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Behind the 14-week drop in sea freight: A shortage of raw materials in Vietnam's textile mills and stagnant orders

May. 12, 2022

Data from the Shanghai Hna Exchange showed that the latest Shanghai container freight index fell 32.67 points from last week to 4195.98 points, the 14th consecutive week of decline, the index is now back to the level before August last year.

The World Container Index (WCI) compiled by Drewry, a shipping consultancy, has fallen more than 16 per cent so far this year.

Shanghai to Rotterdam, New York, Los Angeles three routes down the range is more significant. Compared with the previous week, the freight rate of shanghai-Rotterdam route decreased by usd 214 /FEU to USD 10,364 /FEU, the freight rate of Shanghai-New York route decreased by USD 124 /FEU to USD 11,229 /FEU, and the freight rate of Shanghai-Los Angeles decreased by USD 24 /FEU to USD 8,758 /FEU. The two main routes from Shanghai to Los Angeles and Shanghai to New York have fallen 17% and 16% respectively since the start of the year, with most of the declines coming since March 10, when they plunged about 13%.

Since mid-March, a series of lockdown measures have been imposed in some Chinese cities, with Shanghai the most stringent. These blockades lead directly to logistics disruptions and reduced demand from end users. Many downstream producers have had to reduce production due to insufficient supplies of raw materials and difficulties in delivering finished products due to supply chain disruptions.

The textile industry is a case in point. Most of the country's textile production and processing is in Zhejiang and Jiangsu provinces, which border Shanghai, the new epicenter of the outbreak. Therefore, with textile enterprises have reduced production lead to the whole industry chain weakness and inventory increase. In Shanghai, we don't think all of the lost demand can be recovered, although some industrial producers have resumed production since late April with government support.

Unable to buy from China, Vietnamese textile and garment factories face shortages of raw materials and stagnant orders

On the other hand, due to the epidemic control in China, many factories in Vietnam are facing shortages of raw materials and parts, factories and warehouses are closed, truck delivery is slow, and container trucks are in short supply.

The vice president and secretary general of Vietnam's Leather, Footwear and Handbags Association (Lefaso) highlighted the "serious impact" of the shortage of Chinese-made raw materials. "The Chinese side says there is a shortage of empty containers to transport goods, and supplies are scarce because of factory shutdowns caused by COVID-19. Without raw materials, companies are slowing down their delivery schedule. Ms. Xuan explained.

While Ms Ton Nu Cat Ngoc, CEO of TY Company (HCMC), said that orders are now increasing for clothing companies as some buyers are gradually shifting orders from China to other countries in the region. Southeast Asia includes Vietnam, but it is not guaranteed to be free of worries.

They stopped production to combat COVID-19, which means global supply chains continue to be disrupted. If we could find another source to buy from, the unit cost of the input would be much higher, so the profit doesn't make up for the effort."

Source: Textile fabric platform

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