6 charts show the effects of Vietnam's lockdowns on supply chains

Linh Pham via Getty Images 

Four months of increasing restrictions meant to abate a deadly pandemic took a toll on the country's people, economy, and business partners. Canceled orders and product delays became the norm for U.S. businesses with suppliers in Vietnam, as COVID-19 cases overwhelmed the country. The country has since reopened, but manufacturers are now concerned of a new labor shortage after thousands of migrant workers—many of whom lost their jobs during the lockdowns—left the country once restrictions were lifted.

Here's a look back at how the restrictions unfolded and the mounting effects on business, in six charts.

1. A rising trading partner for the U.S.

Vietnam is one of the largest exporters of furniture to the U.S., and suppliers in the country also manufacture apparel, electric machinery, semiconductors and rubber products, according to data provided by Descartes Datamyne.

"Vietnam has ... been able to say to their customers, 'You want a product; I'll deliver you the product,' as opposed to, 'You want a product; tell me how to build it, and I'll make it for you,'" Tom Gould, vice president of global customs at Flexport, said on a July Webinar.

This versatility has made Vietnam a leading import partner for the U.S. in Southeast Asia, as companies over the years looked to diversify their sourcing base beyond China.

Vietnam is a key source for products in Asia

Top sourcing regions for U.S. buyers

 

Chart: Shefali Kapadia / Supply Chain Dive  Source: QIMA  Get the data  Created with Datawrapper

2. A pandemic success story, flipped on its head

Early in the pandemic, Vietnam was regarded as a coronavirus success story.

Strict containment measures and an export boom helped the country's economy grow by 2.9% in 2020, "one of the highest growth rate in the world," according to the International Monetary Fund. 

But when a new wave of coronavirus struck in May 2021, the story was flipped on its head.

At first, containment measures in the country were meant to be short. Ho Chi Minh City, a manufacturing hub for the country, implemented social distancing measures May 31 that were only meant to last two weeks.

But as COVID-19 cases escalated, so did the shelter-in place restrictions, according to a daily coronavirus tracker in the Vietnam Briefing. Shelter-in-place orders were issued, gatherings were restricted, and factories shut down, all as the government attempted to mitigate the spread of the pandemic.

Less than 3,000 COVID-19 deaths had been reported in Vietnam prior to May 2021. That number has now topped 21,000, according to World Health Organization data.

COVID-19 cases in Vietnam exploded after May 2021

Confirmed cases since Dec. 31, 2019. Shaded dates represent the lockdowns in 2021.

Chart: Edwin Lopez / Supply Chain Dive  Source: World Health Organization  Get the data  Created with Datawrapper 

3. COVID-19 cases slow port operations

COVID-19 cases also hit ports in Vietnam, contributing to the decline in exports as shipments were delayed, according to data from Project44. Container dwell times rose consistently since August, reaching nearly a week of delays by the time the lockdowns were lifted on Oct. 1. 

"Unlike the other ports in US and some ports in China, the Vietnam dwell times and congestion were mainly related to COVID-19 lock downs," said Hariesh Manaadiar, director of market & data intelligence at Project44, adding the workforce available at Vietnam ports dropped "by about 50%."

Dwell times at Ho Chi Minh City's port rose due to COVID-19

Daily dwell times for loading and unloading containers at Saigon New Port

Note: Port of load data for September 11, 2021 is an average of the surrounding dates, due to a missing data point.

 

Chart: Edwin Lopez / Supply Chain Dive  Source: project44  Get the data  Created with Datawrapper 

4. Imports plummet due to shutdowns

As factories shut down and manufacturing slowed across the country, exports from Vietnam to the U.S. began to drop as well, Chris Jones, executive vice president of industry and services at Descartes, said in an email. The steepest decline in exports came in September, months after the lockdowns started.

"As for why the volume held throughout July and August and only started to fall in September, we have to account for the delay between manufacturing and shipping," Jones said. "Given the global shipping crisis, it is likely that Vietnamese exports to the United States in July and August were manufactured much earlier in the year."

After years of growth, Vietnam imports plummet in September

Total imports from Vietnam in TEUs

 

Chart: Edwin Lopez / Supply Chain Dive  Source: Descartes Datamyne  Get the data  Created with Datawrapper 

5. Global brands faced elevated risks

The combination of factors affecting shippers' ability to make and export products affected brands worldwide, though not every product and company was affected equally.

Cowen and Company published a research note in early October, looking at the potential effect on sales shutdowns in Vietnam could have. As part of that research, analysts at the investment banking looked at specific brands' exposure to country by measuring the percent of their sourcing base with operations in Vietnam.

As the situation worsened in August and September, a number of companies with high exposure said they expected financial hits in SEC filings as a direct result of the situation in Vietnam.  

Jonathan Ramsden, CFO of Big Lots, said factory closures were expected to cost the company $60 million in sales "due to receipts [we are] not expecting to get in time for the normal selling season."

Brands highly dependent on Vietnam were exposed to more risks

% of total sourcing in Vietnam for each brand 

 

Chart: Edwin Lopez / Supply Chain Dive  Source: Cowen and Company Get the data  Created with Datawrapper 

6. Furniture, apparel sellers feel the effects

Big Lots specifically called out its furniture product category as an at-risk segment for sales. Furniture is Vietnam's top export, representing 35% of total TEUs brought into the U.S., and 28% of bills of lading, according to Customs and Border Protection data provided by Descartes' Jones.

But companies that source other categories are feeling the effects, too.

Apparel imports also cratered in September 2021

U.S. imports from Vietnam since 2019, in TEUs

Notes: Shaded dates indicate the lockdowns in 2021. Harmonized Tariff chapter 61 includes articles of apparel and clothing accessories, knitted or crocheted; chapter 62 includes articles of apparel and clothing accessories, not knitted or crocheted; chapter 63 includes other made-up textile articles, sets, worn clothing and worn textile articles, rags; chapter 64 includes Footwear, gaiters and the like, and parts of such articles.

 

Chart: Edwin Lopez / Supply Chain Dive  Source: Descartes Datamyne  Get the data  Created with Datawrapper 

What's next?

Factories began to reopen as of October, but it may take a while before capacity recovers.

The events of the past months took a significant toll on workers in the country. In the days after restrictions were lifted, Reuters reported thousands of workers left Ho Chi Minh City, where nearly half of reported COVID-19 cases took place. And now, manufacturers in Vietnam fear additional labor shortages despite a reopened economy.

In its research note, Cowen suggests capacity could normalize anytime between the end of October 2021 (an "optimistic but least realistic view") and Q1 2022 (a "Draconian view").

Until capacity recovers, companies will continue to face product delays or cancellations.

"Orders are now 8 weeks plus delayed according to our contacts," John Kernan, the author of the Cowen report, said in an email the first week of October. In addition, "vendors are canceling orders the retailers are making."

Source: supplychaindive.com by Edwin Lopez