Industrial production

A worker wears protective clothing while working at Golden Logistic Co Ltd in the northern province of Bac Ninh. Every stage involving transportation, warehousing, regular health check-ups for workers and drivers transporting goods in pandemic-hit areas is all in strict compliance with guidelines for disinfection and sterilisation. — Photo courtesy of Golden Logistic Co Ltd

The COVID-19 health crisis and resulting wide-ranging and deeply-felt economic upheaval has flipped the logistics industry on its head, leaving ill-protected freight firms in dire need of emergency State support to survive hardships.

Mandatory preventive measures among nations to contain the spread of the pandemic has resulted in disrupted trade flow and fragmented supply lines, dealing a blow to the logistics industry, which is viewed as an auxiliary for trade and commerce, enabling other industries to deliver goods and services to consumers.

Factories reducing production or suspending operations has led to a curtailment in the transportation and delivery of goods in the supply chain, greatly affecting the operation of logistics companies.

Shrinking orders, surging costs

“Right from the early stages of the COVID-19 outbreak, the number of freight orders received by logistics companies in Bac Ninh fell sharply, at the same time, the delivery of goods, storage and warehousing activity is slowed and disrupted,” Nguyen Hoai Nam, sales manager of Golden Logistic Co. Ltd. in the northern province of Bac Ninh, told Viet Nam News.

“Following government guidelines on COVID-19 prevention and control, we businesses are making a continuing effort to realise the dual goal of maintaining production while ensuring work-related safety during the pandemic, prioritising workers’ health,” he said.

Every stage involving transportation, warehousing, regular health check-ups for workers and drivers transporting goods in pandemic-hit areas was all in strict compliance with guidelines for disinfection and sterilisation. But this had resulted in a surge in operational costs.

Travel restrictions also led to worsening shortages of truck drivers to pick up containers, he said.

“Multiple unexpected costs have pressured logistics service providers. However, it is time both manufacturing enterprises and logistics enterprises need to work together,” Nam said.

Logistics costs in Viet Nam account for about 20 per cent of the goods value, which is relatively high compared to the average costs over the world.

“However, devastating consequences caused by the prolonged pandemic, together with the rising prices of warehousing and freight services, makes logistics costs continue to increase, putting great pressure on businesses,” Nam said.

Businesses also faced a significant reduction in revenue from goods exported and imported from pandemic-affected countries. Commodities shipped to Viet Nam dropped dramatically, those undergoing customs clearance were strictly quarantined. Delivery times from suppliers in the Asian market and some other regions is reportedly longer.

According to statistics of the Viet Nam Logistics Business Association, up to 50 per cent of enterprises providing logistics services of all types experienced a downturn in activities and revenue. Air and road transportation services were hit the hardest.

Roughly 80 per cent of the association’s members are micro, small and medium enterprises, thus many of them are on the brink of collapse, meaning workers are losing their jobs.

In Viet Nam, infection cases were detected at large-scale industrial parks of Bac Ninh and Bac Giang, causing many disturbances in the production lines of enterprises, which inevitably placed a direct impact on logistics enterprises.

Tax payment postponement

A report summarising recommendations of businesses and associations in April-May 2021 has been submitted to the Prime Minister by the Private Sector Development Research Board (Board IV), under the government’s Advisory Council for Administrative Procedure Reform and Young Presidents’ Organisation (YPO).

In the report, Board IV said amid the pandemic, manufacturing enterprises in industrial parks, logistics and transportation businesses suffered, causing economic hardship and supply chain disruption.

Exporting enterprises confronted great challenges due to worsening shortages of containers and merchant ships on a global scale, as well as skyrocketing fees.

Board IV, therefore, recommended the Government consider and direct ministries, branches and localities to simplify administrative processes or consider according to priority for import and export processes, as in the priority just applied to the export of Bac Giang lychee.

This would help businesses optimise time and costs in the domestic stages to speed up the import procedures for essential goods or accelerate the export of agricultural products and other key export commodities.

Le Duy Hiep, Chairman of the Viet Nam Logistics Service Association (VLA), said in light of COVID-19 developments, in order to support logistics businesses, VLA proposed the Government grant a reduction of 50 per cent on corporate income tax for 2020 as a way to support businesses to overcome hardships.

It also proposed the extension and postponement for employers’ tax payment, their contributions to the Social Insurance Fund, Unemployment Insurance and Health Insurance Fund, Hiep told Viet Nam News.

VLA’s recommendations on tax payment extension have been approved by the Government. However, “this takes time and many procedures are required by the banks,” Hiep said.

Decisions on petrol retail price reduction benefited both businesses and the whole economy, he said.

The Viet Nam Maritime Administration in May last year decided to reduce the pilotage fee by 10 per cent for Vietnamese shipping enterprises operating on domestic routes, as a support measure amid the COVID-19 pandemic.

Hiep said Viet Nam’s logistics costs were still higher than the regional and global averages of 16-20 per cent.

“We are trying to reduce the cost to equal other countries in the region, such as Thailand at 14-15 per cent and Singapore at 8-10 per cent,” Hiep told Viet Nam News.

The government targets that by 2025, the contribution of logistics services to Viet Nam’s GDP will touch 5-6 per cent, with the growth rate of logistics industry reaching 15-20 per cent, the rate of outsourced logistics services at 50-60 per cent, achieving Global Logistics Performance Index at 50 or higher.

Logistics enterprises should urgently apply IT solutions, modernising management and operation methods, use software systems and logistics optimisation platforms to cut costs and improve service quality, Hiep said.

They should promote linkages with other logistics providers and with manufacturing enterprises in order to create competitive advantages in negotiation and improve service provision capacity, Hiep said.

VLA would actively co-ordinate with localities and manufacturing companies to devise solutions promoting the transportation and circulation of goods, ensuring safety amid the pandemic, at the same time applying supportive measures such as reducing freight, storage and warehousing costs.

Trade centres and supermarkets should consider augmenting the purchase of agricultural products from farmers in pandemic-hit localities such as Bac Giang, he said. — VNS

An FPT shop in the southern province of Dong Nai. FPT said that the company’s two retail chains, FPTShop and F-Studio by FPT, which sell digital products such as mobile phones, tablets and laptops, were still the main revenue spinners but non-core businesses also brought significant revenues. Photo cfptshop.com.vn

At FPT Digital Retail Joint Stock Company’s annual general meeting recently, shareholders gave the green light for plans to diversify from core businesses and enter some new product categories.

This is not the first time the company is eyeing new products.

In the first quarter of this year the company reported sales of VND4.67 trillion(over US$203 million), a year-on-year increase of 14 per cent.

An FPT spokesperson told Dau Tu Chung Khoan newspaper that the company’s two retail chains, FPTShop and F-Studio by FPT, which sell digital products such as mobile phones, tablets and laptops, were still the main revenue spinners but non-core businesses also brought significant revenues.

The Long Chau Pharmacy Store chain for instance is expected to report sales of VND582 billion (over $25.3 million) in the period, up 144 per cent. Its consolidated profit before tax was up 265 per cent to VND39 billion ($1.7 million).

Last December MobiFone and FPT Retail signed a deal to sell co-branded sim cards at FPT Shop nationwide. Customers who buy MobiFone-FPT Shop sims get special deals when shopping at FPT Shop.

The positive results from such non-core businesses have encouraged FPT Retail to consider entering more new product categories.

In April FPT Shop began selling Xiaomi’s IoT household appliances, and, together with Garmin, opened the first Garmin Brand Store in Ha Noi, the first in Viet Nam.

With the new product categories lending a hand, FRT expects to generate sales of VND 6.4 trillion ($713 million) in 2021 and pre-tax profits of VND120 billion representing year-on-year increases of 12 per cent and 320 per cent.

Similarly, non-core products have also made an important contribution to electronics retail giant Mobile World Joint Stock Company (MWG)’s turnover.

In the first three months of this year its consolidated net revenues were VND30.83 trillion, up 5 per cent from the same period last year, and after-tax profit was VND1.34 trillion, up 18 per cent.

But interestingly its food and grocery chain, Bachhoaxanh, was a leading contributor, with 19.3 per cent of MWG’s revenues after registering 32 per cent growth. Its core business, the Thegioididong chain, accounted for only 26.8 per cent of revenues after they fell by 1 per cent.

Bachhoaxanh’s gross profit margin in March stood at 25 per cent, and it is expected to go up thanks to adding several new food products and fast moving consumer goods to its line-up.

A company spokesperson said the effort was always to diversify the mobile phones and electrical and electronic devices sold to give customers more options. But the company would also focus on further developing the new product and fast moving consumer goods categories to tap a promising market of $60 billion, much higher than the phone and electronic devices market which is only worth $10 billion.

DigiWord Corporation (DGW) recently floated plans for entering the medical and cosmetics retail market at its AGM. A company executive, Lu Tran Anh Dung, admitted to Investment and Securities magazine however that DGW only wanted its shareholders to apply their minds to the proposal at this time so that it could move rapidly if any opportunities come in future.

DGW also expected to enter other new product categories in the coming years, he said.

It already had a strategic partnership with Nestle to sell the latter’s nutrition products through its distribution channels. This fetched DGW revenues of VND81 billion in the first quarter of this year, a year-on-year increase of 29 per cent.

DGW also owns a 21.86 per cent stake in pawn chain operator Vietmoney.

Analysts said technology retailers had managed to sustain growth though the market had gradually become saturated because they had shown the flexibility to enter other businesses.

Raw material prices rise across the board, hit bottom lines

Since May 2020, when they bottomed out, the prices of PVC resins have been increasing relentlessly due to a supply shortage and rising logistics costs.

According to Viet Dragon Securities Joint Stock Company, they topped their historic high of $1,216 per tonne reached in February 2018 to reach $1,400 in March this year.

The prices of petrochemical products including PVC resins have increased by 26 per cent this year, while oil prices are up 19 per cent.

Market observers attributed the drastic price hikes to a global supply disruption caused by the pandemic and power shortages in the US that caused refineries to stop production.

A spokesperson for Binh Minh Plastics Joint Stock Company (BMP) said the sharp rise in the prices of PVC resins had badly hit the company’s profits.

So, though the company hiked the prices of its plastic products twice by a total of around 14 per cent since February this year, its gross profit margin decreased to 17.9 per cent in the first quarter compared to 24.1 per cent a year earlier, the lowest rate since 2006.

A similar situation also plagues businesses in other sectors.

Seafood company Vinh Hoan Joint Stock Company saw its profit margin decline within a year from 14.4 per cent to 7.5 per cent.

For Minh Phu Seafood Joint Stock Company, it went down from 3.6 per cent to 0.8 per cent and for Sao Ta Food Joint Stock Company, from 6.4 per cent to 3 per cent.

The Dry Cell & Storage Battery Joint Stock Company (PINACO) saw the margin fall from 15 per cent to 14.2 per cent between October 2020 and March due to a sharp increase in the price of two main raw materials the company uses, zinc and lead, according to a spokesperson.

The Mercantile Exchange of Viet Nam reported that on May 12 the prices of several metals increased, zinc by 0.1 per cent to $2,995.50 per tonne and lead by 0.2 per cent to $2,217.50.

Ngo Tri Long, former rector of the Ministry of Finance’s Price and Market Research Institute, said the prices of materials used in industrial production and construction such as plastic, steel, bricks and sand are up 20 per cent this year.

Steel, which accounts for around 20 per cent of the cost of a building, increased by 40 per cent.

Le Nhu Thuy My, director of the Nhan Quoc Ceramic Tiles Company in Dong Nai Province, said there had been a slight increase in the prices of ceramic tiles due to a rise in packaging, fuel and transportation costs.

According to the General Statistics Office, in the first four months of this year the prices of raw materials used in industrial production have increased by 4.64 per cent year-on-year.

The price of raw materials and fuel used for agriculture, forestry and fisheries increased by 6.77 per cent, while those used in industrial production increased by 4.95 per cent.

How have businesses reacted to their rising costs?

Vinamilk has decided to increase prices.

KIDO Group Joint Stock Company, one of the country’s leading food processors spends 60 per cent of production costs on soybean oil and palm oil, whose prices have increased by 67 per cent and 76 per cent since last year.

The company could pass on the costs to its suppliers since it dominates the niche market for vegetable oils, an industry insider said.

But it would also probably increase prices by around 12 per cent, he added.

Analysts said however it was not easy for most companies to hike prices due to the COVID-19 pandemic, which had badly hit the incomes of both corporate and individual customers.

The Tien Phong Plastic Joint Stock Company (NTP) decided to increase its inventories of raw materials until the market calms down.

This way, it had managed to overcome the worst effects of the raw material price hikes, a company spokesperson said. VNS