Data from the Vietnam General Administration of Customs show that despite being severely affected by the new coronavirus pandemic, Vietnam’s exports of various fibers still reached a record high of US$5.6 billion in 2021, with export volume increasing by 9% year-on-year and export value year-on-year. An increase of 50%. This is mainly because the prices of various fibers have increased significantly this year, with cotton rising the fastest, followed by viscose and polyester. Many companies have benefited from rising raw material prices, and Hanosimex is one of them. Despite the COVID-19 outbreak last year, Hanosimex’s production has remained largely at full capacity. The company explained that this was because they received the order in advance and purchased enough raw materials in advance. The company’s revenue reached $30.5 million in 2021, reaching 146% of its annual target. Among them, fiber export revenue is twice that of 2020.
A report from Vietnam Textile and Garment Production Group (Vinatex) shows that the company’s revenue last year increased by 10% year-on-year, and its pre-tax profit doubled year-on-year. The head of its production operations department said half of the growth was due to the company’s right investments in raw materials. In order to meet the fiber demand in 2022, Vinatex also invested in the construction of two modern fiber factories in 2021 amid the novel coronavirus infection (COVID-19 virus) pandemic.
At present, several larger textile and apparel companies in Vietnam have stated that orders for the first quarter have been filled, and their market expectations for 2022 are also relatively optimistic.
While the Southeast Asian textile market is recovering strongly, we cannot help but worry about the return of domestic orders. The phenomenon of reverse order flow is occurring.
The phenomenon of reverse flow of orders appears
It is less likely that orders will flow in again
Since the second half of 2020, the prosperity of China’s textile industry has rebounded significantly, showing a unique momentum compared with its global textile peers. The fundamental reason is that China has achieved unprecedented success in fighting the epidemic, ensuring the stable operation of the supply chain and giving full play to the comprehensive advantages of China’s manufacturing industry. At the same time, there is also a factor that cannot be ignored, that is, the textile industry in India and other Southeast Asian countries has been hit hard due to the epidemic, and a large number of orders have returned to China.
Affected by the epidemic, exports of the garment industry in India and other Southeast Asian countries have shrunk severely, and some orders for textiles have been transferred to China. The person in charge of a textile company in Jiangsu said that some orders originally from India returned to my country due to the repeated local epidemics that led to insufficient operating rates of textile companies. In recent years, Indian companies have posed a great challenge to Chinese companies in mid- and low-end home textile products. India is particularly good at mid- and low-end projects, with cheap raw materials and low labor costs. In addition, China also has tariff restrictions, which has resulted in an unusual flow of such projects to India. Many, such as the white towels commonly found in restaurants. Taking towels as an example, the price difference between Chinese and Indian products is between 10% and 30%, which does not include additional tariffs imposed due to the trade war. Nowadays, the Indian textile industry has been hit hard by the impact of the new crown epidemic, and some orders have been transferred to China considering safety.
Now that the epidemic in Southeast Asian countries has been brought under control, orders have begun to flow back to the local areas steadily. It is expected that with the vaccine already available, the possibility of Southeast Asian textile and apparel orders flowing into China again this year is relatively small. As overseas production capacity will gradually recover, and affected by various factors such as freight, raw material prices, and industrial safety, it is expected that the export growth rate of the textile industry may slow down.
We need to be alert to the risks behind the reverse flow of orders this year
If you just think that orders will be lost due to the reverse flow of orders, you may be oversimplifying the problem. In fact, with the transfer of orders, crises are everywhere and risks are hidden. The following credit risks are prone to occur during the order transfer process:
Cancel the order or ask for a substantial profit margin. The reason is simple. When there are a large number of suppliers for buyers to choose from, the buyer’s status will be improved. Significantly lowering prices is the most common tactic. Exporters who choose to agree will lose a lot of profits or even lose money on the transaction. If you choose not to agree, once the buyer cancels the order or refuses to accept the exported goods, the losses will be even more severe and it is easy to fall into a dilemma.
One last big deal of blackmail ends the relationship. A large number of claims cases show that there are countless export companies that have suffered losses on the last big order. When a buyer has found a next buyer, there are many people who intend to end the cooperative relationship and change suppliers, regardless of years of friendship, and take advantage of the opportunity to extort money.
entangled in the form of trade disputes. Trade disputes cost not only money, but also time, energy and emotions from both parties. The most common trade disputes are when the buyer withholds payment, refuses to pay or even makes counterclaims on the grounds of quality problems. International lawsuits are too expensive, and settlement is the best outcome. If a settlement cannot be reached, export companies will easily suffer the loss of losing both money and goods. Be prepared for danger when you are in peace, and be prepared for danger. Although the current production schedule for foreign trade orders is fully booked, export companies should still take a long-term view and make early plans for future orders.
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