Garment and textile groups bemoan curbs
With the autumn-winter season coming up, Vietnam’s garment and textile industry could cash in on the increased demand for clothing.
However, amid social distancing, a resulting labour shortage, and vastly increased shipping costs, domestic apparel producers are struggling to make use of such opportunity and keep up with orders.
Apparel factories have attempted to remain operational through ever-changing regulations. Photo: Le Toan
Vietnam’s textile and garment industry currently faces labour shortages, and low vaccination rates are not helping. According to the Vietnam Textile and Apparel Association (VITAS), even if the pandemic was brought under control by the end of August, the export turnover of Vietnamese textiles and garments in 2021 may only reach $33 billion, a decrease of 6 per cent on-year, only completing 84 per cent of the year’s $39-billion goal.
To ease the pressure, many companies implemented a stay-at-work model. However, for some like Dony JSC, these plans were cancelled when Ho Chi Minh City last week initiated a stricter stay-at-home regulation.
“We spent all our resources on ensuring our workers’ safety,” said Pham Quang Anh, director of Dony.
His plan was to maintain 20 per cent of normal capacity, meeting at least part of the export orders. For this purpose, 95 per cent of Dony’s employees had already received the first vaccine injection. Dony has received orders until the end of the year, but delivering these will be a huge challenge. It still maintains the contracts of all of its employees, but only a third participates in production, with the rest stuck at home.
“Some buyers urged us to deliver, while others consider moving their orders to other regions or countries,” Anh said.
However, since nobody knows for sure when Dony can work at full capacity again, Anh is considering only “focusing on strategic and long-term buyers”, but even that could be difficult as it is near impossible to recruit more workers at the moment. He believed that other companies will also quickly resume production to meet orders and keep their market share, rendering the human resources market competitive.
At Vietnam National Textile and Garment Group, gross profits in the first six months of 2021 increased by 6.6 per cent over the same period last year, thanks to orders transferred from Myanmar and India, as well as contributions from the yarn segment with higher profit margins.
However, in other cases, profit margins do not look so healthy. Gross profits of TNG Investment and Trading JSC and Thanh Cong JSC decreased by 3.8 and 0.8 per cent over the same period last year, respectively, due to a shortage of orders for masks, anti-virus fabrics, and high shipping costs.
Moreover, the latest outbreaks of COVID-19 in the south have disrupted supply chains yet again. Vu Duc Giang, chairman of VITAS, said that prolonged restrictions greatly affect production and business activities of textile and garment companies. “The lack of human resources remains one of the biggest issues at the moment,” Giang emphasised.
According to Giang, orders are not the problem, but if the workforce cannot keep up with them, it will be difficult for businesses to meet agreements. In addition to the pandemic, many workers have also been moving to new jobs for higher wages. The expansion of industrial zones in many localities also caused the labour force to spread out wider among textile and garment employers.
Meanwhile, high logistics costs continue to hinder Vietnam’s industry. The shortage of empty containers and rising costs affect businesses with export orders, as container costs tripled in the first six months of 2021.
Despite the current hurdles for Vietnam’s garment and textile industry, the negative effects from the political situation and pandemic in Myanmar and India could present “an opportunity for Vietnam to increase its market share in the United States and South Korea,” said Nguyen Duc Hao, an analyst at VNDIRECT.
Hao noted that Indian textile and garment exporters are about to lose most of their orders to rivals, while Myanmar’s is also facing increased infections and an unstable political situation.
With its advantages, TNG JSC, Gilimex JSC, and Song Hong JSC could be the biggest beneficiaries, because their factories are located in Thai Nguyen, Nam Dinh, and Thua Thien-Hue provinces – all localities outside the current epicentre of the pandemic.
Hao believed that an increase in orders due to supply disruptions in the Indian and Myanmar markets could contribute up to 20 per cent to these companies’ revenues in 2021.
The US is Gilimex’s main export market, accounting for about 70 per cent of this company’s export revenues in the first six months of 2021. Meanwhile, TNG and Song Hong together recorded significant profit growths in the second quarter, thanks to orders transferred from elsewhere.
The US and EU are both markets expected to bring higher growth to Vietnam’s garment and textile sector in 2021 and 2022, when consumers fully return to shopping after social distancing is lifted.
Around half of the US population has been fully vaccinated against COVID-19, allowing Americans to move around again. As a result, the consumer price index (CPI) for US apparel in June increased by 0.7 per cent over the previous month. This growth contributed to the increase of US apparel imports in the first half of the year, up 31 per cent over last year, while apparel imports increased by 26.9 per cent, according to the US Department of Labor.
Meanwhile, according to the General Department of Customs, the EU’s garment and textile import turnover from Vietnam in May and June climbed 11.9 and 21 per cent on-year, respectively. The EU’s CPI for May and June for clothing and accessories also rose 0.41 and 0.38 per cent, respectively, from the previous month.
Stagnant business and production activities as a result of the impact of Covid-19, increased pressure over delivery to partners, and high transport costs are threatening the supply chains of the apparel sector.