July 05, 2023 | 14:10 GMT+7

Infrastructure offers supply chains a boost

Phuong Hoa -

Mr. Thomas Harris, Country Manager at TMX Global in Vietnam, tells VnEconomy / VET about Vietnam’s supply chains and how the country can improve them in the future.

What are your thoughts on the state of Vietnam’s supply chains?

While sentiments last year were fairly optimistic, Vietnam’s performance has been dampened as a result of global headwinds, such as how the purchasing power of consumers worldwide is plunging due to the cost-of-living crisis. This has had an impact on human resources as global manufacturers operating in Vietnam have been cutting jobs.


Mr. Thomas Harris, Country Manager of TMX Global in Vietnam.
Mr. Thomas Harris, Country Manager of TMX Global in Vietnam.

Beyond these global influences, one of the factors identified to have blunted Vietnam’s export-driven economy has been rising logistics costs. In the event that these costs are passed down to the consumer in the form of high product prices, this can negatively impact the competitive advantages Vietnamese goods have been enjoying over the years.

Hence, it is more important than ever for Vietnam to continue strengthening its supply chain infrastructure, to ultimately achieve greater cost efficiencies. Vietnam already boasts strong standing in the region as a logistics hub for its strong integration into global value chains and relatively low operational costs for businesses. The country was ranked tenth in the 2022 Agility Emerging Markets Logistics Index and has attracted global tech leaders like Apple, Sony, and Samsung to set up shop over the last few years.

While this decline is likely to be a temporary situation with the slowing demand from the recession, competitiveness enhancements can better position Vietnam to benefit from global demand. This has been deemed a national priority, with logistics being among the eight industries identified by the Vietnamese Government to increase support in digital transformation efforts, and is further supported by Vietnam’s participation in the recent Indo-Pacific Economic Framework (IPEF) agreement to work collectively with 13 other member countries to improve supply chains.

How have Vietnam’s supply chains been affected by the Russia - Ukraine conflict and the global recession?

The main impact of the geopolitical tensions between Russia and Ukraine on Vietnam’s supply chains has been through rising energy prices. Earlier this year, Vietnam had to turn to raising electricity prices, as both coal production and coal imports become more expensive for the nation to fuel its power plants.

With over 70 per cent of the country’s industrial parks powered by the national power grid, which is sustained by coal, these higher energy prices dampened production and impacted supply chain growth and productivity in the country. Additionally, the extreme heat experienced in Vietnam has further strained its power grid with the increased use of air conditioning. Power cuts and electricity shortages have come and gone throughout the duration of the ongoing conflict, with the most recent power shortages stalling production lines at companies like Apple and Samsung.

Thankfully, the power shortage is now easing, and production lines are getting back on track. To mitigate similar future disruptions, Vietnam can look at accelerating its transition to green and renewable energy in a bid to reduce reliance on coal. Growing industrialization and economic growth is projected to increase energy demand even more, by over 8 per cent per annum between 2021 to 2030. Luckily, with international support from the G7 late last year, Vietnam is well-positioned to speed up the transition process.

On the other hand, the global recession has had an impact on consumer demand. Orders for the textile and garment industry have been on the decline, and factory activity in Vietnam has also shrunk. The workforce on production lines is also expected to shrink, with over 54 per cent of businesses looking to lay off workers and 22 per cent saying that they will cut more of half of their workforce.

While this is a bleak image, this trajectory of layoffs in response to waning demand from the recession is similar to what we are also observing in other countries like Malaysia and even the US. This is a worldwide phenomenon and the impact that Vietnam experiences is in line with its global position and will likely be resolved in the long-term when demand picks up again. We are confident that the workforce in supply chain industries will recover alongside demand, which drives the production of goods.

In May, Vietnam and 13 countries that are party to the Indo-Pacific Economic Framework (IPEF) reached a preliminary agreement to strengthen supply chains, with this agreement expected to be finalized in November. From TMX’s perspective, how will this affect Vietnam’s supply chains?

The agreement between Vietnam and the 13 other countries will work towards strengthening the different respective supply chains. One of the key initiatives being rolled out is an extensive framework that will help monitor and regulate supply chains and labor, as well as handle any supply chain crisis.

From our experience, for the initiatives to work, communications between relevant stakeholders and countries are a must. The IPEF has already committed to setting up three councils: the Supply Chain Council, the Supply Chain Crisis Response Network, and the Labor Rights Advisory Board. These bodies will help facilitate strong communications between countries to predict and prevent risks, as the nations involved play an active role in these councils.

It also means that data and best practices can be shared across borders. Supply chains connect different markets and countries together, and with data it becomes much easier to identify supply chain risks along the supply chain. As member countries cooperate and exchange best practices, industry knowledge, and resources under the agreement, Vietnamese businesses and its supply chain industry can look forward to possible improvements across policies, infrastructure, and industry innovation.

With the IPEF spearheaded by the US, Vietnamese businesses and supply chains may also enjoy more stability in bilateral trade or see greater instances of “friend-shoring” or “ally-shoring”, as Vietnam cooperates further with the US to enable mutually-beneficial plans and solutions for supply chains.

What could Vietnam be doing to promote its supply chain landscape? What can enterprises do to strengthen Vietnam’s supply chains?

Every market has strengths and challenges to work on. For Vietnam, that is furthering investment towards infrastructure. Vietnam already spends a considerable amount on boosting its infrastructure compared to her ASEAN counterparts, allocating around 6 per cent of GDP on infrastructure, or more than twice the average in other ASEAN nations, which is 2.3 per cent of their GDP. The country is also actively investing in connectivity within and between Tier 1 and 2 cities to reduce bottlenecks of materials and goods.

The level of investment is expected to lead to considerable expected growth in Vietnam’s infrastructure sector for years to come, which will benefit the country’s logistics and supply chain. More importantly, the improved infrastructure and connectivity can help Vietnam overcome its energy issues, allowing wind power equipment to be delivered and helping to speed up the transition to green energy for industrial areas.

As for businesses, there are three areas of consideration when it comes to how they can strengthen supply chains: process, where operations are optimized and geared towards fast-changing customer preferences, which includes greater end-to-end visibility and traceability; technology, leveraging digitalization and emerging innovations such as automation to enable these necessary business transformations; and people, where logistics workforce now needs to upskill and transform to serve a reinvented supply chain.

What we always try to help businesses understand at TMX is that the supply chain and logistics landscape will always be in flux. To keep up, processes require automation, systems and data need to be integrated, workers need to have new resources, and managers need to have better supply chain visibility. All of this requires investment in optimizing their supply chains to achieve business goals.

What is your view of Vietnam’s supply chain landscape over the remainder of 2023 and beyond?

While Vietnam has been hit by numerous disruptive events, from Covid-19 to the recent electricity cuts, it has proven, time and again, to have a tenacious workforce and a very productive supply chain and manufacturing industry.

There is no doubt that while growth might be on the slower side for the remainder of 2023, amid inflationary pressure, global trade policies and tensions, and unpredictable weather conditions, Vietnam will still find its competitive edge in particular industries that can drive growth, such as motorcycles, vehicles, and agricultural produce.

DBS has predicted 5.5 per cent growth for Vietnam, despite the slowing manufacturing activity, and I agree that this is good news for the country’s supply chains, which will continue to run and weather these disruptions. And at TMX Global, we look forward to working with businesses to further strengthen their supply chains, providing them our end-to-end supply chain expertise and solutions.


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