Complicated developments in the Aden and Red Sea areas have caused major shipping companies such as Yang Ming Line, One, Evergreen Line, Maersk… to avoid going through the Suez Canal, the waterway connecting Asia with Europe and the US. According to New York Timescontainer ships will have to go around Africa’s Cape of Good Hope, making the journey about 40% longer.
With this change in itinerary, shipping lines announced additional fees for Asia-Europe routes, going to the US and Canada. Detour goods also prolong the shipping time by 7-10 days, even 15 days, incurring more costs.
According to feedback from businesses belonging to the Association of Processing and export seafood (VASEP), freight rates to the US and EU skyrocketed in the first days of January, nearly 3,000 USD per trip to the West Coast (USA), which is 55-60% higher than the end of 2023. Similarly, shorebound freight East (USA) increased by 50-70%, to 4,100-4,500 USD.
The shipping fee to the EU alone is 3-4 times higher than at the end of last year, about 4,350 USD-4,450 USD.
Mr. Tran Thanh Hai, Deputy Director of Export Department import (Ministry of Industry and Trade), said that Red Sea tensions have a negative impact on international trade, goods transported by sea between Eurasia and the East Coast of North America take longer and are more expensive.
The increase in transport costs continues, the burden will fall on the shoulders of the commodity chains, i.e. sellers and buyers. “Escalating freight rates are a blow that makes businesses more difficult,” said Mr. Dinh Hong Ky, Chairman of the Board of Directors of Secoin Joint Stock Company.
According to him, construction materials have a large weight, so transportation costs account for a high proportion in the selling price. Therefore, when there are price fluctuations, businesses will be greatly affected.
Orders have just begun to return after a quiet period in 2023. Mr. Cao Huu Hieu, General Director of Vietnam Textile and Garment Group (Vinatex) admitted that businesses in this industry are under pressure to increase input costs from the straight at the Red Sea. “Prices are competing, negotiating every cent. These unpredictable geopolitical developments put pressure on businesses,” Mr. Hieu commented.
Similarly, VASEP assesses that increasing transportation prices may be a new challenge when the price of input products for aquaculture and seafood processing increases, affecting competition and profits of businesses in this industry.
Loading and unloading goods at Cat Lai port, Ho Chi Minh City, November 2021. (Photo: Thanh Nguyen).
In addition to increased freight costs, domestic export enterprises also face the risk of not being able to export goods due to extended shipping time.
Mr. Nguyen Dinh Tung, General Director of Vina T&T Company – a fruit exporter to the US – said that previously the shipping time from Vietnam to the East Coast of the US was about 28 days, but now it has increased by 2 weeks, or 45 days. The day the new goods arrive. This affects the quality of agricultural products, making it impossible for businesses to export, especially fresh fruit.
“Right at the end of this year, fruit coming to the US will not be in time to sell on Tet Giap Thin 2024,” Mr. Tung said. The solution given by CEO Vina T&T is to negotiate with customers for high-cost air transport or ask to reschedule the delivery date.
For textile and garment businesses, Vinatex CEO Cao Huu Hieu said the long shipping process also puts businesses in a difficult position with orders that must be delivered early. This forces them to flexibly mobilize human resources, production lines and renegotiate delivery times with buyers.
For a long time, Vietnamese import-export enterprises often choose the form of “buy CIF, sell FOB” in commercial contracts. With the condition of buying CIF, the goods are delivered at the port of destination, which means the seller is completely responsible when the ship arrives at the port. In FOB sales, the seller is fully responsible when the goods are delivered to the ship at the time and place agreed upon in the contract.
Therefore, with signed contracts, according to Mr. Pham Quoc Long, Chairman of the Vietnam Association of Marine Agents, Brokers and Services, businesses will not be much affected at the present time. Not to mention the cost increase but not as high as during Covid-19. “Vietnamese businesses do not pay that fee, so the impact is not too big,” he said.
But according to Secoin Chairman Dinh Hong Ky, businesses that sign contracts to sell CIF or FOB, meaning who pays the freight, will increase transport prices, and manufacturers will still be directly affected.
“Any step in the value chain increases, causing the final buyer of the product or service to spend more. This means that goods lose competitiveness and businesses’ market share is affected,” Mr. Ky analyzed.
From a management perspective, the representative of the Import-Export Department recommends that industry and logistics associations monitor and update the situation to businesses to proactively plan production, import and export.
For businesses, the Department believes it is necessary to diversify supply sources and learn about rail transportation methods to have different options for delivery methods.
In addition, businesses when signing and negotiating commercial and transportation contracts should have provisions on compensation and liability exemption in emergency situations. Businesses also need to buy insurance to prevent risks and losses when goods have to be transported for extended periods of time or encounter problems while traveling through this route.
According to VietnamBiz.vn
