Delta Wave in Southeast Asia Redirects Manufacturing Orders to China, Reshaping Packaging Demand

The Delta variant continues to spread, pushing new infections in several Southeast Asian countries to fresh highs and making the region one of the world's most severely affected areas. Low vaccination coverage and uneven containment have sent shockwaves through global supply chains; apparel, textiles and semiconductors are at risk of disruption, orders are moving elsewhere, and the consequences are being felt by both China's economy and worldwide sourcing networks.

Vietnam: more manufacturers close, over 35% of garment factories halt work

Vietnam's current outbreak has reached a critical point. Hanoi's lockdown has been extended to August 22, while Ho Chi Minh City will remain locked down until September 15. As of the 18th, the country had 180,272 active cases, 302,101 cumulative cases and 6,770 deaths. The pandemic has driven a sharp rise in manufacturing closures. In the first half of the year, 70,209 Vietnamese businesses shut down, up 24.9% year on year. Textiles, a pillar industry, has been hit hard, with 35% of firms forced to suspend operations.

Indonesia: fifth extension of restrictions, MSMEs close in waves

Indonesia, the world's fourth most populous nation and Southeast Asia's largest economy, faced its second major outbreak this summer. As of the 18th, COVID-19 cases rose to 3,908,247, with 15,768 new cases and 121,141 cumulative deaths. The government announced a fifth extension of emergency restrictions, effective until the 23rd of this month. Data from the Indonesian association of micro, small and medium enterprises shows the pandemic has forced more than 30 million MSMEs to close. SHEIN, the largest cross-border fast-fashion player and a Chinese brand, stopped operating in Indonesia on July 29.

Malaysia: movement control continues, semiconductor manufacturing strained

Malaysia's latest COVID-19 wave has escalated since July, and the current lockdown is being extended indefinitely. In the global semiconductor market, Southeast Asia accounts for 27% of the industry, while Malaysia alone represents 13%. Under control measures, some semiconductor companies still have to shut down part of their production lines at the government's request, adding further pressure to a supply chain already tight on capacity.

Philippines: Delta reaches nationwide, lockdown in force

The Delta variant has now spread throughout the Philippines. The capital, Manila, re-entered lockdown on August 6. As of August 19, the Philippines recorded 105,151 new confirmed cases, 1,776,495 cumulative cases and 30,623 deaths. During the lockdown, only essential businesses may operate normally, and each household is allowed just one person to go out for necessities, leaving many residents facing unemployment.

Thailand: highest-level controls in 29 areas

On August 16, Thailand's government COVID-19 situation administration center announced that lockdown, curfew and other measures in 29 maximum-level control areas nationwide, including Bangkok, would be extended to August 31. For work arrangements, employees are required to keep working from home, internal quarantine facilities must be prepared, and companies with more than 100 employees must adopt closed-loop management. On August 20, Thailand signed a mini free trade agreement with China's Hainan Province, which should create more opportunities for Thai businesses, especially SMEs, in traditional trade and investment as well as broader cross-border e-commerce cooperation.

For China, the outbreak across Southeast Asia presents both a crisis and an opportunity. Factory operations have stalled in the region, raising risks at the end of global supply chains. Yet China's industrial chain has the world's most complete industrial system and unmatched upstream and downstream supporting capabilities. Combined with the scale and clustering effects of its manufacturing sector, these strengths are clear. The Chinese government's strict and efficient pandemic response has won public support and quickly curbed the spread. With Southeast Asia now struggling, China is naturally the preferred destination for buyers shifting orders, and many Southeast Asian orders have already returned to China.

Not long ago, Adidas said capacity at most of its suppliers in Vietnam has been unavailable since mid-July and expects a USD 600 million sales loss in the second half of the year as a result.

Meanwhile, U.S. footwear provider Wolverine World Wide has moved part of its capacity back to China this year. A company executive said supply conditions in Southeast Asia are highly unstable.

Reports indicate that Apple moved its AirPods production lines from China to Vietnam starting in 2020, but COVID-19 forced the company to return to China for large-scale production of AirPods3.

Normally, the packaging industry would not suddenly accelerate, but COVID-19 has clearly brought an extraordinary shift to the carton sector, which occupies an important position in packaging.

Over the past 18 months, city lockdowns of varying levels have pushed millions of consumers from offline spending to online buying. That shift has brightened the outlook for the USD 350 billion paper packaging industry at the heart of the e-commerce economy. According to consulting firm Smithers, the volume of cardboard used to ship goods from retailers to households jumped by nearly 40% last year.

Carton packaging companies that were once little known now see their shares eagerly pursued by many types of investors. Since the stock market hit its pandemic low in March 2020, London-listed Smurfit Kappa Group has climbed 84%, rival Mondi has gained 58%, and New York-listed International Paper has nearly doubled.

Investors enthusiastic about the sector's prospects are not relying only on the pandemic to accelerate the shift to e-commerce. Paper packaging is also viewed as an environmentally friendly industry, as consumer-facing companies replace plastic packaging with more sustainable alternatives. Businesses are enjoying a structural tailwind from e-commerce demand, and the industry is seeing customer preferences and investment move toward sustainable packaging solutions.

Under policy direction and market consumption trends, environmental sustainability will become a key focus for the packaging industry's future development. At the same time, because the pandemic has made production difficult across multiple regions, consolidation among packaging companies will also become a future priority. Through consolidation, companies can operate in several regions, improving their resilience against risk while supporting their own innovation and growth.

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-378107.html