The Situation of Logistics Disruption 

China’s Zero Covid policy affects the global supply chain

Vietnam’s export volume to China is substantial

The first reason is that China accounts for about 12% of world imports. When products enter there, there is a difficulty with customs clearance, generating congestion, which would damage import and export firms’ account receivable turnover.

According to purchasing managers index (PMI) polls, suppliers are experiencing the greatest delays in supplying raw materials to their clients in more than two years. Finished goods inventories reached their highest level in almost a decade, but export and import indices declined dramatically. The exporting country’s current account is also impacted. As a result, firms lack the capital to reproduce or sustain operations, and the country’s trade balance suffers.

Vietnam exports around 17% of its commodities to China (2021). Many organizations have reduced their projection for China’s economic development to about 4.5% from the intended level of 5.5%, implying that consumer demand in this big market would fall. As a result, the resumption of export growth to the Chinese market may encounter challenges in the coming months.

According to Nguoi Lao Dong Newspaper, numerous business executives in Vietnam have expressed concerns over China’s “zero Covid-19” policy. Textiles, garments, footwear, electronics, plastics, and other industries that rely heavily on Chinese raw materials are suffering greatly. They even risk having to cancel orders because they are unable to supply them, despite the fact that they are in the midst of a period of rapid recovery and orders are plentiful. Reduced capacity is typical, with the possibility of extending manufacturing time and causing delivery delays.

According to the Vietnam Fruit and Vegetable Association, exports to China continued to fall in the first months of the year. The value of fruit and vegetable shipments to China in the first quarter was slightly over $455 million, a decrease of more than 25% from the same time in 2021. 

China is Vietnam’s main source of raw materials for manufacturing

Chinese imports account for more than 33% of overall imports (2021). Supply chain disruption caused by China’s partial blockade strategy is anticipated to harm the likelihood of importing raw materials, prolonging delivery time and so limiting local product development.

As a result, if the embargo in China is extended, the manufacturing sector’s development rate may decline in the near future. In turn, the previous year’s low base level and the recovery of domestic consumer demand, as well as the chance to encourage public investment in the second half of the year, remain the foundation for Vietnam’s economic development to meet the government’s objective.

Global supply chains are impacted by geopolitical instability

Geopolitical instability and the tendency toward trade protection hamper global economic development and have a negative impact on macro stability, investment capital flows, business sector production, and business, and international trade. Trade conflicts between the United States and China, as well as between other economies, have both positive and negative effects on Vietnam’s ability to attract foreign direct investment capital.

In this scenario, Vietnam can profit from the flow of investment from China to nearby nations, particularly in Southeast Asia. However, due to the possible hazards of trade wars, Vietnam faces the possibility of diminishing foreign investment and a movement of investment capital back to the US, prompting investors to be concerned. This offers several hazards, prompting investors to be more cautious, even withdrawing cash from developing countries and reinvesting it in less hazardous, safer markets. As a result, indirect capital flows into Vietnam are also impacted. 

Reshaping the Global Supply Chain – Supply Chain Diversity Affects Global Supply Chains

The Covid-19 epidemic, geopolitical volatility, and other unpredictability have resulted in five themes that will restructure and manage the global supply chain.

First, a flexible and adaptive supply chain, the use of digital technology, and the promotion of transparent e-commerce are all inextricably linked to the trend of sustainable development. Currently, suppliers in the global supply chain leverage digital technology and platform business models to create an environment in which manufacturers and consumers may engage directly with one another, enabling information sharing. The exchange of commodities, services, and currency creates value for all parties involved. This underlines the fact that, in the face of global uncertainty, digital technology and e-commerce will remain mainstream and crucial solutions for managing the supply chain and international trade.

Second, as the Global Production Network continues to shape the future of the supply chain, the regional production network will expand. The tendency of global economic fragmentation is the topic of debate at the World Economic Forum 2022, which has concluded in Davos, Switzerland (Davos Forum). Along with it, a new issue – geoeconomics – was heavily debated during the Davos Forum. Economic cooperation is highly dependent on the physical location of partners according to present realities. The danger of supply chain interruption will be reduced if they are geographically adjacent to one other. Globalization has also swung considerably in favor of collaboration among friendly countries in order to minimize political considerations hurting commerce.

Third, China remains the world’s industrial powerhouse. In comparison to other Asia-Pacific countries, China still has excellent competitiveness in terms of markets, the efficiency of scale, infrastructure, logistics system, supporting industrial network, and supply of trained people.

Fourth, increasing service globalization. Competition for high-skilled labor between developing and mature markets will provide new opportunities for utilizing global talent over the coming decade. However, when wages in emerging economies rise, this door will eventually close. Demographic limits, along with growing global salaries, will drive automation, with machines and robots taking the place of people. 

Fifth, the growth of regional supply chains will drive higher inflation during the coming decade. Over the coming decade, supply chain rearrangement will raise inflationary pressures. The implications of supply chain disruption are reflected in a swift and significant increase in producer prices in 2021, resulting in high inflation that exceeds the 2% objective in Europe, the United States, and the United Kingdom. Brazil, Russia, Turkey, and Argentina will all experience significant inflation in 2021.

Government’s Policies to Deal with Logistics Disruption 

In 2021, the Minister of Transport released Decision 2240/QD-BGTVT on the Ministry of Transport’s Action Program to Implement the Master Strategy for Development of Vietnam’s Service Sector in the 2021-2030 Period, with a Vision to 2050. This decision intends to essentially complete the national transportation network while also boosting transportation and logistics services. Since then, the shared objective has been for Vietnam to eventually become a regional and global hub for the transshipment of commodities and passengers.

Regionally, ASEAN is advocating the expansion of non-tariff measures on important products as part of the Hanoi Action Plan to promote ASEAN economic cooperation and supply chain connectivity in the context of the Covid-19 outbreak, as well as increasing ASEAN’s list of vital items. Furthermore, ASEAN countries have accelerated the safe return of travel activities in the area. 

Thanks to the Government’s, Ministries’, and Sectors’ proactive risk response measures, as well as the recovery of Vietnamese companies’ production and export, import and export turnover of products remained positive in the first quarter of 2022. Export turnover was 89.1 billion USD, up 13.6 percent from the same time in 2021, import turnover was 87.6 billion USD, up 15.8 percent, and the trade balance was 1.5 billion USD in excess. 

Logistics disruption has caused a lot of negative effects on the Vietnamese economy. However, with the efforts of the Government and businesses, the situation is gradually getting better. As a top-notch expert in this field, Viettonkin is ready to advise you and keep you up to date on the current situation as well as policies to address Logistics Disruption. Contact us right now to increase exponentially!