Is Vietnam the Next Supply Chain Solution?

Jul 19, 2018International Logistics, Supply Chain Management

Back in May, Supply Chain Dive reported that, “With China tariffs in flux, supply chains set sights on Vietnam.” Data shows that imports coming from Vietnam to the US have doubled in the past five years alone. The article explained that, “…many supply chain managers are considering a backup plan and eyeing Vietnam as an alternative sourcing destination.”

While the impacts of the newest tariffs being enacted are still unfolding, experts in the field are offering initial projected changes in the landscape.

Vietnam May Become Much More Competitive

In reports from Taiwan, analysts cite that, “A wider Sino-U.S. trade dispute would help export-reliant Vietnam compete against Chinese companies but put the country at risk of any global fallout… The numerous exporters in Vietnam that ship manufactured goods to the United States would save money compared with Chinese peers if not subject to American tariffs.”  Additionally, “more co-investment might follow if Vietnam can offer shelter from tariffs.” Vietnam is uniquely positioned to potentially benefit, but not without risk.

Even Without a Trade War, Southeast Asia Free Trade Agreements Will Still Make the Region More Attractive

The ASEAN, or the Association of Southeast Asian Nations, consumer market is growing, and rapidly.  The South China Morning Post reports that, “Analysts said that even without the trade war, a developed system of free trade agreements involving ASEAN…and its members will make moving to the region even more attractive for companies looking to diversify away from China.”

Threats of trade wars are just one more reason to move away from China to these areas, including Vietnam. “A trade war that doesn’t include Vietnam could be generally positive for the country, pushing business to Vietnam, some of which is happening already…But the negative is when Vietnam gets lumped in with China, as it has in US anti-dumping actions against Vietnamese steel, and could potentially extend to other goods,” the report states. Ultimately, proximity in China may remain a challenge that can’t be solved for.

Specific Commodities, Like Cotton, Will Be a Boon for Vietnam

The Financial Times recently broken down the impacts of specific commodities and how the America/China tariffs will affect them. Cotton is on the list of tariffs targeted by Beijing, and China is the second-largest purchasers of US cotton. “China will try to buy more cotton from such regions as Australia, west Africa and Brazil…Another beneficiary could be yarn producers in Vietnam, who import US cotton and export the yarn to buyers, including in China. The Vietnamese yarn spinners are already reaping gains from the fall in cotton prices that has pushed up their margins,” explains the Times.

Only time will tell, but Supply Chain Dive speculates that the Vietnamese market is appealing for many reasons, including, “It’s one of the world’s fastest growing economies. The government is open to foreign investment and strives for transparency and ease of doing business. (And) Its strategic location positions the nation as central to several of the world’s main shipping routes.” The author is quick to cite Vietnam’s 19/100 score for quality.

At TOC Logistics, we continuously monitor the expected and actual impacts within global supply chains to ensure that our clients have the very best solutions for their needs, every time.


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