Saturday , December 9 2023

Input shortages threaten to stymie manufacturing recovery

In Thu Duc City in HCMC, electronics manufacturer Datalogic Vietnam is paying dozens of times the usual price for inputs and parts to ensure production remains on schedule.

The sellers are speculators who bought them when their prices were still low and are now selling for a large profit, CEO Dang Van Chung said.

“[It] increases our costs, but we have to accept that to retain customers.”

But even if it is willing to pay the high prices, it could not buy the volumes it wants to since many companies are competing for the same items, he said.

Datalogic is therefore not accepting new orders though demand is high, he added.

It is one of many companies struggling with a major shortage of input materials and surging costs due to the disruption in global supply chains.

The global semiconductor shortage began during the two years of Covid-19 as chip manufacturers operated at a minimum level even as demand for electronic devices burgeoned.

Intel CEO Pat Gelsinger said last week that semiconductor supply shortages would continue until 2024.

Chung said most manufacturing companies are struggling to secure parts as demand for smart devices and electric vehicles is high.

Input shortages are also reported in the garment industry, which is trying to make up for the loss of revenues in the last two years.

Phong Phu Corporation in Thu Duc City has to place orders with its Chinese suppliers two to three months in advance since the strict zero-Covid policy in that country has forced factories to operate at well below capacity, deputy CEO of the garment firm, Nguyen Thi Lien, said.

Another problem the company faces is lack of orders from foreign buyers, who are trying to get rid of the inventories they were not able to sell in the last two years, she added.

In Ho Chi Minh City’s District 7, mold manufacturer Lap Phuc has to order six months in advance to secure inputs and parts for production.

CEO Nguyen Van Tri said he is willing to fill his warehouses with parts to ensure production is uninterrupted.

Recent increases in input and delivery costs have forced Lap Phuc to hike prices, but he said they are still lower than its Chinese competitors’.

The Purchasing Managers’ Index rose from 51.7 in April to 54.7 in May, the highest growth rate in 13 months, showing an improvement in manufacturing, according to a report by S&P Global.

But the lockdowns in mainland China have hit export demand and cause delivery delays, which is why companies are hoping that a return to normality there would provide a further boost to manufacturing in Vietnam, Andrew Hacker, economics director at S&P Global Market Intelligence, said.

Rises in the cost of oil and gas and shipping charges have added to inflationary pressure as firms pass on the higher costs to their customers, he added.

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