A company implements the three-on-site production for its workers. (Photo: SGGP)
The risk of losing existing market share
According to Ms. Ly Kim Chi, Chairwoman of the Ho Chi Minh City Food and Foodstuff Association, the member enterprises of the association all produce essential goods and are given priority to stabilize production, but they have also faced many difficulties. The most common issues are congestion in goods circulation and increasing transportation costs, quarantine, and raw materials.
Currently, to transport a shipment of raw materials from provinces in the Mekong Delta to HCMC, enterprises have to spend about VND2 million for Covid-19 testing. However, another difficulty is the scarcity of drivers and means of transport, which also causes transportation costs to increase drastically by 15-30 percent, on average.
Up to now, the pandemic situation has become more complicated, so enterprises are facing more and more difficulties when provinces and cities require them to comply with the regulations on three-on-site production and transporting workers from their residences to the workplace. Many enterprises have had to reduce the number of workers by 50 percent to ensure the good implementation of these regulations. The accompanying consequence is to cut production capacity by 50 percent while many orders have been closed the deal in terms of quantity and delivery time.
Mr. Nguyen Phuong Dong, CEO of Saigon Industry Corporation, said that for domestic orders, the company could renegotiate with its partners to postpone the delivery time. Meanwhile, export orders cannot be delayed because they depend on the shipping schedules set with shipping lines.
Facing that situation, many enterprises are forced to prioritize to focus on producing orders that have been scheduled to be delivered to shipping lines. At the same time, they have mobilized workers staying at the factory to increase their working hours by 4 hours per day.
However, with this option, enterprises have to bear huge costs as they have to raise allowance for work, meal allowance, living expenses, and Covid-19 testing fee for workers. Many enterprises said that if this situation prolongs, they will have to cease operations because they cannot cover the production costs.
Mr. Pham Xuan Hong, Chairman of the HCMC Association of Garment, Textile, Embroidery, and Knitting, also said that many textile and garment enterprises had suspended operations because they could meet the conditions for workers to live and work at the factories. Enterprises had actively negotiated with their partners. However, the current biggest worry of enterprises is that the production interruption will prolong, leading to the risk of having to compensate for export contracts.
According to Mr. Nguyen Phuong Dong, many shipping lines have also stopped operating due to the Covid-19 outbreak in many countries. As a result, the number of shipping vessels also decreased sharply. Therefore, if enterprises cancel the delivery schedules, they must wait at least a month or even a few months to be able to arrange new delivery schedules. This puts enterprises at risk of being penalized. More seriously, businesses are at risk of losing market share because their partners are forced to find other suppliers to supplement the shortage to avoid the risk of disruption in the global production supply chain.
Finding the supply market of raw materials
Although the three-on-site is considered the most feasible solution in the current context for enterprises to maintain production, in fact, there have been many unexpected developments. In Binh Duong Province, about 56 percent of enterprises have registered to carry out the three-on-site, but the current difficulty is the supply of necessities for workers.
According to statistics, about 220 enterprises in industrial zones in Dong Nai Province have arranged for more than 37,000 workers to stay at the factories under the three-on-site option, but mainly those with few workers. As for enterprises with a large number of workers, it is impossible to arrange accommodations for thousands of people at the same time. Therefore, many companies, such as Pousung Vietnam Company, Bau Xeo Industrial Park, and Hwaseung Company, allowed their workers to stop working temporarily.
In this context, many enterprises are afraid that they will face the risk of losing purchasing power in the near future because they will have to increase the selling prices of goods. Besides the high costs for the three-on-site production, the current prices of imported raw materials have climbed by 15-300 percent over the same period, depending on the type. Moreover, HCMC has officially raised the fees for using works, infrastructures, service works, and public utilities at the seaport border gate areas in the city, starting from October 1 this year, so production costs will continue to increase further.
Businesses believe that the State should immediately deploy support packages and do things within capabilities soon. For example, HCMC should continue to delay the time to apply the collection of port infrastructure fees to early 2022.
Along with that, the Ministry of Industry and Trade needs to ask trade commissioners in other countries to increase their search for suppliers of raw materials for domestic enterprises. The diversity of supply markets helps enterprises avoid the risk of production interruptions and, more importantly, allows them to access raw materials at better prices.
According to Ms. Ly Kim Chi, Chairwoman of the Ho Chi Minh City Food and Foodstuff Association, the member enterprises of the association all produce essential goods and are given priority to stabilize production, but they have also faced many difficulties. The most common issues are congestion in goods circulation and increasing transportation costs, quarantine, and raw materials.
Currently, to transport a shipment of raw materials from provinces in the Mekong Delta to HCMC, enterprises have to spend about VND2 million for Covid-19 testing. However, another difficulty is the scarcity of drivers and means of transport, which also causes transportation costs to increase drastically by 15-30 percent, on average.
Up to now, the pandemic situation has become more complicated, so enterprises are facing more and more difficulties when provinces and cities require them to comply with the regulations on three-on-site production and transporting workers from their residences to the workplace. Many enterprises have had to reduce the number of workers by 50 percent to ensure the good implementation of these regulations. The accompanying consequence is to cut production capacity by 50 percent while many orders have been closed the deal in terms of quantity and delivery time.
Mr. Nguyen Phuong Dong, CEO of Saigon Industry Corporation, said that for domestic orders, the company could renegotiate with its partners to postpone the delivery time. Meanwhile, export orders cannot be delayed because they depend on the shipping schedules set with shipping lines.
Facing that situation, many enterprises are forced to prioritize to focus on producing orders that have been scheduled to be delivered to shipping lines. At the same time, they have mobilized workers staying at the factory to increase their working hours by 4 hours per day.
However, with this option, enterprises have to bear huge costs as they have to raise allowance for work, meal allowance, living expenses, and Covid-19 testing fee for workers. Many enterprises said that if this situation prolongs, they will have to cease operations because they cannot cover the production costs.
Mr. Pham Xuan Hong, Chairman of the HCMC Association of Garment, Textile, Embroidery, and Knitting, also said that many textile and garment enterprises had suspended operations because they could meet the conditions for workers to live and work at the factories. Enterprises had actively negotiated with their partners. However, the current biggest worry of enterprises is that the production interruption will prolong, leading to the risk of having to compensate for export contracts.
According to Mr. Nguyen Phuong Dong, many shipping lines have also stopped operating due to the Covid-19 outbreak in many countries. As a result, the number of shipping vessels also decreased sharply. Therefore, if enterprises cancel the delivery schedules, they must wait at least a month or even a few months to be able to arrange new delivery schedules. This puts enterprises at risk of being penalized. More seriously, businesses are at risk of losing market share because their partners are forced to find other suppliers to supplement the shortage to avoid the risk of disruption in the global production supply chain.
Finding the supply market of raw materials
Although the three-on-site is considered the most feasible solution in the current context for enterprises to maintain production, in fact, there have been many unexpected developments. In Binh Duong Province, about 56 percent of enterprises have registered to carry out the three-on-site, but the current difficulty is the supply of necessities for workers.
According to statistics, about 220 enterprises in industrial zones in Dong Nai Province have arranged for more than 37,000 workers to stay at the factories under the three-on-site option, but mainly those with few workers. As for enterprises with a large number of workers, it is impossible to arrange accommodations for thousands of people at the same time. Therefore, many companies, such as Pousung Vietnam Company, Bau Xeo Industrial Park, and Hwaseung Company, allowed their workers to stop working temporarily.
In this context, many enterprises are afraid that they will face the risk of losing purchasing power in the near future because they will have to increase the selling prices of goods. Besides the high costs for the three-on-site production, the current prices of imported raw materials have climbed by 15-300 percent over the same period, depending on the type. Moreover, HCMC has officially raised the fees for using works, infrastructures, service works, and public utilities at the seaport border gate areas in the city, starting from October 1 this year, so production costs will continue to increase further.
Businesses believe that the State should immediately deploy support packages and do things within capabilities soon. For example, HCMC should continue to delay the time to apply the collection of port infrastructure fees to early 2022.
Along with that, the Ministry of Industry and Trade needs to ask trade commissioners in other countries to increase their search for suppliers of raw materials for domestic enterprises. The diversity of supply markets helps enterprises avoid the risk of production interruptions and, more importantly, allows them to access raw materials at better prices.
Mr. Vu Nam Chien, Deputy Director of Tan Nhat Huong Trading Company, emphasized that financial support and interest rate cut need to be implemented drastically. The State Bank of Vietnam has required commercial banks to consider reducing the interest rate on loans of enterprises by at least 1 percent per loan balance, but the reality is different. The company is borrowing capital from two commercial banks, but only one lender has lowered its interest rate with a decrease of 0.2 percent.
