Forecast of the Prospects of the Vietnamese Packaging Industry in 2024
Packaging is a crucial industry that plays a role in preserving, transporting, and distributing goods. Market Research Future forecasts the Compound Annual Growth Rate (CAGR) for the global plastic packaging market at an estimated 3.6% and for paper packaging at 4.7% from 2023-2030. According to Mordor Intelligence, the Vietnamese plastic packaging and paper packaging markets have CAGRs of 8.39% and 9.73%, respectively, for 2023-2028.
The production of packaging and industrial output are closely linked. Faced with a decline in industrial production, domestic packaging production has also experienced a slowdown in the early months of the year. Specifically, the production of paper packaging in the first quarter of this year did not increase compared to December of the previous year; moreover, consumption levels saw a slight decrease. In the second quarter, there was a modest increase in the production and consumption of paper packaging. The packaging industry is expected to face challenges in 2023, and a resurgence may be achieved if industrial production sees a recovery.
Figure 1: Statistics on the paper packaging market in Vietnam for the first 6 months of 2023 (Source: Paper Industry Newsletter, Packaging Association of Vietnam)
The primary challenges that packaging companies are facing
Vietnam is actively participating in the process of international economic integration. However, when the global economy faces difficulties and slows down, the Vietnamese economy is inevitably negatively affected. The Packaging industry, like many other sectors, also has to deal with a series of challenges in this context. Particularly, with the economic cyclic regulations taking effect in 2024, the challenges for the Packaging industry may become even more daunting.
Firstly, the global economic downturn is casting a shadow over the challenges that the Packaging industry is currently facing.
The most apparent manifestation is in the Industrial Production Index (IIP), which is estimated to have decreased by 0.4% year-on-year in the first eight months of 2023 (up 9.2% in the same period of 2022). Meanwhile, according to a survey by Vietnam Report in August 2023, 25.7% of packaging enterprises had lower revenue than the same period of the previous year. The import and export activities of packaging products also decreased significantly, with total export and import turnover of packaging (calculated on the 2 HS.3923 and HS.4819 groups) reaching 1.07 billion USD in the first six months of 2023, equivalent to only 63.1% of the same period of the previous year; of which, export and import turnover were respectively equal to 77.4% and 36.6% of the same period.
Figure 2: Top challenges facing packaging enterprises (Source: Vietnam Report, Packaging Enterprise Survey, August 2023)
Second, the challenges of packaging enterprises come from competition between competitors in the industry.
This is partly due to the decline in consumer demand for goods, leading to decreased packaging demand. The pressure on packaging manufacturers to reduce costs is increasing to create a competitive advantage. The production capacity of ordinary paper packaging has exceeded domestic demand, with businesses only operating at about 60% of capacity, and packaging production is expected to increase further in the next few years. When potential production is much higher than actual production, manufacturers struggle to find outlets for their products in a saturated market. As a result, issues related to the international market, distribution channels, and exchange rate fluctuations are causing businesses to be even more concerned.
In conclusion, even though banks’ lending rates have decreased and inflation has been kept stable, the lack of liquidity and credit is still hindering the growth potential of businesses. The weak ability to pay interest due to the deteriorating financial situation also limits businesses’ capital in the current situation.
Prospects for the entire packaging industry in the last months of 2023
Forecasts for the Vietnamese economy in the last months of 2023, experts participating in the Vietnam Report survey are more optimistic than in the first months of the year, partly due to the global economy’s gradual recovery and the accelerated public investment disbursement. In addition, the macroeconomy is stable, with the interest rate lowered and inflation under control. The Government has also implemented policies to stimulate consumption to revive aggregate demand, such as reducing the 2% value-added tax.
Figure 3: Top 4 key solutions for packaging enterprises in the coming time (Source: Vietnam Report, Packaging Enterprise Survey, August 2023)
The packaging industry is unlikely to achieve breakthrough growth in the last months of this year. Still, a slight recovery scenario is possible as the IIP has been upward since the middle of the second quarter. To adapt to the current economic situation, packaging enterprises prioritize short-term solutions such as Expanding the market (66.7%) and diversifying raw materials suppliers (80.3%).
In the long term, the critical solution businesses implement is to strengthen risk management measures for finances, price fluctuations, and the quality of raw materials, with a selection rate of 100%. In addition, the sustainable development strategy of environmental protection is increasingly being applied by businesses in the industry, especially according to the regulations of the 2020 Environmental Protection Law; by January 2024, companies will be required to implement the extended producer responsibility (EPR) model.
Vietnamese packaging: Potential for export to demanding markets
Packaging is an essential link in many value chains, including the packaging of products in consumer goods, healthcare, construction, transportation, apparel, and many other industries.
Based on the potential packaging production capacity, along with the new generation free trade agreements that Vietnam has signed, such as the Vietnam-EU Free Trade Agreement (EVFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the Regional Comprehensive Economic Partnership (RCEP), Vietnamese packaging products exported to member countries are eligible for a tariff of 0% or nearly 0%.
This is an excellent opportunity to increase the competitiveness of Vietnamese packaging products in the global market, while very few other competitors enjoy this tax rate.
Figure 4: Export value of packaging in the period January 2022 – June 2023 (Source: IMF Trade Map)
The export potential is based on favorable free trade agreements (FTA) conditions. Vietnam has signed 16 bilateral and multilateral FTAs, which facilitate international trade, and the packaging export also benefits from this. Considering the period from January 2022 to the end of June 2023, the market price of two groups, HS.3923 and HS.4819, respectively representing plastic packaging and paper packaging, the four most significant export markets for packaging from Vietnam are the United States, Japan, South Korea, and Germany; followed by the United Kingdom, the Netherlands, Australia, and Cambodia.
The value of exports to these eight markets accounts for 75.5% of Vietnam’s packaging exports. In this period, packaging exports to 27 countries with a value of over 10 million USD accounted for 96.4% of the packaging exports. Most of these countries are members of at least one FTA that Vietnam is a member of. The import duty rates for packaging products in these markets are mostly 0.0%; a small number of items are still subject to duties, but none are more than 5.0%.
Vietnamese packaging businesses can take advantage of free trade agreements (FTAs) opportunities to expand their markets, which is one of their long-term strategies. The position of Vietnamese packaging in the international arena can be further enhanced when supply chain issues are gradually cooling down and the difficulties of input material costs are reduced thanks to reduced logistics costs. In addition, the trend of using paper packaging is being pushed harder than ever before, and general paper businesses have more opportunities for exporting these products.
In addition to the exogenous factors provided by FTAs, endogenous factors such as production capacity, operational risk management, and especially supply chain risk management play an essential role in leveraging the export potential and maintaining the competitiveness of the Vietnamese packaging industry. Therefore, businesses need to flexibly supply products suitable for foreign markets, stabilize production, and take advantage of the advantages of FTAs in bringing packaging products to many demanding markets.
Source Vietnam Report
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