As a major producer of clothes and footwear, the recent situation of the New Crown epidemic in Vietnam has worsened, and strict epidemic prevention measures have forced a large number of Vietnamese OEMs to close. This brings a lot of potential risks to the supply of goods of large multinational enterprises in Europe and America.

Epidemic causes production shutdown at Vietnam plant

With a new round of health incidents reigniting, enterprises and factories in Vietnam have seen a “wave of closures”.

According to the Ministry of Investment and Planning, in the first half of this year, a total of 70,209 enterprises closed down in Vietnam, an increase of 24.9% over last year. This is equivalent to 400 enterprises closing down every day.

It is reported that global brands from Toyota (Toyota) to Nike (Nike) and other major production sites in Vietnam were forced to shut down due to the blockade; electronics companies, including Samsung and Foxconn, also faced production difficulties due to the blockade.

In addition, as the world’s second-largest exporter of textiles and garments, about one-third of Vietnam’s textile and garment factories were closed due to the epidemic. According to the Vietnam Textile and Apparel Association (Vitas), 30 to 35 percent of the country’s garment factories are currently closed.

Production disruptions, Adidas considers price hikes

Statistically speaking, Vietnam is the third-largest producer of footwear products after China and India from 2013 to 2019, and in recent years, Vietnam has been able to rank among the top five in the world in terms of exports of apparel products. For some brands, Vietnam is particularly important in their supply chain.

Due to the impact of the epidemic, Vietnam’s OEM factories are close to “zero output” and local factories have shut down production causing a “supply cut-off” crisis.

Coupled with the U.S. importers and consumers of Asian goods, especially Chinese goods import demand is high, but port congestion, delivery delays, shortage of space has become increasingly serious situation has not improved, the U.S. retailer’s current inventory of goods can only be maintained for about a month, a record 30 years (since 1992) the lowest inventory record.

For example, Adidas has 28% of its products from Vietnam, the fiscal year 2020, Nike brand shoes is almost half of the contract factory located in Vietnam, but in July at least three Nike suppliers located in Vietnam factory shutdown.

In the financial report statistics that came out in June this year, Nike shoes produced in Vietnam accounted for 82% of the U.S. consumer market in the past fiscal year. The Vietnam factory shutdown is said to be the main reason for the disruption of Nike shoes in the United States.

Such production disruptions will also bring direct losses to major brands, with Adidas saying earlier this month that the capacity of most of its suppliers located in Vietnam has not been available since mid-July and that it expects to lose $600 million in sales in the second half of the year as a result.

Adidas also noted that such production disruptions will make it impossible to fully meet strong demand and will consider price increases. Meanwhile, some major brands have also long begun to readjust their supply chains.

Loss in the number of international orders from Vietnam

According to the Wall Street Journal, in order to reduce the risk of supply from the epidemic, U.S. footwear provider Wolfram Group has shifted some of its production capacity back to China this year, and the head of the company said that the supply situation in Vietnam is now very unstable.

In this regard, the chief investment officer of a Vietnamese company also said that Vietnam is now facing some difficulties, but in the next few months there should be vaccines coming in, and if more people can be vaccinated and everything goes well, it may be at the end of this year to early next year before production can return to normal. At least half a year away, companies and factories can’t afford to wait.

With the shutdown, many companies are losing orders, making these companies only consider scaling back their production capacity and capital investment in Vietnam.

Among them, Jabil said, affected by the epidemic, many of its business partners have been shifting orders to other countries such as China and Singapore. Obviously, this is also a major challenge for Vietnam, the outflow of capital will also cause greater economic losses in Vietnam.

In August, more than 80 U.S. apparel and footwear companies, including Nike and GAP, have sent a joint letter to Biden asking the U.S. to speed up vaccine donations to Vietnam.

The latest news shows that Cuba will provide vaccines and technology transfer to Vietnam, while the relevant Vietnamese authorities have recently acknowledged some problems with the current epidemic prevention and control measures, and may consider adjustments.