Broken supply chains put Vietnam’s apparel sector in limbo

Vietnam Textile and Apparel Association (VITAS) Chairman Vu Duc Giang said on Monday (2 July) that up to 90 percent of the country's supply chains have been broken.

"Surging Covid-19 rates have forced 30 percent to 35 percent of the country's apparel and footwear factories to suspend operations and I think that a number of these factories will even have to close for a long time, especially small and medium enterprises," he said while talking at a virtual meeting.

Companies from spider-silk producer Kraig Biocraft to shoemakers Puma and Wolverine have all lamented their challenges in Vietnam in recent weeks.

The country has reportedly been battling its worst coronavirus outbreak to date putting more than one-third of its textile and garment sector is in limbo.

Most of these businesses, VITAS chairman noted, are unable to afford the live-work accommodations that support the health ministry's "3 in one spot" guidelines, which require employees to work, eat and sleep in one location to curb the spread of infection.

The Southeast Asian nation has logged 174,000 cases and more than 2,070 deaths, most of them within the past month.

According to data from its health ministry, Vietnam has fully vaccinated only 700,000 people—or less than 1 percent of the country's 98 million-strong population—since it rolled out its program in early March.

In a recent letter to Prime Minister Phạm Minh Chính, the American Apparel and Footwear Association, an industry group whose members include Adidas, Gap and Under Armour, urged authorities to "prioritize the distribution of vaccines to Vietnam's apparel, footwear and travel goods industries" and keep a "vital part of the Vietnam economy intact."

At the beginning of the outbreak in 2020, Vietnam benefited from the sourcing shift from China by dispatching $29 billion worth of apparel, or 6.4 percent of the global market. Besides, it managed to replace Bangladesh last year as the world's second-largest exporter of clothing after China.

Meanwhile, China's Pou Chen Corporation on Monday announced that its Ho Chi Minh-based Pouyuen Vietnam factory, which supplies footwear to brands such as Adidas and Nike, would be prolonging its already extended lockdown from Aug. 1 to Aug. 9. The facility had originally been scheduled to close from July 14-23.

While Pouyuen Vietnam is merely a small part of a wider industry, it can be said that without serious intervention the losses from stilled production lines will only add up.

"In the last five months of the year, businesses could only start exporting again if the pandemic situation is completely under control," Vu Duc Giang said. "In the most optimistic scenario, we can only achieve about $32-33 billion."

In light of Vietnam's "consistent approach" to managing the pandemic, it's unlikely that garment factories will be permitted to operate even with stricter health and safety guidelines in place, as seen in Bangladesh, said Sofia Nazalya, Asia analyst at risk analysis firm Verisk Maplecroft.

But while ongoing lockdowns will have a "clear operational impact for apparel companies," the situation is unlikely to be better in neighbouring garment hubs such as Cambodia and Indonesia, "which are also experiencing similar spikes in cases, and equally slow, if not worse, vaccination rates," she told Sourcing Journal.