Vietnam confident exports can recover, but needs a rebound in global demand

Vietnam could see a v-shape freight recovery if the country continues to contain the spread of coronavirus.

There have been just 270 cases reported and no deaths so far, prompting the government to relax social distancing measures in most provinces this week.

During a webinar today, by Vietnam Supply Chain and CEL Consulting, speakers were optimistic of a rebound for freight, should demand pick up again in the west.

“We see some countries in the EU and states in the US opening up, but the key question is how long will it take for demand to return?” said Amanda Rasmussen, chief operating officer at domestic forwarder ITL.

“I believe when demand returns we’re looking at an economic ‘v’ for Vietnam – a sharp return in terms of volumes and exports.

“The most common scenario is a poor second quarter and then a sharp return in Q3 and Q4, provided we stay where we are today in terms of containing the virus.”

However, Vietnam’s air cargo volumes are currently taking a hammering after an 80% reduction in capacity via axed passenger flights.

“When you look at the companies that are moving airfreight, which is mostly personal protective equipment (PPE), it’s moving at three to five times the per kilo rate compared with the end of 2019,” Ms Rasmussen said.

“That has created a shift to ocean freight, and we see that both inbound and outbound, with ocean volumes staying fairly flat year on year.”

On the other hand, domestic volumes have been less affected.

“The beauty of Vietnam, in terms of logistics, is not just exports, but the very healthy and fast-growing domestic economy,” explained Ms Rasmussen.

However, reports suggest export manufacturers are suffering, with hundreds of thousands of jobs on the line and potential ramifications for logistics service providers.

“This is not a financial crisis, it’s a health crisis that’s creating financial crises for some supply chains,” said Frederick Burke, managing partner of Baker McKenzie Vietnam.

“For example, there’s a very solid international logistics company which hasn’t been paid by its customer in Vietnam. After just three months, this is starting to create a problem because it has very thin margins.”

In the long term, Mr Burke believes, Vietnam will continue to benefit from the manufacturing shift from China, especially now Japan is moving to loosen the country’s grip on its supply chains.

“Japan is repatriating hi-tech and sensitive industries away from China, like the US is trying to do,” he said. “This includes $2bn of government subsidies for SMEs to come to Vietnam and develop the country as part of their supply chains.

“Once the pandemic is over, you will still have these fundamental shifts to global trade, and supply chains which are working in Vietnam’s favour.”

By Sam Whelan – The Loadstar – April 29 ,2020