Bubbles heap pain on vital manufacturers

Bubbles heap pain on vital manufacturers, Illustration photo

Marko Walde, chief representative of the Delegation of German Industry and Commerce in Vietnam, told VIR the implementation of various models to help manufacturing continue through pandemic restrictions has been more than challenging for German companies, mainly because of the high expense.

“It’s estimated that the stay-at-work method costs about VND600,000 ($26) per week per person and it is roughly VND600 million ($26,000) for a factory of 1,000 workers per week – a huge expenditure but it still does not guarantee continuous production.”

Likewise, chip maker Intel Corporation has spent VND140 billion ($6.1 million) in just one month implementing a “one road, two locations” plan to ensure that its manufacturing site in Saigon High-Tech Park meets pandemic prevention standards.

According to Ho Thi Thu Uyen, chief of External Affairs for Intel in Vietnam and Malaysia, the costs cover accommodations and daily virus tests for both staff and suppliers. “Intel’s budget strategy has been impacted by additional expenses and, if it continues beyond September 15, it will have a significant impact on Intel’s manufacturing schedule,” Uyen explained.

Intel has paid for 1,870 of its employees to stay in four- and five-star hotels, plus bonuses, and for 1,500 of its suppliers to stay in less expensive hotels.

Meanwhile, Jabil Vietnam, a US-based multinational electronics solutions company, has incurred VND4 billion ($175,500) per day for the “one road, two locations” plan. However, the company only maintains operating capacity below 30 per cent, leading to a revenue loss of $60 million per month. The company is currently unable to deliver products on time, resulting in a loss of about $200 million in orders.

Gabor Fluit, vice chairman of the European Chamber of Commerce (EuroCham) in Vietnam, said that the current stay-at-work model in its current form is not a long-term solution. “It is unreasonable to keep staff living, eating, and working on site for weeks on end,” Fluit said.

However, EuroCham members face significant challenges replacing workers due to the strict travel restrictions within and between provinces.

“Meanwhile, for those who want to return home to their families, it is difficult to obtain approval from the receiving province. Furthermore, when positive cases are detected, the local authorities are slow to isolate those who are F0. This risks the virus spreading throughout manufacturing facilities and industrial zones, halting essential production activities,” he added.

EuroCham members also report significant logistical issues at ports and administrative challenges at customs offices. “Thanks to the quick action of the local authorities, this issue is now solved. However, there is some confusion around the circulation of goods that are not food and medicine – but are also not on the list of goods banned and restricted – and the inconsistent application of these regulations is causing difficulties for both companies and consumers,” Fluit added.

On the same note, Walde added that German companies are also facing a lack of access between cities and provinces. Further challenges are the component shortages, production interruption, rising production, and transportation costs as the pandemic escalates in many cities and provinces across Vietnam.

The cost of container transportation has also increased sharply, and according to a logistics report by SSI Research, the severe congestion and disruptions regarding the circulation and distribution of commodities have pushed freight rates to record highs. In 2020, some long-distance routes connecting Asia with Europe or North America increased by about 4-8 times and on some routes, this year freight charges have settled around five times higher than previously.

“German businesses are negatively impacted by increased freight rates on long-distance routes,” Walde explained. “Overall, the rise of transportation costs significantly affects domestic goods circulation, trade performance, and hinders the global supply chain. In the long run, it would put pressure on the domestic supply chain, and so put Vietnam’s position along the global supply chain at risk.”

The recent coronavirus flare-up in Vietnam has also delayed the relocation plan of multinational corporations like Apple and Google to Vietnam. Apple initially planned to have third-generation AirPods made in Vietnam but two people familiar with Apple’s plans told Nikkei Asia that Apple will have them manufactured in China instead. The sources said that Apple still hopes to move 20 per cent of new AirPod production to Vietnam eventually.

Back in 2019, Apple did move some AirPod and AirPod Pro production to Vietnam as the US-China trade war heated up. The same year, it was reported that Google would aggressively move production of US-bound hardware out of China into Vietnam. But this move was not finalised due to Vietnam’s limited engineering resources and travel restrictions during the pandemic.

The Delta variant has also hampered sentiments around Vietnam for Google and Amazon. Rinaldo Pereira, senior business fundamentals analyst at GlobalData said, “Companies continue to grapple with the chip shortage and shifting production out of China has become complex. In Amazon’s 2021 filings, supply chain risks were a key topic of discussion. Apple did mention AirPods as a keyword in discussions around Vietnam. Apple might not be able to shift AirPod production to Vietnam as quickly it hoped due to Delta variant – a case similar to Google’s production shift intentions for newer Pixel models.”