shortage of “parts”. Honda's factories in North America and Japan have temporarily suspended production this year because of "chip shortage". According to statistics, due to the global chip shortage and the impact of the Southeast Asian lockdown, Japan's new car sales in July fell 4.8% year-on-year to 37.7 units, which was the first recession in the past 10 months.

 Finally, if one is a “rigid demand” consumer who encounter an “existing car” in their stock, I would advise you to place an order as soon as possible, because the lockdown in several Southeast Asian countries, without exception, has caused another round of major delays in the automotive industry! It takes longer for consumers to get a new car!

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