Vietnam’s Covid outbreak hits global supply chains

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A record wave of Covid-19 infections has forced factories to close in southern Vietnam, hitting one of the world’s busiest clothing and footwear manufacturing centers and sending global brands in search of suppliers rescue.

The disruption of the supply chain is a blow to a country that had largely brought local transmissions of the virus under control by 2020. Vietnam was one of the few Asian economies to grow and attract new foreign investment last year. despite the pandemic.

Vietnam’s daily new cases are between 7,000 and 8,000 and almost all of the country’s more than 200,000 infections have been recorded since early July.

Ho Chi Minh City, Vietnam’s largest city, has been the hardest hit. He imposed strict social distancing measures on July 9, including rules on the transportation and housing of workers, and the deployment of staff to factories.

Two major shoe suppliers – Taiwanese Pou Chen, which makes shoes for Adidas and Nike, and South Korean Changshin, which also supplies the American company – suspended operations last month.

Pou Chen halted production at a factory in Ho Chi Minh City, the country’s largest, on July 14, and said the plant would remain closed until at least August 9. The company’s other Vietnamese factories have been forced to downsize.

“Local government requirements have affected the ability of workers to come to work, which has resulted in lower capacity utilization,” the company said.

Pou Chen shipped 244 million pairs of shoes last year, 44% of which came from Vietnam. Adidas warned last week that supply chain constraints could cost it up to $ 500 million in sales by the end of the year.

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

The Vietnamese Textile and Clothing Association said recently that more than 30 percent of the country’s clothing and textiles factories were closed. A report published by the state agency Vietnam News quoted the association’s president as saying that the vaccination rate among workers in the industry was “still very low”.

Vietnam has been hampered by a stuttering vaccination program after the government delayed getting vaccines. Only about 1% of the country’s approximately 98 million people have been fully immunized.

Coronavirus cases have been reported across Vietnam and have disrupted other sectors, including electronics.

“With all the provinces of Vietnam affected by Covid, the situation is so unprecedentedly uncertain that buyers must adopt a Plan B or C, including the relocation of production to another country,” said Vu Ngoc Khiem of Global Sources , an e-commerce platform that connects Asian suppliers with overseas buyers.

Samsung, one of Vietnam’s largest employers, has suffered disruption in the manufacturing of its smartphones in recent months after a critical supplier of injection molding equipment went out of business.

The problem has been fixed, but the tech group’s home appliance factories near Ho Chi Minh City are operating at around half of their capacity. Operations are expected to “normalize” this month, the company said.

Eurasia Group, the consultancy firm, said last week in a research note that there were concerns that the outbreak in Vietnam “could hurt production ahead of the peak in year-end / holiday demand.” .

However, health officials have said in recent days that Covid cases in Ho Chi Minh City are “leveling off,” which could indicate the worst of the current wave of infections has passed.

Vietnam has attracted new investment and supply contracts from global electronics, apparel and other companies seeking to diversify their operations away from China, Asia’s leading manufacturing center, during an era of worsening of Sino-US trade tensions.

Additional reporting by Edward White and Song Jung-a in Seoul