Vietnamese exports show signs of strain amid restrictions

• Although port operations are functioning well, domestic lockdowns have hit Vietnamese exports hard.

• The disruption to production experienced in the last two months will persist until the end of the year, amid slow progress on vaccination.

• Exports will continue to suffer, especially goods produced outside designated manufacturing zones by companies that are not permitted to house workers on site.

On August 30th the General Statistics Office released data showing that the value of goods exports fell by 5.4% year on year in non-seasonally adjusted terms during that month, following a 12% increase in July. Exports contracted in month-on-month terms as well, out of line with seasonal trends. The decline was driven in the largest part by falls in shipments of footwear and electrical products (excluding phones), which are among Vietnam’s most important traded merchandise. However, numerous other categories recorded contractions, with fisheries and wood products registering strong falls.

Pain all round

The value of outbound shipments by domestic firms suffered its largest year-on-year decline in over ten years, while exports by companies with foreign direct investment grew at a double-digit rate. This suggests that foreign-invested firms are faring better than local ones in shipping goods to market; this is partly true, but a high base effect from the previous year for goods from local firms and the opposite for foreign-invested firms also explains the divergence. Almost all goods producers in the country, irrespective of ownership, are suffering under widespread restrictions on public activity.

The disruption of business remains most severe in the southern commercial hub of Ho Chi Minh City, as a result of the enhanced lockdown, including a shelter-in-place order applied only in that jurisdiction. This is significant for national output, as the city is heavily industrialised: it incorporates many large manufacturing clusters in formally designated zones, as well as large numbers of suppliers outside such zones. Fortunately for many export-oriented manufacturers, the authorities have maintained a stay-at-work model (under which workers are accommodated on site) for industrial parks (IPs) and export processing zones (EPZs) in the city, as in most parts of the country, even as restrictions have been tightened.

However, supply issues resulting from reliance on firms outside industrial parks for domestically sourced raw and intermediate goods continue to hamper operations in many factories in IPs (EPZs are almost wholly reliant on directly imported inputs). This comes in addition to the intermittent closure of production lines as a result of outbreaks within factory units, even as the vaccination of factory workers is prioritised.

Logistics disruption persists

Despite the lockdowns across the country, most major seaports are operating relatively normally in terms of processing inbound and outbound consignments. This includes those in Ho Chi Minh City; one port operator, Saigon Newport Corporation, stated in late August that the ratio of uncleared containers (those that are waiting to pass through customs) at the country’s largest terminal, Cat Lai, was within the normal range, at 81%.

Container shortages are still the major obstacle for those shipping by sea, especially in the north of the country, although supply shortfalls of refrigerated containers, for transporting food and other temperature-sensitive items, have eased in recent weeks. Strict protocols and viral outbreaks among lorry drivers are also hindering the timely collection and delivery of cargo from ports.

Meanwhile, in north Vietnam, the intermittent closure of the land border with China has been disrupting transport by road. On August 26th China shut one border gate between Guangxi province (China) and Lang Son province (Vietnam). This followed several temporary closures at other road crossings earlier in August. However, these moves are hitting agricultural exports more than manufactured goods.

Relief a long way off

The current lockdown measures will be in place until mid-September in most places, new recorded coronavirus cases are still rising and mass vaccination remains a distant prospect; the targeted vaccination of factory, domestic transport and port workers is helping to reduce but not prevent infection. As a result, the disruption described above will continue for months, with a dampening impact on exports. This reaffirms our decision to revise down our forecast for real GDP growth in our next report, from 5.1% in 2021 and 6.4% in 2022 at present.