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High logistics costs worries Vietnam's garments sector

Dec '18
High logistics costs, ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), foreign firms acquiring stakes in Vietnamese concerns, turning the fastest-growing market for cotton and Denimsandjeans’ 3rd edition marked the year for Vietnam’s textile-garments industry. Dipesh Satapathy summarises the developments.

Despite many Vietnamese garment firms facing significant hardships in 2017 because of orders being shifted to countries with low labour costs and tariffs, such as Cambodia and Bangladesh, the sector bounced back by mid 2018 after investing in technology and adjusting costs and inappropriate policies.

Bilateral and multilateral free trade agreements (FTAs) that the country signed or was about to sign did contribute to the trend.

Vietnam’s 14th National Assembly in November adopted a resolution ratifying the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with 96.7 per cent of votes in favour.

Experts cautioned high logistics costs for exports have made Vietnamese garment and textile firms uncompetitive. Logistics costs in the country are 6 per cent higher than in Thailand, 7 per cent more than in China, 12 per cent higher than in Malaysia and three times more than in Singapore.

Vietnam has currently about 6,000 garment related companies that employ 2.5 million. In the first 11 months of this year, the textile and garment sector’s export value was $30 billion and trade surplus surpassed $13 billion, according to the Vietnam Textile and Apparel Association (VITAS).

VITAS and the World Wide Fund for Nature (WWF) launched in October a project to transform the textile industry into a more sustainable 'Made in Vietnam' sector. This project will engage multiple players in the sector to promote better river basin governance and contribute to water quality improvement and sustainable energy use.

In November, suppliers received training on climate action as part of the initiative. Global Compact Network Germany, Global Compact Network Vietnam, Vietnam Chamber of Commerce and Industry, World Wide Fund for Nature (WWF)-Vietnam and WWF-Germany joined forces with German fashion brands Adidas, Hugo Boss, Otto Group, Puma Group and Vaude to organise the training.

In December, VITAS and WWF launched in Ho Chi Minh City a water risk report for the country’s textile and garment industry and a tool for assessing water risks in the Mekong region. Both are expected to support the development of garment and textile enterprises in the future.

US firm Kraig Biocraft Laboratories, developer of spider-silk based fibres, signed a deal in November with the Institute of Biotechnology–Vietnam Academy of Science and Technology (IoB-VAST) and the Vietnam Sericulture Research Centre (VSRC) to import and rear its transgenic silkworms in the country.

VSRC will provide professionals for hatching, caring and nurturing of silkworms, while IoB-VAST will provide a secure location to receive, store, and preserve the company’s transgenic silkworms.

Kraig’s subsidiary Prodigy Textiles also signed three agreements with local farming cooperatives in Quang Nam province, Vietnam. Under these agreements, the farmers will produce the mulberry necessary to support the company’s recombinant spider silk production.

Many foreign brands acquired stakes in Vietnamese companies to strengthen their position in the domestic market. Japan’s Uniqlo acquired a 35 per cent stake in Elise and will open its first store in Ho Chi Minh City next year. Uniqlo’s store in Vietnam will be operated through a joint venture between Fast Retailing and Mitsubishi Corporation.

Vietnam was the second largest garment supplier to South Korea after China, accounting for 32.67 per cent of the share. South Korea’s Hyosung Corporation in September received a certificate of investment registration from the People’s Committee of Ba Ria-Vung Tau province for the construction of a polypropylene plant and a liquefied petroleum gas warehouse.

The Dinh Vu Polyester fibre plant resumed operations of three production lines in April. The loss-making plant operated by the ministry of industry and trade was revived.

Vietnam hosted the 3rd edition of Denimsandjeans in June. Themed ‘Rock N Roll’, the two-day show highlighted important places that denim occupies in the rock and roll history.

Vietnam’s Bao Minh Textile Joint Stock Company in October inaugurated a textile factory at the Bao Minh industrial park in the Nam Dinh province. Constructed with an investment of over $73 million, the unit includes facilities for fabric weaving, dyeing and finishing workshops, a warehouse, a power centre and offices.

Coats, a global industrial thread manufacturer and a major player in the US textile crafts market, expansion its development site in Hung Yen near Hanoi in September. The additional capacity makes the site one of Coats’ largest manufacturing units.

The increase in Vietnam’s yarn exports, particularly to the world’s largest yarn importer–China, has made the country the world’s fastest-growing market for cotton. This has spurred opportunities for greater cotton exports from the US to the Southeast Asian nation, according to the Foreign Agricultural Service of the US Department of Agriculture.

The United Nations Development Program and the Vietnam Chemicals Agency, ministry of industry and trade recently held the inception workshop of a project called the ‘Application of Green Chemistry in Viet Nam to support green growth and reduction in the use and release of persistent organic pollutants and hazardous chemicals’.

VITAS, the Sustainable Apparel Coalition and Hong Kong-based garment firm TAL Group decided in June to introduce the Higg Index in the country. Higg is an online self-assessment tool that standardises measures for environmental and social impacts in the textile, footwear and fashion industries.

Da Lat Worsted Spinning Limited Company began construction of a factory in June to spin yarn from wool in Phat Chi industrial cluster in Da Lat city in June. The factory is expected to commence operation in April 2019 and employ 400. The spinning mill is a joint venture between Germany’s Südwolle Group and Ho Chi Minh City-based Lien Phuong Textile and Garment Corporation.

Several Japanese companies, including Itochu and Sakai Amiori, are investing in expanding their stake in the Vietnamese textile and garments sector.

The country’s textile and garment industry will be facing a gamut of challenges next year, including Industry 4.0 and a shift from simple cut, make and trim processing to modes that involve purchasing materials, free on board, original design manufacturers and original brand manufacturers, experts have cautioned.

Added to all that is fierce competition from Bangladesh, Cambodia, Laos, Sri Lanka and Myanmar. (DS)

Fibre2Fashion News Desk – India

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