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Alternatives to China: Consider Vietnam

This article is part of an ongoing series. The Cargo Services team is sharing information about countries and areas of the world that could provide alternate manufacturing and shipping costs for long-term supply chain cost management.

According to Yahoo Finance, tariffs in total cost U.S. importers $6 billion in June, a 74% increase since last year despite a slight decline in the value of imports. Some $3.4 billion of that has come from the tariffs the Trump administration put in place. The result, several corporations are looking away from China to find partnerships in countries that have more cost effective manufacturing and shipping options. Vietnam ranks high among the choices.

Hanoi has come out on top as the largest beneficiary of diversions resulting from the trade tensions between Washington and Beijing. A June report produced by Nomura, the Japanese investment bank, estimated that Vietnam gained a 7.9% increase in its gross domestic product from new business seeking alternatives amid the ongoing tariff battle.

Who’s moving product to Vietnam? According to a recent article in 9to5mac.com, Apple is planning to make a portion of its AirPods in Vietnam as part of the company’s move to reduce independence on China. This would be the first time an Apple product would be made outside of China. And speculation is that up to 30% of production will move from China in three years.

While tech ranks high among goods produced in Vietnam, many other products also are produced. Among Vietnam’s largest exports is footwear. Nike, Adidas and Puma all have factories in the country. Many of the world’s largest fashion brands also produce in Vietnam. Other goods produced and shipped to the United States for import include furniture/wood products, food/drink (coffee, fruits, vegetables, rice), leather goods and petroleum.

As business leaders look long-term at the cost of their supply chains, Vietnam might be an option to consider. The country of 90 million people is a long-time United States trading partner and is currently on an economic growth trajectory in terms of U.S. exports. According to July JOC.com article, TEU exports are currently up 30% year over year in terms of shipments to the United States.

Government and business leaders in Vietnam see ways to expand their ability to be a manufacturing country and are improving infrastructure and technology. The country’s main ports are Haiphong, Danang and Cai Mep (HoChi Minh) and offer benefits including:

  • Price: Bottom line, labor is cheaper than China or other south East Asia countries and the transportation costs are very similar.
  • Tariffs: Shipments to the United States avoid the China tariffs imposed over the last year.
  • Shipping routes: It’s a great coastline located along the South China sea with easy access to containers and transportation.

There are caveats to consider. The current political climate has a potential of adding Vietnam to the tariff list. Some Chinese suppliers are investing and moving their factories from China to Vietnam.

  • With success comes a target: To date, the tariff target is China. During a recent FOX News interview, Trump made comments about Vietnam indicating the country may be targeted for tariffs. None have been imposed so far.
  • Quality and Lead Times: Moving production takes time and some vendors are unproven. As outlined above, Apple is talking about moving AirPod production over three years.
  • So far there is no direct call for ships from Vietnam to the west coast of North America. All vessels are smaller and trans-ship via larger Asian ports (Singapore, Hong Kong, Shanghai, Seoul)

If you’ve read this far and you’re thinking this might be a good future option to consider, the Cargo Services team has a great partnership with Honour Lane Shipping, a Vietnamese company with offices in Ho Chi Minh and Hai Phong. We can make an introduction. The business ranks fifth in total trans-pacific container volume from Vietnam to the United States for the first six months of this year. Their team operating philosophy is similar to our Cargo Services culture with a focus on the customer. And their pricing is competitive.

We recommend companies consider Vietnam for the future. If you’re interested in seeing more let us know. We can help to arrange tours of the ports and manufacturing facilities.