Although smaller than other countries with a strong manufacturing presence, Vietnam plays a significant role in the global consumer economy by serving as a supplier to a number of major corporations, such as furniture for Walmart Inc., sneakers for Adidas AG and smartphones for Samsung Electronics Co. Next to China, Vietnam is the second-largest supplier of shoes and clothes to the U.S. The country also served as a major relocation point for manufacturers during the trade war between the U.S. and China.
Vietnam fared well for the majority of the pandemic compared to many other countries across the globe. In fact, according to the International Monetary Fund, the Vietnam economy grew by 2.9 percent in 2020.1
However, when the Delta variant struck in July 2021, the nation was hit hard, particularly in the nation’s industrial zones. In response to the outbreak, the Vietnam government imposed pandemic-related restrictions, which included a mandatory shutdown of many factories from July to September.
What was the impact of these shutdowns? This blog post details some of Vietnam’s biggest concerns and provides a roadmap for where the nation’s industry is headed.
Labor Shortages in the Apparel Industry
Starting in the summer, the primary issues pertaining to manufacturing in Vietnam related to labor shortages in the clothing and apparel industries. After months of mobility restrictions that the government implemented, which placed workers in housing near factories to minimize exposure, the restrictions have eased, prompting many laborers to return to their home villages.
This shortage caused factories to slow or close operations, which, for many companies, has wiped out months of production. As reported by Reuters, Nike Inc. is one of these companies that expects delays for the upcoming holiday shopping season. They have also cut fiscal 2022 sales expectations.
What would normally be peak production for winter clothing and holiday gifts sees the government imploring workers to return to factories by offering transportation. Companies are trying to incentivize workers by increasing pay and benefits with little luck.
Slower Port Operations
The Delta variant outbreak also hit Vietnam’s ports, creating a delay in export shipments and an increase in container dwell times, which began in August. By the time lockdowns were lifted in October, delays were up to a week.
Unlike port delays in the U.S. and China, which are primarily caused by staff shortages, congestion and rising container dwell times in Vietnam are related mainly to the COVID-19 lockdowns that caused an unavoidable workforce decrease.
Imports Decrease Due to Shutdowns
Factory shutdowns and slowed manufacturing have caused a decrease in exports shipped from Vietnam to the U.S. with some of the most significant declines happening in September, several months after the shutdowns began.
As reported by Supply Chain Dive, experts believe that this occurred so late due to high volume of product and a delay between manufacturing and shipping. Because of the global shipping crisis, the exports would have been manufactured earlier in the year before the shutdowns were enacted.
Signs of Hope
According to an article from Bloomberg, there are signs that the Vietnam COVID-19 situation may be improving. For one thing, Ho Chi Minh City has reported a strong increase in workers returning to industrial parks and export processing zones in the beginning of October 2021. As of early November 2021, apparel manufacturing is back to consistent production schedules that mirror pre-July 2021 schedules.
While COVID-19 case numbers continue to fluctuate, the death rate remains relatively low compared to the summer peak without signs of another increase. The country continues to accelerate its vaccination program with hopes to fully vaccinate 70 percent of the adult population by the end of March 2022.
Despite the Challenges, VPIC Has Pulled Through
For most of this article, we have focused primarily on manufacturing as it relates to the clothing and apparel industry, which has been the hardest hit. At VPIC Group, we faced many challenges, but at no point did we need to shut down our factories or make any major cuts to production schedules or workforce.
Here is how we adapted from the start of the Delta variant outbreak:
When the outbreak began in Ho Chi Minh City, Dong Nai Province, where VPIC operations are located, we did not have any new cases yet. However, our management started planning for the possibility that the government would implement shutdowns.
The outbreak reached Dong Nai Province at the start of July, causing a full lockdown. Management decided to keep most of the employees in VPIC's installations from July 16 to August 5. At this point, we were running at 70-75 percent capacity.
The situation did not improve until mid-September. During that time, our employees were tested constantly to keep operations running. At the end of September, we were able to ramp up production to 80-85 percent. By the end of September, most employees were fully vaccinated.
By mid-October, new cases went down by 70 percent across the country. Though cases have begun to increase since, the metric for understanding the COVID-19 pandemic has shifted from case count to vaccination rate. In Vietnam, nearly 50 percent of the adult population has received a full dose of the vaccine, putting the country on track to meet its goal of 70 percent vaccinated by March 2022.
Adapt with VPIC Group
As you can see, even during a global pandemic, our leadership is able to adapt to meet the needs of our clients while keeping our employees safe. Ready to begin manufacturing in Vietnam? Contact us today!